Services provided in the Basic Trust Administration Package for Trust owning one real property. Cost is $695

Attorney review of the trust

Notice to beneficiaries of trust and heirs as required by California Probate Code Section 16061.7

Form SS-4 and Third Party Certification for signature for Federal Tax Number

Prepare and record the Preliminary Change of Ownership Report Form

Prepare and record Affidavit Death of Trustee with County recorder for one house or real property ($149 for each additional real estate property)

Additional services

Prepare and record parent to child exclusion Form with the County Recorder ($95)

Trust transfer (quit claim) deeds out of trust into names of beneficiaries ($149)

Accounting and tax preparation services ($220 per hour)

Additional legal representation ($240 per hour)

Call 949-474-0961 or email Mark@DeedAndRecord.com for quote to verify costs.

Checklist of information and documents needed

• Address of each person named in the trust
• Address of real property owned by the trust
• Address of Successor Trustee
• Name and address of surviving spouse, if any, and each surviving child and each deceased child
• Original death certificate

Affidavit Death of Trustee

This document is a declaration, under oath, by the successor trustee. The successor trustee declares the owner has died and attaches a certified copy of the death certificate. The successor trustee further declares he or she is authorized to take control of the real estate property according to the terms of the trust.

The affidavit is filed with the county recorder or the Bureau.  It is now of public record the successor trustee has the authority to take control. Control is limited to what is directed by the trust. Typically, the trust directs the successor trustee to distribute the real estate property to specified persons.

Quit Claim Deed

The second step is preparing a quit claim deed from the trust to the beneficiaries of the trust or entering into a listing agreement for the sale of the real property. If sold, the proceeds from the sale of the real property are distributed to the persons identified in the trust and quit claim deed is not needed.

A quit claim deed does not contain any implied warranties. The successor trustee who “quit claims” real estate simple conveys whatever ownership interest the trust has along with any debt or loans secured by the property. The successor trustee makes no promises and the property is taken “as is.” A quit claim is the easiest and cheapest way to transfer ownership out of a trust.

Parent-child and grandparent-grandchild real property transfers in California

Real property and land transfers from parent to child and from grandparent to grandchild have documentary tax, property tax and capital gains tax traps and tax savings.  Change in California real estate ownership may incur documentary transfer tax and capital gains tax. Ownership changes may increase future property taxes. For simplicity, the term "parent-child exclusion" refers to both the parent-child exclusion and the grandparent-grandchild exclusion.

Change in ownership of real property increases the base for property tax. The increase is either the sale price or the market value at date of ownership change. California excludes the first $1 million plus the principal residence of the parents in parent-child transfers. ‘Claim for Reassessment Exclusion for Transfer between Parent and Child’ form must be filed within three years after the date of the transfer to obtain this exclusion. 

Parent-child real property transfers do not incur capital gains tax. But the future sale of the real property will incur capital gains tax. The capital gains tax is on the difference between the parent’s purchase price to acquire the property and the sales price. The parent’s purchase price is adjusted for improvements to the property and depreciation, if any.  The purchase price plus improvements less depreciation is the ‘basis’ for a capital gains tax.

A transfer while the parent is living is a gift. In legal jargon an ‘inter vivos’ gift. The purchase price paid by the parent, (the basis) transfers with the property. The child assumes the parent’s basis or purchase price in the property. Any future sale will incur a tax on the difference between the parent’s basis and the sales price.

A transfer or inheritance due to death receives a ‘step-up’ in basis. The parent’s purchase price or basis disappears. The new basis is the market value of the real estate on the date of death of the parent. A sale in the future incurs capital tax on the difference between the market value on date of parent’s death and the sales price.

The last tax on land and real property transfers is the documentary tax. This tax currently is $1.10 per thousand dollars plus any local government additions. The California Revenue and Taxation Code Section 11930 exempts all grants, assigns, transfers or conveys that are gifts or transfers due to death. But the grant deed or quit claim deed must state under penalty of perjury on the face of the deed this exemption to avoid the documentary tax.

