If you're taking over as trustee of a deceased person's living trust, you're certainly not expected to get to work the day your loved one dies. Luckily, most trust and estate tasks are not emergencies and can wait a couple of weeks as family members grieve and make decisions about things like memorial services. But eventually, within a month or so, you'll need to get started. Feeling overwhelmed? This article walks you through your first duties as trustee.
A revocable living trust is a popular estate planning tool that sets out who will get your property when you die. Unlike a will, a living trust avoids probate. When you create a living trust, you typically name yourself as the "trustee," meaning that you manage the property placed in the trust. You also name a successor trustee—someone who will take over when you die. The trust remains revocable while you are alive; you are free to cancel it, replace it, or make changes as you see fit.
Once you die, your living trust becomes irrevocable, which means that your wishes are now set in stone. The person you named to be the successor trustee now steps up to take an inventory of the trust assets and eventually hand over property to the beneficiaries named in the trust.
Here's an outline of your initial tasks. These are fairly universal, even for a simple trust:
Many of these tasks are straightforward. For example, the funeral home will usually order death certificates for you and may also notify Social Security of the death. Get eight to 12 copies of the death certificate—you'll need them for nearly everything you'll have to do, since financial and other institutions will want to see proof of death before they work with you.
Note that you're required to return any Social Security payment that was for the month of death, no matter what day of the month the death occurred. It can be confusing to figure out whether a Social Security check or deposit needs to be returned. Payments are usually made during the first week of the month for the prior month. So, for example, the check for March arrives in early April. If Social Security payments were deposited directly into the deceased person's bank account, it can take a few months to sort things out, so make sure to leave the account open for a few months.
Most estates with a living trust also include a will. (Even if you make a will, you should still have a backup will or pour-over will to account for any property that doesn't make it into the trust.) It's common to name the same person as both the executor of the will and trustee of the trust. But if you're the trustee and there's a separate executor, stay in close touch with the executor during these first few months. You need to know what the executor is doing and why. In the case of a pour-over will, the executor will transfer the estate's assets (assets not held in the name of the trust) to the trust, where they become your responsibility.
One of the first steps on your list is to notify the beneficiaries of the trust. Start by reading the trust instrument and making a list of the people it identifies. A trust may not be perfectly clear about this. If the trust doesn't individually name the beneficiaries, but instead uses a term like "children" or "issue," you might need help understanding what state law does and doesn't include in that term. If you have any questions whatsoever, consult a trusts and estates attorney—it's very important to get this part of the trustee job right.
To notify the beneficiaries, you should send a simple letter telling the beneficiary that the trust has become irrevocable because of the trust maker's death, and that you are now in charge of the trust property and will distribute them as soon as is practical. Some states have deadlines, by law, within which the beneficiaries need to be notified—such as within 30 or 60 days of the death.
Almost all of your trustee tasks hinge on your ability to organize what you're doing. You'll need to know what the trust owned and what the trust owed. You'll need to get a federal tax identification number from the IRS so that the trust can accurately report the gains and losses it incurs before you distribute the property to the heirs. You'll also need to figure out the value of the assets the trust owned at the time of the deceased person's death. For this, you'll likely need to hire appraisers and scrutinize account statements. Finally, you'll monitor the deceased person's incoming mail and pay debts as they come up: funeral expenses, administration expenses (like lawyers, housecleaners, and tax preparers), and possibly (if you're also the executor) personal debts like credit cards and medical expenses.
Your system doesn't have to be complicated. If all you need to do is collect the trust assets, pay the settlor's debts, and distribute what's left to the beneficiaries, you won't need to track income and expenses for very long—probably three to six months, tops. You won't even have to file a trust tax return unless the trust assets generate more than $600 in income. For a very simple trust, you may be able to do a good job with chronologically organized bank and brokerage statements and some notes. However, if you are administering a trust that will exist for more than six months, you should buy basic accounting software (such as Quicken) to keep track of the movement of money in each trust account. The cost is a perfectly permissible trust-related expense. If you spend a few hours to set up the accounts, you will avoid countless problems at the end of the year.
After inventorying assets and paying debts comes the most well-known job of the trustee: transferring property to the beneficiaries. After the property is distributed according to the terms of the trust, it's a good idea also to send the beneficiaries a final statement that summarizes all of the trust assets, the value of each asset at the date of death, and how and when they were distributed.
Trust property doesn't go through probate, so there aren't formal procedures or filings for ending the trust. Once you've distributed all of the trust property, you're done. But if your trust made more than $600 in income or capital gains, don't forget to file a trust tax return (on IRS Form 1041).
How long a trust remains open after death depends on several factors, such as:
If you'll be distributing all the trust property to beneficiaries quickly, you'll probably get most of your work done in less than six months. If you are administering an ongoing trust, there will be more work to do, but you'll still have tackled most of the largest tasks in the first few months.
If you're the successor trustee of a fairly simple trust (no complicated assets such as a family business, no estate taxes, no unhappy family members looking to contest the trust), you probably won't need a lawyer to complete your initial tasks during the first few months of a trust administration. In the initial stages, most of what you need to do involves just getting organized. Some tasks require only a phone call; others may take hours of information-gathering, letters, and follow-up calls. However, you might still want to begin your search for a trusts and estates attorney.
Later, when it comes to such things as filing tax returns, transferring the ownership of real estate, funding subtrusts, and distributing property, professional advice from an accountant or trusts and estates lawyer may be well worth the money.
If you'd like to do it yourself—or if you'd like to save money while working with a lawyer by handling some of the tasks yourself—it's certainly possible. Being a good trustee takes work, but it's not rocket science. With patience and effort, you can do a great job. For a step-by-step guide to everything you need to know to manage a trust, get The Trustee's Legal Companion by Liza Hanks and Carol Elias Zolla (Nolo).