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.
The primary step in the settlement of a revocable living trust is to find all of the deceased’s initial estate planning documentation and other important paperwork. Apart from finding the initial revocable living trust agreement and any trust alterations, you are going to need to find the deceased’s initial pour-over will. The deceased might have left behind written funeral, cremation, burial, or memorial directions, as well as a personal property memo. All initial documents needs be kept in a safe location until they are presented to a trust attorney. The deceased’s other important paperwork is going to include details about the deceased’s assets, including financial institution and brokerage statements, stocks and/or bonds certificates, life insurance policies, corporate files, vehicle and boat titles, and real estate deeds. There is also going to be abundant information about the deceased’s debts, comprising of credit card bills, utility bills, mortgages, medical bills, personal loans, and the funeral costs. Turn to a thorough list of the particular documentation that you are going to need to find. Following you finding all of the deceased’s important documentation, examine the revocable living trust to establish its particular proviso. When examining the trust, take note of the following:
- Specific guidelines concerning the deceased’s funeral, cremation, or burial
- Beneficiaries of the deceased’s personal belongings
- Beneficiaries of particular inheritances
- Beneficiaries of the deceased’s left over trust
- The individual appointed as the successor trustee(s) for settling the trust, in addition to anyone appointed trustee(s) of the trusts that are required to be devised, considering the trust maker has passed away
- The date and locale in which the trust agreement got signed
- Any witnesses and notary public that signed the trust
As well as examining and outlining the information inside the revocable living trust, go over the deceased’s financial documentation, and create a list of what the deceased was owner of and what they owed, the way each asset is titled (in the trust’s name, in the individual name of the trust, as tenants in common, or in shared names with another individual), and, for assets and/or debts with a statement, the worth of the asset and/or debt as detailed on the statement and the statement’s date. Also, the deceased’s previous 3 years of income tax returns need be found and put aside.
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
After you have met with a trust attorney, the next thing to settle a trust is to determine date-of-death valuation of each of the deceased’s assets. All financial institutions in which the deceased’s assets are located need to be contacted to acquire the date of death (DOD) valuations. Many assets, comprising of real estate; personal belongings like jewelry, painting, and memorabilia; and closely-held businesses, are required to be appraised by a knowledgeable appraiser. Remember that the value of each of the deceased’s assets are going to be determined, including those not included in the trust, in order to determine it any estate taxes and/or inheritance taxes are going to be owed. Assets that are able to pass outside of the trust can comprise of those that were owned as tenants by the whole or shared tenants having rights of survivorship; payable on death (POD) or transfer on death (TOD) accounts; including life insurance, IRAs, 401(k)s, and subsidies with designated beneficiaries. Take time to get familiar with what the non- probatable assets are, too.
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.
After the successor trustee gets the last bills paid and the on-going trust costs are in check, the next phase in settling the trust is to pay income taxes incurred and death taxes that could be owed. As successor trustee they are going to have to arrange and file the deceased’s last federal and, when any, state income tax returns and promptly pay out any taxes that might be owed. The last federal income tax return is going to be due on April 15 of the year after the deceased’s year of passing. For the tax year of 2020, that deadline has been prolonged to May 17 of 2021. A part from filing the deceased’s last income tax return, when the estate gains income throughout the course of management, the successor trustee is required to prepare and file all needed federal estate income tax returns (Form 1041) in addition to any needed state estate income tax returns. Many trusts might need to file a federal estate tax return although no estate tax is going to be owed.
Distribute and Terminate
Typically, the initial question the trust beneficiaries is going to ask the successor trustee is “When am I going to get my inheritance check?” Regrettably for the beneficiaries, distributing the leftover trust assets to the beneficiaries is the final step in the settling of a revocable living trust. Before distributions are made to the beneficiaries, the successor trustee needs to be positive that each cost of managing the trust (and a probate estate when applicable) and all taxes were paid or that adequate assets were put aside for the paying of the last bills and taxes. Otherwise, when the successor trustee decides to distribute to the beneficiaries, but costs appear later, they are going to have to pay these costs on their own dime. Additionally, when probate of a few of the deceased’s assets were required, then beneficiaries are required to wait prior to the probate estate being concluded and the probate assets were transferred to the successor trustee prior to the trust being dissolved and beneficiaries are allowed to get their inheritance. When management of the trust is anticipated to take in excess of a year, the successor trustee needs to work alongside a trust attorney and CPA to plan for putting aside adequate assets for the paying of the on-going trust costs and then making distributions to the beneficiaries in several stages rather than in one lump sum.
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
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