Benefits for Families with MultiState Assets

Emily came to see me last week, utterly distraught. Her mother had passed away six months prior, leaving behind a trust – a seemingly well-crafted document. But her mother owned properties in California, a vacation home in Oregon, and a small investment account held in Florida. Emily’s brother, acting as trustee, had already distributed the California assets, but hadn’t addressed the out-of-state holdings. It turned out he was unaware of the significant tax implications, and now Emily was facing a potential bill of over $30,000 in unexpected penalties and reassessments. This is a surprisingly common scenario, even with seemingly simple trusts.

As an estate planning attorney and CPA with over 35 years of experience, I’ve seen firsthand how easily multi-state assets can complicate the administration of a trust. The problem isn’t necessarily the trust itself, but rather the divergent state laws and regulations governing those assets. My dual background allows me to navigate these complexities seamlessly, minimizing potential pitfalls for my clients and maximizing the benefit of a step-up in basis – a key advantage often overlooked.

What specific challenges arise with real estate in multiple states?

The biggest issue is often property tax. Each state has its own rules regarding reassessment upon transfer of ownership. Here in California, Prop 19 is particularly relevant. Before distributing a parent’s home to a child, the trustee must verify if the child intends to make it their primary residence within one year; failure to file the proper exclusion claim forms will trigger a property tax reassessment to current market value, potentially forcing a sale. This is a non-intuitive rule, and many trustees simply don’t know it exists. It’s a ticking time bomb waiting to happen if not addressed proactively. Oregon and Florida have their own nuances, and understanding them requires specific local knowledge.

How do I handle trust assets located in states with different probate codes?

Even if the trust document is valid and well-drafted, ancillary probate may be required in states where real estate or other significant assets are located. This essentially means going through a streamlined probate process in each state, even though the primary trust administration is happening in California. This adds both time and expense to the process, and increases the risk of errors. More importantly, each state has its own requirements for notifying heirs and beneficiaries. Probate Code § 16061.7 stipulates that the trustee must serve the ‘Notification by Trustee’ to all heirs and beneficiaries within 60 days of the settlor’s death; this triggers the 120-day statute of limitations for contesting the trust, which is the trustee’s primary shield against future litigation. Missing this deadline can open up the estate to significant legal challenges.

What if an asset was accidentally left out of the trust?

Unfortunately, it happens. Sometimes a deed isn’t properly transferred, or an account is forgotten. For deaths on or after April 1, 2025, if a primary residence intended for the trust was legally left out (valued up to $750,000), the trustee can use a ‘Petition for Succession’ under AB 2016 (Probate Code § 13151) instead of a full probate. This is a much simpler process. It’s important to understand that this is a “Petition” (Judge’s Order), NOT an “Affidavit.” We also need to consider the Small Estate Affidavit process as a potential alternative. The choice depends on the specific circumstances and the asset’s value.

What about ongoing reporting requirements for the trust itself?

Trustees have a legal duty to keep beneficiaries informed, and that includes providing regular accountings. Probate Code § 16062 states that trustees are legally mandated to provide a formal accounting to beneficiaries at least annually and at the termination of the trust; waiving this requirement in the trust document does not always protect the trustee if a beneficiary demands a report. Furthermore, if the trust holds business interests, particularly LLCs, there may be additional reporting obligations. As of March 2025, domestic U.S. LLCs managed by the trust are exempt from mandatory BOI reporting under the FinCEN 2025 Exemption; however, trustees managing foreign-registered entities must still file updates with FinCEN within 30 days of the settlor’s death.

Are there any estate tax considerations with multi-state holdings?

The federal estate tax exemption is substantial – currently $15 million per person, thanks to the OBBBA effective Jan 1, 2026. However, trustees must determine if the estate exceeds this threshold (considering portability election rules) before closing administration. Also, a CPA’s understanding of the step-up in basis is invaluable. By properly valuing assets and coordinating with state tax authorities, we can minimize capital gains taxes and maximize the benefit to the beneficiaries. A qualified CPA can identify deductions and strategies that an attorney alone might miss.

How do California trustee duties and funding rules shape the outcome for beneficiaries?

California trusts are designed to bypass probate and maintain privacy, yet they often fail when assets are not properly funded, trustee duties are ignored, or ambiguous terms trigger disputes. Even with a signed trust document, families can face court battles if the “operations manual” of the trust isn’t followed strictly under the Probate Code.

Ultimately, the success of a trust depends on the details—proper funding, clear terms, and a trustee willing to follow the rules. By anticipating friction points and documenting every step of the administration, fiduciaries can protect the estate and themselves from liability.

Verified Authority on California Trust Administration

• Mandatory Notification (Probate Code § 16061.7): California Probate Code § 16061.7
  The first critical step in administration. This statute requires the trustee to notify all heirs and beneficiaries within 60 days of death. It starts the 120-day clock for any contests, limiting the trustee’s liability.
• Trustee’s Duty to Account (Probate Code § 16062): California Probate Code § 16062
  Defines the requirement for annual and final accountings. Trustees must report all receipts, disbursements, and changes in asset value to beneficiaries to ensure transparency and avoid surcharges.
• Primary Residence Succession (AB 2016): California Probate Code § 13151 (Petition for Succession)
  Effective April 1, 2025, this statute is a “rescue” tool for administration. If a home (up to $750,000) was left out of the trust, the trustee can petition for this order rather than opening a full probate.
• Property Tax Reassessment (Prop 19): California State Board of Equalization (Prop 19)
  Trustees must understand these rules before signing a deed to a beneficiary. Distributing real estate without filing the Parent-Child Exclusion claim can accidentally double or triple the property taxes for the heirs.
• Estate Tax Exemption (OBBBA): IRS Estate Tax Guidelines
  Reflects the OBBBA permanent increase to a $15 million per person exemption (effective Jan 1, 2026). Trustees must evaluate if an IRS Form 706 is necessary to preserve “portability” of the unused exemption for a surviving spouse.
• Digital Asset Access (RUFADAA): California Probate Code § 870 (RUFADAA)
  Without explicit authority under this statute, a trustee may be blocked from accessing the decedent’s online banking, email, or cryptocurrency accounts, stalling the administration process.