Everyone wants to make sure their loved ones are protected, no matter what. For most, that entails having an Estate Plan. A comprehensive Estate Plan, like a Trust-Based Estate Plan with Trust & Will, includes everything you need to protect your assets and loved ones, both in life and after death. But when the Trustee of a Revocable Trust dies, it is up to their Successor to settle their loved one's affairs and close the Trust.
The Successor Trustee follows what the Trust lays out for all assets, property, and heirlooms, as well as any special instructions. When someone is named a Successor Trustee, they may not know where to start in settling the Estate. In this guide, we'll cover the basics of what you should know about Revocable Trusts and the process of closing out a Trust when the Trust maker dies.
Typically, a Revocable Trust becomes irrevocable upon the death of the grantor, who is often also the trustee in a Revocable Living Trust. When the grantor, known as the person who created the Trust, is alive, they generally have the power and authority to amend, change, or revoke the Trust entirely. This type of flexibility is what makes the Trust “revocable.” However, when the grantor passes away, the Trust usually becomes irrevocable, meaning that the terms in the Trust can no longer be amended, altered, or revoked. This change in the Trust’s status from revocable to irrevocable has several legal implications, including different tax considerations. At this point, the successor Trustee then steps in to manage and administer the Trust according to its terms.
What is a Revocable Living Trust?
A Revocable Trust is the central hub of an Estate Plan. It allows the Trustee to manage, control, and distribute their assets during life and after death.
A Revocable Trust provides a level of privacy that other Estate Plans do not. A Revocable Trust allows you to pass assets to a Beneficiary outside of Probate Court, which can be a lengthy and expensive process. These assets can include real estate, valuable possessions, family heirlooms, bank accounts, stocks, and bonds. Because Estates in a Living Trust are dealt with privately, your assets, their value, and your Beneficiaries are never made public. No one can search the public records to see what your assets are or where they went.
Our lives change, and as our priorities, circumstances, and relationships shift, our Estate Plans should reflect that. A Revocable Trust grows with you. It can change at any time, whether you need to add a new asset, change a Beneficiary, or name a new Legal Guardian for your child. A Revocable Trust differs from an Irrevocable Trust, which is permanent and cannot be amended or withdrawn.
How to Settle a Trust When the Trustee Dies
Not many people are adept at taking care of a loved one's final wishes and closing out a Revocable Living Trust. For a Successor Trustee who may not know where to begin in settling a family member's Estate, here are the steps to settle a Trust when the Trustee dies:
Take inventory
Before a Successor Trustee can settle a Trust, they first need to know what's in it. Start by taking inventory of the Estate and any directions for its distribution. Your loved one may have also left special instructions regarding their last wishes and any funeral, cremation, burial, or memorial services.
To get a full look at everything the Trust includes, you will need to locate the following documents. Copies of each of these documents are sufficient unless otherwise noted.
Account statements: This includes bank accounts, brokerage accounts, and retirement accounts, including 401(k)s, annuities, and IRAs. You should have account statements for at least a few months before the death of the Trustee.
Bills: Copies of utility bills, credit card bills, phone service costs, mortgages and personal loans, taxes, medical bills, and funeral bills.
Stocks and bonds: The original title is required to transfer the legal titles for stocks or bonds held in certificate form.
Life insurance policy: For older policies, the insurance company may require the return of the original policy.
Contracts: Prenuptial and postnuptial agreements, real estate and automobile leases, personal loan contracts, lines of credit, mortgages, and original promissory notes.
Deeds: Many incorrectly assume that an original property deed is needed, but a copy of a property deed is fine.
Vehicle titles: The original title is required to transfer the legal titles of automobiles and boats.
Business documents: To transfer a legal business title, you will need the original stock or LLC certificates. You will also need to locate local and state business licenses and federal and state income tax returns for the past three years.
Tax returns: Copies of federal and state personal income tax returns for the last three years, as well as federal and state gift tax returns.
Estate Planning documents: A copy of the Revocable Living Trust and any amendments, and the original Last Will and Testament.
Beneficiary designations: For all assets listed in the Trust.
Death certificate: To settle a Decedent's final affairs, you will need multiple original death certificates. Trust attorneys and Estate Planning experts recommended ordering a minimum of ten.
Pay bills and expenses
The Successor Trustee is responsible for determining which bills the Decedent owed at the time of their death. The Successor must also pay ongoing expenses related to administering the Trust, such as legal and accounting fees, utilities, insurance premiums, mortgage payments, and homeowner association fees.
If a Trustee held a significant amount of debt, the Successor may sell off real estate or other valuable assets from the Trust. The raised money would pay down debt and pay any expenses and taxes associated with the Trust.
Pay taxes
After paying the final bills and taking care of any last expenses, the next step is to pay income and death taxes that might be due.
The Successor Trustee is responsible for preparing and filing the Decedent's final federal and state income tax returns. They must also pay any taxes that may be due. The Decedent's Estate may also be taxable for federal and state Estate Tax purposes. In these cases, the Successor Trustee prepares and files the Federal Estate Tax Return, State Estate Tax, and/or State Inheritance Tax Return, and then pay the tax bill(s).
Distribute assets
Once all expenses relating to administering the Trust and all taxes are paid, the Successor Trustee distributes the remaining assets to their Beneficiaries using the Decedent's Revocable Living Trust.
A Trust only exists as long as it takes for the Successor Trustee to distribute the Decedent's assets to the Beneficiaries. Once the Beneficiaries receive their inheritance, the Trust is considered complete and closed.
Create a Revocable Trust with Trust & Will
A Revocable Living Trust allows you the freedom of knowing that your assets and loved ones are protected, now and later down the road. Trust & Will can help you get your affairs in order and lessen the burden on your Successors.
Create your Trust online with Trust & Will today!
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