What happens when the grantor of a living trust passes away?
Table of Contents
Overview
When the grantor, who is also the trustee, dies, the trusteeship is passed to the successor trustee indicated in the Declaration of Trust. The new trustee is in charge of distributing trust assets to the beneficiaries listed in the trust agreement.
The trust lasts just as long as the succeeding trustee distributes trust property to the beneficiaries.
The successor trustee is also in charge of administering any property left in a child’s subtrust to a young beneficiary. A subtrust will persist until the beneficiary is old enough to receive the property outright (at the age stated in the trust instrument), thus the successor trustee may have years of work ahead of them if there is one.
If under the Uniform Transfers to Minors Act, trust property inherited by a young beneficiary is to be administered by a custodian, the person nominated as custodian will be liable for such property. This individual may or may not be the succeeding trustee.
Duties of an individual trust’s successor trustee:
If required, notify beneficiaries of the existence of the trust.
Get a valuation of valuable trust property.
Prepare an Assumption of Duties Affidavit.
Distribute trust assets to the beneficiaries listed in the trust agreement.
Manage any trust property left in a child’s subtrust.
Fill out the last income tax returns for the dead grantor. (The executor of the estate is in charge of this.)
Who is a Trustee?
When an individual trust’s grantor dies, the successor trustee takes over.
There is more than one trustee.
If more than one individual is specified as successor trustee in the trust instrument, they all serve jointly. The trust document may require them to all agree before acting on live trust property, or it may enable them to act independently.
If one of the trustees is unable to serve, the others continue to serve. Unless all of the persons identified as successor trustees are unable to serve, the person named as alternative successor trustee takes over.
If a Trustee Steps Down
A trustee may quit at any time by drafting and signing a resignation letter. The notification should be delivered by the ex-trustee to the person who is next in line to act as trustee (see table above).
If no one specified in the trust instrument is available to serve, the last serving trustee may select someone else. The appointment must be signed and notarized in writing.
Getting Rid of a Trustee
A beneficiary is seldom dissatisfied with the way a trustee manages trust property. For example, the beneficiary of a child’s subtrust may claim that the trustee is not allocating enough trust assets to the kid’s education. If the conflict cannot be resolved, the beneficiary may initiate a lawsuit to demand the trustee’s dismissal.
Obtaining an Appraisal
When a grantor dies, whomever acts as trustee should get documented assessments of the market worth of all substantial trust assets as soon as possible. This is significant for two reasons:
Whoever inherits property receives a new tax basis in that property, which is the market value on the day of death. The new owner must understand the market value in order to appropriately calculate tax liabilities when the property is finally sold.
If the executor or trustee is required to file a federal estate tax return, the assets might be valued as of the date of death or six months later. Obtaining a solid estimate shortly after death ensures that there is something to compare it to later.
Creating an Assumption of Duties Affidavit
The replacement trustee may be required to provide documentation that he or she is authorized to operate on behalf of the trust. This is particularly frequent in real estate deals.
The trustee may be able to demonstrate both the trust deed and the grantor’s death certificate. Another option is to create a sworn declaration (affidavit) outlining the circumstances that give the trustee power and register (make public) this document in the county property records office.
There is no standard format for this kind of statement in most jurisdictions, however it should include:
the trust’s formal name
the date on which the trust was signed, and
the name of the succeeding trustee.
The trustee must sign the statement in the presence of a notary public and provide a certified copy of the death certificate. Certified copies of the death certificate are available from the county or state vital records office, and in many cases, they may be ordered online.
Beneficiaries’ Notification
Trustees must constantly keep trust beneficiaries up to date on trust management. This regulation is designed to ensure that beneficiaries have adequate knowledge to exercise their legal rights, such as ensuring that trust funds are not mishandled.
Communication with beneficiaries is frequently unnecessary with a basic probate-avoidance trust. (In reality, the succeeding trustee may be the sole beneficiary.) The trust exists exclusively for the trustee to accumulate and distribute the assets.
General Guidelines
When the grantor dies, a successor trustee who believes the trust’s beneficiaries are unaware of it should swiftly tell them. In most states, a simple letter informing the beneficiary that the trust has become irreversible due to the grantor’s death and that the successor trustee is now in control of trust assets and would distribute them as soon as possible will suffice.
