How to Distribute Trust Assets in California: A Practical Guide

You've administered the trust, paid the debts, filed the tax returns, and waited for the contest period to expire. Now it's time for the final step: actually distributing assets to beneficiaries.

But how do you transfer a house? Move investment accounts? Divide personal property fairly? This guide covers the mechanics of distributing different types of trust assets in California.

Before You Distribute: Final Checklist

Before making any final distributions, confirm:

☐ 120-day contest period has expired Calculate 120 days from when you sent the statutory notices. Don't distribute until this deadline passes.

☐ All debts are paid Outstanding creditors can pursue beneficiaries if you distribute before paying valid debts.

☐ Taxes are handled File all required returns and pay taxes due—or reserve sufficient funds.

☐ Trust terms are clear Understand exactly what each beneficiary should receive.

☐ Funds are reserved Keep enough for final administration expenses and unexpected claims.

Distributing Real Estate

Option 1: Transfer to One Beneficiary

If the trust gives real estate to a single beneficiary:

Step 1: Prepare the Trustee's Deed

A trustee's deed (also called a grant deed from trustee) transfers title from the trust to the beneficiary.

The deed must include:

• Legal description of the property
• Trust name and date
• Your name as trustee
• Beneficiary's name
• Statement that you're acting as trustee
• Your signature (notarized)

Step 2: Complete the Preliminary Change of Ownership Report (PCOR)

This California form accompanies the deed and provides information for property tax purposes.

Step 3: Record the Deed

File the deed with the County Recorder's office where the property is located.

Recording fees: Approximately $25-$75 plus $3 per page.

Step 4: Provide Documents to Beneficiary

Give the beneficiary:

• Copy of recorded deed
• Copy of title insurance (if available)
• Property tax information
• Any relevant disclosures

Option 2: Transfer to Multiple Beneficiaries

If multiple beneficiaries receive the property together:

Step 1: Determine How They'll Hold Title

Options include:

• Tenants in common (each owns a percentage)
• Joint tenants with right of survivorship
• Community property (if married couple)

Step 2: Prepare Deed to All Beneficiaries

The deed shows all beneficiaries as grantees with their chosen form of ownership.

Step 3: Record and Distribute

Same process as above.

Option 3: Sell the Property

If the trust requires selling and distributing proceeds:

Step 1: List the Property

Work with a real estate agent to list and sell the property.

Step 2: Clear Title

Ensure title is clear and can be transferred to buyers.

Step 3: Close Escrow

Sign trustee's deed to buyers at closing.

Step 4: Distribute Proceeds

Divide sale proceeds according to trust terms.

Timeline for real estate:

• Transfer to beneficiary: 2-4 weeks
• Sale of property: 3-6 months

Proposition 19 Considerations

If transferring to children/grandchildren, consider Proposition 19:

• Parent-child exclusion requires the recipient to use property as primary residence within one year
• Only the first $1 million in increased value is excluded from reassessment
• Must file claim within 3 years

Consult with an attorney about property tax implications before transferring.

Distributing Cash and Bank Accounts

Cash is the simplest asset to distribute.

Step 1: Calculate Each Beneficiary's Share

Based on trust terms, determine exact amounts:

Example:

• Trust says: "Divide equally among my three children"
• Trust bank account balance: $150,000
• Each child receives: $50,000

Step 2: Consider Reserves

Before distributing everything, hold back funds for:

• Final trust tax return (Form 1041)
• Any remaining administration expenses
• Potential unexpected claims

A common approach: Distribute 90% now, hold 10% until final accounting complete.

Step 3: Distribute Funds

Options:

• Write checks from trust account
• Wire transfers
• Cashier's checks

Make checks payable to: The beneficiary's legal name

Document everything: Keep copies of all checks and wire confirmations.

Step 4: Get Receipts

Have each beneficiary sign a receipt acknowledging:

• Amount received
• Date received
• That it represents their distribution from the trust

Step 5: Close the Account

After final distributions, close the trust bank account.

Distributing Investment Accounts

Transferring investment accounts requires coordination with the financial institution.

Option 1: Transfer In-Kind

Transfer the actual investments (stocks, bonds, mutual funds) to the beneficiary's account.

Process:

1. Contact the brokerage/custodian
2. Request trust distribution paperwork
3. Complete transfer forms
4. Beneficiary opens account (if needed)
5. Investments transfer to beneficiary's account

Advantages:

• No immediate tax consequences
• Beneficiary keeps the investments
• Stepped-up basis transfers with the assets

Timeline: 1-3 weeks typically

Option 2: Liquidate and Distribute Cash

Sell all investments and distribute cash.

Process:

1. Sell all holdings in the trust account
2. Wait for trades to settle (2 business days)
3. Distribute cash proceeds to beneficiaries

Considerations:

• Capital gains tax if sold above stepped-up basis
• Easier to divide equally among beneficiaries
• Beneficiaries can reinvest as they choose

Cost Basis Documentation

Critical: Provide beneficiaries with date-of-death values (stepped-up basis) for all investments they receive. They'll need this information when they eventually sell.

Create a statement showing:

Investment	Shares	Date of Death Value	Cost Basis per Share
Apple Stock	100	$18,000	$180.00
Vanguard Fund	500	$75,000	$150.00

Distributing Retirement Accounts

Retirement accounts (IRAs, 401(k)s) have special rules.

Check the Beneficiary Designation

Retirement accounts pass by beneficiary designation—NOT through the trust (usually).

If individuals are named as beneficiaries: The accounts pass directly to them outside the trust. The trustee's role is limited.

