Probate Code Revision
Effective January 1, 2022, California revised the Probate Code. Normally, when a trust is revocable, the fiduciary duties of a trustees are owed only to the person having the power to revoke. However, The new revision states that when the settlor becomes incapacitated, the new trustee must, within 60 days of obtaining information establishing the incompetence of the settlor, send out a complete copy of the operative trust instrument to the remainder beneficiaries. The trustee at that time also must provide accounting to the remainder beneficiaries. To summarize, the fiduciary duties of trustees kick in and become owed to beneficiaries even while the settlor is still alive.
For Example
Let’s assume the simplest example of what we call an “A” Trust. In this scenario, the predeceased spouse left everything to the survivor, and all of the assets are in a trust revocable by the survivor. The surviving spouse is also the trustee. Let’s assume the surviving spouse’s cognitive abilities become challenged, and they are deemed incompetent.
Assume a corporate trustee, such as a child, is named as successor trustee. How do they take over at that time? Usually, the process begins with a family member questioning capacity. It might be an officer of the trust company. The best outcome is when the settlor knows they have declining capacity and resigns.
Once a new trustee takes over, they generally get access to the bank account and asset information. They need this information to be able to do the annual accounting. Once they assume this position, they become a fiduciary for tax reporting purposes.
Check out the next part of our series to learn about the tax duties of trustees.
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