What Happens to a Living Trust After Death?
Establishing a living trust is a normal part of estate planning for many people. The idea of being able to benefit from and control the assets in the trust until your death is an attractive one. In a living trust, a person appoints a trustee, who oversees the trust after the person dies, administering it as the grantor wished. As mentioned, the grantor can make changes to this type of trust up until the time of either their incapacitation due to illness or death. However, what happens with the trust after the grantor’s death?
Upon the death of the grantor, the successor trustee will take over the assets, and distribute them in the way the grantor laid out. This is why it is important to designate a trustee you are confident in.
Secure the Proper Documents
The first step the successor trustee should take is to contact the investment firm the trust is set up through, or the grantor’s attorney, in order to secure the proper documents, and begin executing the provisions of the trust. When that has been accomplished, the trustee should submit an application for a federal tax ID for the trust. While the grantor is still alive, their income is reported for tax purposes under the grantor’s social security number. However, the trust will need its own identification for tax purposes.
Notify the Trust’s Beneficiaries
The next step in the process is to notify the trust’s beneficiaries. Before this, the trustee should make sure they are familiar with what assets are in the trust, and how they should be distributed. The provisions of the trust will lay out how the assets are to be distributed. This may include writing checks from the trust account, transferring any real property to the appropriate beneficiaries, or making any other specific distributions as spelled out in the trust agreement. If there was also a will, then the successor trustee may work in conjunction with the executor of the estate.
Dissolution of the Living Trust
If all of the assets have been distributed to the proper beneficiaries, the trust may be dissolved. However, the terms may call for something other than direct distribution to the heirs. In this case, the trust may extend for a period of time, to cover the distribution of the assets. For example, the grantor may have left money for a minor child, which cannot be distributed until the child reaches a certain age. If that is the case, the trustee will remain responsible for the trust until it is time to make the final distributions.
When the terms of the trust have been met, the trustee is required to file state and federal tax returns for the trust account based on the trust income. Every beneficiary who benefited financially from the trust must also be provided with a Schedule K-1.
During this entire process, the trustee is expected to look beyond their own interests, and to fully comply with the terms set out in the trust document in every decision that is made. Despite people having the best intentions, this can sometimes be difficult. Maintaining impartiality is especially hard if the trustee has a relationship with any of the beneficiaries, or an emotional connection to the family. Despite all of this, the trustee is expected to act impartially and remain neutral in every transaction involving the trust.
Contact The Mattar Firm
Establishing a living trust may not be right for all people. Our experienced estate planning attorneys at The Mattar Firm can help guide you through the process, and work with you to determine the right steps for you in your estate planning. There is any number of options available, and choosing the right one is important for you and your family. Contact us today at 239-222-2222 or 844-444-4444.