If the trust is named as beneficiary: The accounts pass to the trust and must be distributed according to trust terms.

Distribution Rules Depend on Beneficiary Type

Surviving spouse:

• Can roll over to their own IRA
• Most flexibility

Non-spouse beneficiary (under SECURE Act):

• Generally must withdraw all funds within 10 years
• Exceptions for certain "eligible designated beneficiaries"

Trust as beneficiary:

• Complex rules apply
• May require distribution within 10 years
• Consult tax advisor

Tax Implications

Retirement account distributions are generally taxable income to the recipient. The trustee doesn't withhold taxes—the beneficiary is responsible.

Distributing Personal Property

Personal property (furniture, jewelry, art, collectibles, etc.) can be emotionally charged and logistically challenging.

If Trust Specifies Distribution

Follow the trust terms:

• "My diamond ring to my daughter Sarah"
• "My art collection to be divided equally among my children"

If Trust Says "Divide Equally" or Is Silent

Option 1: Beneficiaries Choose

Let beneficiaries take turns selecting items. Use a fair method:

• Draw numbers for selection order
• Alternate who picks first in each round
• Document who took what

Option 2: Appraisal and Equalization

Have valuable items appraised. Beneficiaries who receive more valuable items compensate others with cash.

Option 3: Sell Everything

Sell personal property (estate sale, auction) and divide proceeds.

Best Practices for Personal Property

Inventory everything: Create a detailed list with photographs.

Identify valuable items: Get appraisals for jewelry, art, antiques, and collectibles.

Communicate early: Ask beneficiaries what they want before starting distribution.

Document distribution: Keep a written record of who received what.

Get receipts: Have beneficiaries sign for items received.

Handle disputes fairly: If beneficiaries can't agree, consider mediation or selling the disputed item.

Sentimental vs. Monetary Value

Personal property often creates more conflict than valuable assets because of emotional attachments.

Tips:

• Acknowledge that items have sentimental value
• Give beneficiaries time to express preferences
• Consider fair processes over strict monetary splits
• A few hundred dollars in "unfairness" isn't worth a family fight

Distributing Vehicles

Step 1: Locate the Title

Find the certificate of title (pink slip) for each vehicle.

Step 2: Complete the Title Transfer

On the title, complete:

• Release of ownership (trustee signs as seller)
• Odometer disclosure
• Beneficiary information (as buyer)

Step 3: Beneficiary Visits DMV

The beneficiary takes to the DMV:

• Completed title
• Death certificate
• Trust certification
• Their identification
• Payment for registration fees

Step 4: Registration in Beneficiary's Name

The DMV issues new registration and title in the beneficiary's name.

Note: Some transfers between family members may be exempt from use tax. Check current DMV rules.

Handling Unequal Distributions

Not every beneficiary receives the same thing—or the same value.

When the Trust Requires Unequal Distribution

If the trust specifies unequal shares (e.g., 50% to daughter, 25% to each son), follow those terms exactly. You're not authorized to change them.

When Specific Gifts Create Inequality

If specific gifts result in unequal values:

Example: Trust says: House to Mary, investments to John, cash to Tom

• House: $800,000
• Investments: $400,000
• Cash: $300,000

If this is what the trust says, that's what happens—even though it's unequal.

When Trust Requires Equal Distribution

If the trust says "divide equally," calculate total value and ensure each beneficiary receives an equal share.

May require:

• Selling assets
• One beneficiary buying out others
• Balancing high-value assets with cash

Final Steps After Distribution

Obtain Receipts and Releases

Have each beneficiary sign:

• Receipt listing everything they received
• Release acknowledging distribution is complete
• Waiver of claims against trustee (optional but recommended)

Prepare Final Accounting

Create a report showing:

• All assets at start of administration
• All income received
• All expenses paid
• All distributions made
• Final balance (should be zero or near zero)

Provide to all beneficiaries.

File Final Tax Return

File the trust's final Form 1041/541 reporting:

• Final trust income
• Final distributions to beneficiaries
• Trust termination

Retain Records

Keep all records for at least 5-7 years:

• Distribution receipts
• Bank statements
• Tax returns
• Correspondence
• Accounting records

Common Distribution Mistakes

Distributing before contest period expires: Wait the full 120 days.

Not reserving for taxes: Keep funds for final returns.

Forgetting small accounts: Close all accounts, even small ones.

Not documenting basis: Beneficiaries need stepped-up basis information.

Ignoring unhappy beneficiaries: Address concerns before they escalate.

Disposing of "worthless" items: Let beneficiaries decide what has value to them.

Related Articles

Learn more about trust asset distribution:

• Real Estate in Trust Administration California - Selling or transferring real estate to beneficiaries, deed preparation, and market value determination.

• Capital Gains Tax on Trust Property Sales - Tax implications of selling trust property before distribution and stepped-up basis benefits.

• Income vs. Principal Trust Administration - How to allocate receipts and expenses between income and remainder beneficiaries before final distribution.

• Common Trust Administration Mistakes - Distribution mistakes that lead to beneficiary disputes and trustee liability.

• Trustee Not Distributing Trust Assets - Beneficiary rights when trustee delays or refuses to make proper distributions.

Need Help With Distribution?

The Law Offices of Rozsa Gyene helps trustees navigate the distribution process—preparing deeds, coordinating transfers, and ensuring proper documentation.

Call (818) 291-6217 for a consultation, or visit our contact page.

Serving Glendale, Burbank, Pasadena, and all of Los Angeles County.

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This article provides general information about distributing trust assets in California. Every trust is different. Consult an attorney for guidance specific to your situation.