Settling a Trust After Death

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Probate Topics, Probate Litigation 

5 THINGS A BENEFICIARY SHOULD KNOW TODAY!

7 THINGS A TRUSTOR SHOULD CONSIDER

Settling a trust After Death

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Settling a Trust After Death

When settling a trust, you will need to know the many aspects of how to execute a living trust after death. So what happens to a living trust after death? Well, a living trust, i.e., a revocable trust automatically converts to an irrevocable trust at death. If a Social Security check is in the mail, the Trustee must return to the state. Once all the assets, taxes, debts have been distributed and paid off, then dissolving the Trust is possible.

But what are the steps involved in settling an estate after death?

Let us explain.

How to close a revocable trust after death

The successor trustee checklist for California describes the steps below. 

Note: Now, the trust checklist below is a framework, but each estate is different, so make sure you ask an estate planning attorney to guide you on how to administer a trust. Avoid: What an Executor of an Estate Cannot do

Trust Administration Steps for Trust Settlement

  1. Step 1: Take care of settlor funeral arrangements:

Note: locate Pour-Over Will if applicable: The grantor may have left funeral instructions.

Spend time with family and let them know you will be the Successor Trustee. Now, order as many original death certificates as you need for each asset in the estate. For example, if there are six homes in the estate for distribution, you will need six death certificates alerting the banks, for instance, of the death. Also, bank accounts, saving accounts, insurance policies, etc., will need to have a death certificate affixed to the accounts. The easiest way to get certified copies of a death certificate is to order them through the funeral home or mortuary at the time of death. Get at least 12 copies.

  1. Step 2: Gather Important Documents (Inventory): Now that the funeral arrangements have been satisfied, it’s time to collect the inventory of the estate. To understand what the estate has for distribution to the Beneficiary’s, you will need to get the Trust document. Note: There may be more than one Trust document, i.e., there may be dynasty trusts, QTIP trust, which are a form of advanced estate planning. Important point: When the trustor dies, however, the revocable Trust automatically changes to an irrevocable trust, and thus it is required to file for a Federal Tax Identification Number (TIN | EIN).

See below a list of needed documents to attain.

  1. Step 3: Review the Trust Document with a Trust & Estate Attorney: Within the Trust document, are the instructions on how the distribution of assets, Once you review them, contact an attorney to ensure you are on the right track. Note: There are time tables to being met to stay compliant with your fiduciary duties.  
  2. Step 4: Value the Assets in the Trust: As in step 2, you will have inventoried the assets, including any jewelry, collectibles, artwork, and other trinkets. Take note: Unfortunately, there are times where family members may try to hoard the assets like jewelry, artwork, etc., so you need to move fast and take pictures and, if necessary, remove the offender as the Trustee has a fiduciary duty to protect the assets. To add, if there are properties, then appraisals must be completed to show fair market value should selling of the properties is necessary.
  3. Step 5: Pay off all debt, including credit cards, loans, and other debt instruments: Once all the valuation of the assets has been ascertained, some assets may need to be sold to continue the payments for ongoing expenses like mortgage payments, insurance premiums, accounting fees, legal fees, and so on. The selling of assets can be a point of contention with Beneficiaries. Now, transparency is the best advice for any Trustee and Co-Trustee. Keeping accurate bookkeeping is a fundamental core tenant of meeting the fiduciary duty of a Trustee.
  4. Step 6: Pay Income Taxes and death taxes that may be due:  Now that you are managing all debts, i.e., mortgage payments, etc., the Successor Trustee will need to prepare and file the grantor’s final federal and state income tax returns. 
  5. Step 7: Dissolving a Trust After Death: By this time, the timeframe will be around 12-18 months since the grantor/settlor has passed away. There is a living trust distribution time limit, but the transparency of all matters can allow a probate court to extend above the 12-18 months. All assets have been accounted for, sold when needed, taxes paid, and so forth. Now its time to distribute trust assets to beneficiaries.

The above steps are guides to understanding the big picture. Of course, there will be unforeseen circumstances that may arise. Therefore, its prudent and wise to seek counsel.

What are some circumstances that may cause a breach of fiduciary duty?

As a Trustee, you have an obligation to the Beneficiary to keep them abreast of the estate and administration. The Beneficiary, on the other hand, needs to have reasonable expectations and understand the timeframes of each step of the process. Now, some Beneficiaries feel slighted because of their inheritance or lack thereof. It is crucial, then, to keep all receipts, get double appraisals, etc. if needed to ensure no one thinks the following:

  • Embezzlement:
  • Self-dealing
  • Carelessness

The last thing, remember, the Trust is not a bank account in that the Trustee can borrow money even in the event it paid the next day. Understanding the Trustee obligations is key to the successful distribution of trust assets to the beneficiaries. 

What Happens to a Living Trust after Death

Settling a trust after the death of a loved one is a very trying and stressful time. Here at Hess-Verdon, we hope to make the trust administration process easier so that the distribution of trust assets to beneficiaries happens sooner than later. With that said, it is imperative that the Trustee and Co-Trustee prepare an inventory of the estate, including all assets and liabilities, and consulting an estate planning attorney. All these steps are of the utmost importance.

How to Execute a Living Trust After Death   

To execute a living trust after death consists of attending to the wishes of the trustor/grantor on burial wishes, etc. 

Once all this finalizes, calls for the trustee to alert all beneficiary and heirs of the death of the trustor, and the personal information of the trustee, which includes names, addresses, phone numbers, email, etc., so that communication and transparency stay open. Real estate will have to change the title; assets collected and protected from stealing are just some aspects of the execution of a trust. Now a living trust converts straight away to an irrevocable trust the moment the trustor dies. To execute and complete the trust administration process can take between 10 months to 18 months typically. 

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