A trustee takes responsibility for managing money and assets set aside in a trust for the benefit of another person. Along with this financial responsibility comes tax duties. A trustee must file complete and accurate tax returns and pay taxes when they are due. Here are a few things for a trustee to keep in mind regarding taxes:
If the Taxpayer Has Diminished Capacity, a Trustee Can Step In
Sometimes, a taxpayer could be incapacitated, a judicial determination that a person is without understanding or is of unsound mind. A trustee might wonder who signs the tax return and how it gets filed in such circumstances. A trustee for an incompetent or incapacitated taxpayer will sign their name for the individual and file Form 56, Notice Concerning Fiduciary Relationship.
Property Ownership Change = Increased Property Value
An increasing number of situations are happening where a new trustee takes over and finds out that a property transfer might have previously taken place that would have resulted in an ownership change. This situation requires a property to be reassessed for CA property tax purposes. Proposition 13 generally lets counties increase property value by 2% when a change of ownership occurs. So when does a change in ownership occur? The rules are complicated. Sometimes there is a change in ownership when the beneficiaries of a trust change.
What Happens if the Trustee Does Not Carry Out Tax Duties?
Generally, courts take a pretty strict view when the trustee does not carry out their essential tax duties. In general, a trustee must exercise due care and diligence. Most states, including California, have found a trustee can be liable for interest and penalties where the trustee negligently or willfully falls below the standard. Furthermore, the estate can be harmed if real estate taxes are not paid promptly.
Law & Stein Is Here to Help Trustees
Are you a trustee with questions regarding your tax responsibilities? At Law & Stein, LLP, we offer legal counsel to trustees or trust beneficiaries to ensure that all legal and tax duties are carried out correctly. Regardless of the type of trust, we can handle even the most complicated matters with skill and efficiency. Contact us today to learn more.