Personal Finance: Ask the Experts

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

June 3, 2013
How can a trustee be reimbursed for trust expenses paid from the trustee's personal funds?

My mother has a living trust that leaves her house to her two grandchildren and the rest to her four children. Two years ago, she went into a care home and acting as Trustee, I took over all the bills, including a second on the house, taxes, etc., because her income is only enough to cover her care. If she was to die today, how would I settle the trust and be compensated for the thousands of dollars I've paid from my own money when her only real asset, other than a small IRA, is the house? The grandchildren do not want to sell the house. The house is currently being rented by one of the grandchildren but the rent and any sold assets, such as her car, are paying down my mother's old debt and home repairs/ improvements. Thank you for your time.

M., Rio Linda

A: One of the obligations of a trustee is to pay all of the debts of the deceased settlor before the assets of the trust pass to the beneficiaries. While it is very generous of you to do so, you should know that, as a trustee, you are under no personal obligation to pay any expenses relating to your mother's assets, such as maintaining her residence. If you voluntarily decide to continue to do so, the law provides that, at your mother's death, her debts are to be paid in the following order: debts owing to the United States or the State of California (such as taxes), administration expenses (such as your fees for acting as trustee), mortgage obligations on a residence, funeral expenses, expenses of last illness, family allowance (a court order must be obtained for this expense), wage claims of any persons employed by your mother, and general debts. Reimbursement to you for the expenses you have paid would fall into the category of general debts.

Once the nature of the debts is determined, then you must consider the order in which the assets of the trust may be used to satisfy the debts. Given the information you have provided, the property that goes to you and your three siblings would be used first to pay her debts. If that property is insufficient, then the equity in the house would be used to pay those debts. While the grandchildren may not wish to sell the house, neither can they succeed to ownership of the house if your mother's debts have not been paid. One way for them to keep the house and still ensure that your mother's debts are paid is to refinance the house in their own names, taking out sufficient cash to pay those debts. If they are not able to do this, then you have authority as trustee to sell the house to pay those debts. While this is likely the least desirable result, it must be remembered that creditors are entitled to be repaid for debts incurred by the settlor during the settlor's lifetime.

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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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