Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

August 16, 2012
What should I do regarding my trust when my spouse dies?

Q: My wife and I are trustees on our Revocable Trust. My wife died recently. My question: What do I do now regarding the trust? I've received different advice such as do nothing to I must file a tax return. What about time frames for acting? Also, I understand that any shares of stock gets a step-up in basis, either a 100% or 1/2 step-up. How do I accomplish this step-up? -- Lewis, Rio Linda, CA

A: I am sorry for your loss. While Revocable Trusts, often called Living Trusts, serve a number of useful purposes, there are many important steps that must be completed following a death. I strongly recommend that you consult with a lawyer experienced in trust administration to explain the process and assist you. A complete answer to your questions requires more space than I have here and depends on the unique facts of your situation and the specific provisions of your trust.

There are important deadlines to keep in mind. Depending on the structure of your trust, you as trustee may be required to send notifications to all of the heirs and beneficiaries under the trust stating that your wife has died and a portion of the trust has become irrevocable; these notifications should be sent within 60 days of her death, but if more time than that has passed, it is still important to send them. Qualified disclaimers, used for tax planning, must be made within nine months of death, but the strict rules governing them should be considered immediately. Estate tax returns are due nine months from date of death. These are some of the many relevant deadlines, but I have not listed them all.

Many trusts established by married couples split into subtrusts - often called a Survivor's Trust, a Credit (or Credit Shelter or Bypass) Trust, and a Marital Trust -- following the death of the first spouse. The successor trustee is required to follow the terms of your trust and transfer the assets that were held in the Revocable Trust into the newly created subtrusts. This will require re-titling assets into the name of the appropriate subtrust, and may, depending upon the subtrust terms, require that you obtain tax identification numbers and file income tax returns for certain subtrusts.

For deaths in 2012, a federal estate tax return is required for estates in excess of $5,120,000. This amount will be reduced to $1,000,000 for deaths in 2013, unless the law is changed. An estate tax return may be required or advisable for smaller estates depending upon the particular facts of your situation.

Your wife's separate property assets and any community property assets you own together will receive a stepped-up basis to the value as of the date of her death. You will need to document the date of death values for the these assets and keep this information in your records. You may need appraisals for certain assets such as real estate. You do not need to report these values now unless an estate tax return is required. However, you will need this documentation to prove the stepped-up basis when the assets are sold.

These are some of the most common issues to consider with regard to a basic trust administration, but every situation is different. Consulting with a lawyer experienced in trust administration will inform you regarding the exact steps you need to take based on your situation.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at cbuck@sacbee.com

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.



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