Trust Administration on Death of First Spouse: Funding of Bypass Trust and Survivor’s Trust

Often a trust directs on the death of the first spouse the trust is to be divided into two separate trusts, a bypass trust and a survivor’s trust. The purpose of the two trusts is to preserve the deceased spouse’s exemption from the estate tax. The estate tax is often referred to as the death tax.

Deed and Record prepares the affidavit death of first spouse and the quit claim transfer deed; prepares and files required transfer tax exemptions and records the affidavit and deed with the proper government authority.

The affidavit of death is a declaration, under oath, by the surviving spouse. The surviving spouse declares the other spouse has died and attaches a certified copy of the death certificate. The surviving spouse further declares he or she is authorized to take control of the real estate property according to the terms of the trust.

The affidavit is filed with the county recorder.  It is now of public record the surviving spouse has full and sole authority to take control of the real estate property.

The second step is to prepare and record a quit claim deed to fund the Bypass Trust and Survivor’s Trust. This step requires a division of all assets owned by husband and wife. A review of the trust document, notification to heirs of the creation of the Bypass trust and division of assets is required. The services of an attorney are required at this stage.

To consult with an attorney call Mark W. Bidwell at 949-474-0961. For more information please go to www.BidwellLaw.com.

Seven Steps to Prevent Liability

and Protect the Successor Trustee

Successor Trustees to trusts owning real property need to take these seven steps to avoid personal liability and for the smooth administration, distribution and closing of the trust estate.

First, California law requires the Successor Trustee to provide written notice to beneficiaries of the trust and heirs the decedent. This notice must be provided within 60 days from date of death.  Information provided is how to contact the Successor Trustee, time limit on a challenge to the trust and how to obtain a copy of the trust.

The exact requirements of this notice are found in California Probate Code Section 16061.7. A trustee who fails to serve the notification as required by Section 16061.7 on a beneficiary is responsible for all damages, attorney's fees, and costs caused by the failure.

The second step is to obtain a Federal Tax Identification Number by completing Form SS-4. After date of death the decedent’ estate becomes a separate taxable entity. State and Federal income tax returns must be filed until all assets of the estate are distributed. If the Successor Trustee distributes all the assets of the trust and a tax liability remains, the Successor Trustee may have to personally pay the tax due.

The third step is to file a Preliminary Change of Ownership Report form with the County Recorder. The Successor Trustee avoids personal liability for property tax increases by putting the County on notice of change of ownership in real property due to the death of the decedent. The property tax base is adjusted to market value at date of death. 

The fourth step is for the Successor Trustee to file a “Parent to Child Exclusion Form” with the County Recorder. Death results in a change in ownership which changes the base for property tax. The new base is the market value at date of death. California excludes the first $1 million plus the principal residence of the parents in parent-child transfers. The exclusion also applies to grandparent to grandchild transfers.

To obtain the exclusion the ‘Claim for Reassessment Exclusion for Transfer between Parent and Child’ form must be filed within three years after the date of the transfer to obtain this exclusion. Best administration practices require filing as soon as the Trustee knows the property will be transferred to children or grandchildren of the decedent. 

The fifth step is for the Successor Trustee to take control of the real property. To take control the Successor Trustee must file an affidavit of death of trustee in the county where the real estate is located. The affidavit provides the Successor Trustee authority to either sell or transfer the real property.

The sixth step is an ongoing duty to keep an account and periodically provide financial reports to the beneficiaries of the trust. An accounting is needed from the date of death to the final distribution of assets of the trust. An accounting keeps beneficiaries informed and provides transparency in the administration of the trust. An accounting also provides information needed for filing federal and state tax returns for the trust.

The seventh step is to administer the trust in a timely manner and maintain ongoing communication with the beneficiaries. Procrastination is the successor trustee’s biggest problem. Lack of communication is the next. Beneficiaries become more anxious and hostile as time goes on.  The competency and integrity of the successor trustee is questioned.  A successor trustee who does little or nothing and who fails to communicate will find himself or herself named as a defendant in a lawsuit.

The services in this article are provided by Mark W. Bidwell, a California licensed attorney. Services are marketed through websites, primarily DeedAndRecord.com.  Office is located at 18831 Von Karman Avenue, Suite 270, Irvine, California 92612. Phone number is 949-474-0961. Email is Mark@DeedandRecord.com.