A lot of individuals are inexperienced being appointed as a successor trustee responsible for settling the revocable living trust of their loved one following their passing. The objective of this post is to present a general summary of the 6 steps needed to settle and then dissolve a revocable living trust following the trust maker passing away.
Inventory Checklist for Revocable Living Trust Settlement
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Locate Initial Estate Planning Documents:
- Revocable living trust agreement
- Trust alterations, if any
- Initial pour-over will
- Written funeral, cremation, burial, or memorial directions
- Personal property memo
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Safeguard Initial Documents:
- Keep all initial documents in a secure location until presented to a trust attorney
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Gather Details About Deceased’s Assets:
- Financial institution and brokerage statements
- Stocks and/or bonds certificates
- Life insurance policies
- Corporate files
- Vehicle and boat titles
- Real estate deeds
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Compile Information on Deceased’s Debts:
- Credit card bills
- Utility bills
- Mortgages
- Medical bills
- Personal loans
- Funeral costs
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Refer to a Detailed List of Documentation:
- Ensure you have all necessary paperwork as per the comprehensive list
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Examine Revocable Living Trust Provisions:
- Specific guidelines for funeral, cremation, or burial
- Beneficiaries of personal belongings
- Beneficiaries of specific inheritances
- Beneficiaries of the remaining trust
- Individual appointed as successor trustee(s) for trust settlement
- Trustee(s) of trusts to be devised post the trust maker’s passing
- Date and locale of trust agreement signing
- Names of witnesses and notary public who signed the trust
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Document Financial Information:
- List of assets and debts owned by the deceased
- Title of each asset (trust’s name, individual name, tenants in common, shared names)
- Value of assets and/or debts as per statements and statement dates
- Previous three years of the deceased’s income tax returns
Speak with a Trust Attorney
After you have examined the deceased’s legal documentation and other important paperwork, following that, settling the revocable living trust is to speak with a trust attorney to establish if probate is going to be needed, and if the attorney’s help is going to be required to assist with settling and then dissolving the trust. When probate is going to be required, take time to understand the steps required to open a probate estate.
Valuation of the Deceased’s Assets
Following consultation with a trust attorney, the next step in settling a trust involves determining the date-of-death valuation for all assets owned by the deceased. Contact all financial institutions where the assets are held to obtain the date of death (DOD) valuations. For certain assets like real estate, personal belongings, and closely-held businesses, a qualified appraiser must provide an appraisal. It’s essential to appraise all of the deceased’s assets, both those included in the trust and those outside it, to assess potential estate and inheritance taxes. Assets that bypass the trust may include properties owned as tenants by the entirety or joint tenants with rights of survivorship, payable on death (POD) or transfer on death (TOD) accounts, life insurance, IRAs, 401(k)s, and annuities with designated beneficiaries. Familiarize yourself with non-probatable assets as well.
Pay Bills and Expenses
Once the date of death (DOD) values has been established for all the deceased’s assets, the next step in getting the revocable living trust settles is paying the deceased’s final bills and on-going expenses associated to managing the trust. At this time, the successor trustee is going to need to assess whether trust assets, like real estate or a business, needs to be sold to raise capital to pay costs and taxes. It is the successor trustee’s responsibility to establish what bills the deceased owed at the time of their passing, determine if they are legitimate, and then pay them as a result. The successor trustee is also going to be responsible for paying any on-going expenses of administering the trust, like legal costs, accounting costs, utility bills, insurance premiums, mortgage payments, and HOA or condominium association costs.
Pay Taxes
Once the successor trustee settles ongoing trust costs and clears the last bills, the next step is addressing income taxes and potential death taxes. They must arrange and file the deceased’s final federal and, if applicable, state income tax returns, promptly settling any owed taxes. The final federal income tax return deadline is April 15 of the year following the deceased’s passing (extended to May 17 for 2020). If the estate earns income during management, the successor trustee must prepare and file necessary federal estate income tax returns (Form 1041) and state estate income tax returns. Some trusts may need to file a federal estate tax return, even if no estate tax is owed.
Distribute and Terminate
Beneficiaries often ask the successor trustee, “When will I get my inheritance check?” Yet, they must understand that distributing remaining trust assets is the final step in settling a revocable living trust. Before releasing assets, the successor trustee must ensure all trust management costs, probate estate expenses, and taxes are settled to avoid unexpected costs later. If probate was needed, beneficiaries patiently wait until its conclusion and assets transfer to the successor trustee before dissolving the trust for inheritance. For prolonged trust management, collaboration with a trust attorney and CPA is essential to strategically allocate assets for ongoing expenses, allowing beneficiaries to receive distributions in stages rather than a single lump sum.
Source:
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Garber, J. (2020, April 12). Here’s how to settle a revocable trust after the trustmaker dies. Retrieved April 29, 2021, from https://www.thebalance.com/trust-settlement-inventory-3505402