It may not be too late to fix it. If your A/B trust required a division after your spouse died and that never happened, the first step is to figure out what the trust required and what the trust owned on the date your spouse died.
That may mean reviewing the trust, old deeds and financial records. If the trust owned real estate, you may also need an appraisal showing what the property was worth on the date of death. That value can matter when dividing the trust and determining the property's tax basis.
Waiting years can make the job more complicated, especially if property was later sold, refinanced, transferred or mixed with other assets. But the passage of time does not necessarily make the trust's requirements disappear. California law generally requires a trustee to administer a trust according to its terms.
Here's a real West Hills example. A home built in 1959 sold for $171,500 in 1995 and $401,000 in 2003. Today, that same property is listed for about $1.15 million.
Now change the facts a little. Imagine a married couple bought a similar West Hills home years ago and later transferred it into an A/B trust. One spouse dies, but nobody splits the trust. The surviving spouse simply keeps living in the house. Ten or fifteen years pass.
Then the family finds the old trust and realizes part of it was supposed to become irrevocable when the first spouse died.
Now they may have to go back and figure out what the house was worth when the spouse died, what portion should have gone into Trust B, and what happened to the property after that.
That's why doing nothing with an old A/B trust can become more complicated as the years pass—even when the surviving spouse simply stayed in the same house and everything seemed fine.
The property facts are based on a real West Hills home. The trust and family facts are hypothetical and do not describe the actual homeowner.
Source: Zillow
Not necessarily. If an A/B trust required the trust to be divided when your spouse died, waiting several years does not automatically erase that requirement. The trustee may still need to determine what property belonged in each trust and document the division.
The difficult part is usually reconstructing what should have happened years ago. You may need old deeds, bank or investment records, and date-of-death values. The cleanup can become more complicated if assets were sold, refinanced, transferred, or mixed together after your spouse died.
California law generally requires a trustee to administer a trust according to its terms. What can be done now depends on the trust language and what has happened to the assets since the first spouse's death.
Source: California Probate Code § 16000
Because you may need to know what the house was worth when your spouse died, not what it's worth today.
That date-of-death value can matter for two different reasons. First, if an A/B trust should have been divided years ago, the old value may help determine how much property should have been allocated to each trust. Second, a spouse's death can change the tax basis of property. That basis may later affect how much taxable gain is reported when the house is sold.
A qualified appraiser may be able to prepare a retrospective appraisal estimating the property's fair market value as of the date your spouse died. Keep in mind: the longer you wait, the harder a retrospective appraisal may become. Records disappear, properties change, and supporting a date-of-death value years later can become more difficult if the IRS ever questions it.
Source: IRS Publication 551
If your spouse has lost capacity, they generally can no longer personally amend their revocable trust. A successor trustee may be able to step in and manage the trust assets, but becoming trustee does not automatically give that person the power to rewrite the trust.
A person acting under a power of attorney also does not automatically have authority to change a trust. California law requires certain trust-related powers to be expressly granted in the power of attorney. The trust itself must also be reviewed to determine what powers exist and whether any portion became irrevocable when the first spouse died.
If the trust cannot be changed privately, that does not always end the inquiry. California law provides procedures for modifying or terminating some irrevocable trusts, sometimes with beneficiary consent and sometimes with court approval.
So the first question is not simply “Who is the new trustee?” It is “What does this trust allow, what does the power of attorney allow, and which parts of the trust are still legally changeable?”
