A living trust is a type of estate planning set up by a person during their lifetime. While they are alive, a person can place assets into a living trust where they can benefit from the assets while they are living, and the trust can be used to manage the distribution of the assets after they pass away.
Once the owner of a trust passes away, the successor trustee is tasked with managing the assets and distributing the assets according to the terms laid out in the trust by its creator.
What is the Purpose of a Living Trust?
The primary benefit of creating a living trust is to bypass probate proceedings. Probate is the legal process of transferring property to the heirs and beneficiaries of a deceased individual. This process involves going to court, filing countless documents, and at best, it can be wrapped up in 4-6 months.
Probate is time-consuming, and it can be expensive, which means it is best to avoid probate. Luckily, those who have created a living trust have already taken all of the necessary steps to itemize their assets and set in place a way to transfer them after their death. So long as the living trust was created and executed correctly, all assets in the trust will easily and legally be distributed when the creator of the trust passes away.
How to Properly Execute a Living Trust After The Creator Dies
1. Name a Successor Trustee
The trust will have named a successor trustee. When the creator of the trust dies, the successor trustee takes over and is responsible for distributing the assets according to the methods outlined in the trust.
If you have been named the successor trustee, you will need to perform the following actions.
2. Review the Trust
The first action of the successor trustee should be to read the trust documents in their entirety. The documents will tell you what your responsibilities are, how to access the assets, and how to distribute them.
3. Contact The Financial Institutions and Professionals
While distributing the assets in a trust, you will need the assistance of the institutions where the assets are held. For instance, if a life insurance policy was included in the trust, you will need to contact the insurance company to direct them where to send the money.
While it is not necessary, you may also contact an experienced estate planning attorney who can assist you and answer any questions you may have.
4. Keep in Contact With the Beneficiaries
Unless the family indicates so, it’s best to give them a few days or even weeks to mourn and deal with the loss of their loved one. Once the beneficiaries have had adequate time to mourn, you are required to provide information regarding the status of assets they are set to receive.
During this time, you should also work with the beneficiaries to obtain account transfers and authorizations to transfer assets.
5. Obtain a Tax Identification Number (TIN)
Living trusts are tax shelters, but when the assets are liquidated or moved out of the trust, taxes are often owed. To pay any taxes owed for the assets, you should obtain a tax identification number for the asset and arrange for all tax-related correspondences to come to you.
Even though the successor trustee will receive the tax information, they are not financially responsible. Instead, the assets in the trust should be used to pay off any taxes or debts.
6. File Tax Returns
The successor trustee is required to file tax returns for the trust. They must file state, federal, and estate tax returns. To do this, the successor trustee may have to complete and file form 1041 the Beneficiary’s Share of Income, Deductions, Credits.
7. Distribute the Assets
You are required to distribute the assets to the beneficiaries according to the instructions documented in the trust. The instructions may be as simple as distribute the assets to each beneficiary then close the trust, or they can be complicated and require you to slowly disperse the assets or wait until a beneficiary turns 18.
Suppose the instructions for distributing the assets are complicated and require months and even years to distribute the assets fully. In that case, the successor trustee will be in charge of investing and managing the assets until they can be distributed. If the successor trustee does not have a financial or legal background, it is wise to hire a professional to assist them.
8. Close the Trust
Once all of the assets have been distributed to the beneficiaries, the trust can be dissolved. To dissolve the trust, the successor trustee must fill out a revocation document which states that the trust is being dissolved and that all assets have been transferred to their beneficiaries.
Once this is notarized and complete, the successor trustee must send a copy to each of the beneficiaries so that they may know that the trust is being dissolved.
Executing a living trust after the creator has passed away is a difficult task. Luckily, the successor trustee does not have to go through this process alone. If you have been tasked with executing a living trust, contact Jackson White Law to speak with an experienced Arizona probate attorney who can assist you through this legal process.
Call our Probate team at (480) 467-4365 to discuss your case today.