State Specific Requirements
Some states have extremely precise requirements about how and when the replacement trustee must inform beneficiaries of the trust’s existence. The notification must include certain information and be presented in a specific manner. By the time your trust becomes irreversible, additional states are likely to have implemented this kind of notification requirement. A successor trustee should constantly verify current state legislation and consult with a lawyer if necessary.
Beneficiaries’ Property Transfer
When a grantor dies, the trustee is responsible for transferring property to beneficiaries.
The method for transferring trust property to the beneficiaries who inherit it is determined by the kind of property with which the trustee is dealing. A copy of the grantor’s death certificate (or both grantors’, if the trust property was previously co-owned) and a copy of the trust instrument are usually required. In certain circumstances, the trustee will be required to produce additional papers.
Specific regulations for transferring property vary somewhat from place to place, and the trustee may need to inquire about current processes with banks, stock brokerages, and other organizations, but below are the main guidelines. When a trustee has challenges, he or she has the ability to seek assistance from a lawyer, accountant, or other professional and pay for it using trust funds.
Property Devoid of Title Documents
For trust property that does not have a title deed, such as furniture, the trustee’s job is relatively straightforward. The trustee must transfer the property to the trust’s beneficiaries as soon as possible. If the trustee believes it is appropriate, have the beneficiary sign a receipt.
Title Documented Property
If a title document reveals ownership in the name of the original trustee for an item of trust property, the trustee must draft and sign a new title document transferring ownership to the beneficiary. If the property is in the custody of someone else, the trustee will usually want a copy of the trust deed as well as the trust grantor’s death certificate.
Putting trust property to beneficiaries is essentially the inverse of transferring it into the trust in the first place. To transfer real estate to your trust, for example, you will need a deed; to transfer it back out, your successor trustee will also want a deed. If the trustee is engaging with a third party, such as a brokerage firm, it may assist with the transaction or at the very least inform the successor trustee of the papers that are necessary.
Tax Return Preparation and Filing
Personal tax returns, as well as state and federal estate tax returns, must be submitted. The executor specified in the decedent’s will is responsible for doing so. Typically, the same individual serves as both executor and trustee.
If the decedent’s gross estate was big enough, a federal estate tax return must be submitted. It’s a difficult document that’s due nine months after the decedent’s death and will need professional assistance.
Property Administration for Minors’ Trust Property
If the trustee provides property management in the living trust, either via a UTMA custodianship or a child’s subtrust, it is the successor trustee’s responsibility to manage that property for the young person until the age indicated under the trust provisions.
Managing a Child’s Subtrust
If the trustee is required to oversee a child’s subtrust, the work will endure until the beneficiary is of legal age to receive the property.
EXAMPLE: Carl establishes a living trust and names his two little children as beneficiaries. He states that if the children are under the age of 30 when he dies, the trust property shall be retained in a separate child’s subtrust for each kid.
When Carl dies, one of his children will be 30 and the other will be 25. The 30-year-old will get her trust property free and clear. However, a child’s subtrust will be established for the 25-year-old. Carl’s successor trustee is in charge of managing the property and handing it over to the kid when he reaches the age of 30.
The trustee must do the following:
wisely invest in subtrust property
operate honestly and in the beneficiary’s best interests
keep beneficiaries informed about the trust’s management
Use the revenue or the subtrust property itself to pay for the beneficiary’s health, support, upkeep, or education.
annually submit a trust income tax return, and
When the beneficiary achieves the age specified in the trust instrument, transfer the remaining subtrust property to him or her.
If required, the trustee may spend subtrust assets to get expert help. For example, the trustee may choose to hire a tax preparer to assist with the subtrust’s income tax return or seek investment advice from a financial planner.
The trust agreement further states that the trustee of a subtrust is entitled to appropriate pay for his or her services as trustee. The trustee determines what is appropriate, and the compensation is paid from subtrust assets.
Managing a Custodianship
Someone named as the custodian of trust property inherited by a young beneficiary in the trust agreement has roughly the same management obligations as the trustee of a child’s subtrust. The provisions are outlined in the Uniform Transfers to Minors Act, as passed by the state legislature.
A custodian, on the other hand, is not required to submit a separate income tax return. Any property income is recorded on the beneficiary’s personal tax return.