What Happens after the First Spouse Dies
As soon as practicable after the death of the first spouse the trustee (usually the surviving spouse unless he/she is incompetent or resigns as trustee), must divide the trust into two trusts and transfer assets into each of the trusts. These trusts are the Survivor’s Trust and the Family Trust (aka the A & B trusts). The trustee must value all of the assets of both spouses then allocate to each trust sufficient assets that causes the correct dollar value to be owned by each trust.
What Assets Go into the Survivor’s Trust?
The trustee must transfer to the Survivor’s Trust property that has a value equal to the total value of the Survivor’s separate property and ½ of the community property.
What Assets Go into the Family Trust?
The trustee must transfer to the Family Trust property that has a value equal to the total value of the deceased spouse’s separate property and ½ of the community property.
How Does the Trustee Allocate Assets between the Two Trusts?
Unless the trust agreement specifies that specific property must be transferred to one of the two trusts, the trustee has the discretion to allocate assets to which ever trust the trustee believes is best. The trustee may allocate an asset to each trust and cause the two trusts to own a share of the asset as tenants in common.
Example 1: Total Value of Husband and Wife’s Estate is $250,000
A married couple created an irrevocable living trust that owns a $150,000 home (community property), $50,000 in investment accounts (community property), $30,000 of Apple stock (wife’s separate property inherited from her Mom) & miscellaneous items worth $20,000 (community property). In this example the husband dies first. The table illustrates how the couple’s assets might be allocated to the A & B trusts.