Getting Started

For many people who are named successor trustees of a friend or family member’s trust, acting as trustee is a new experience that can be daunting. In this article I will provide an overview of the main steps required to settle a revocable trust after the settlor dies.

Of note, this article does not cover every possible action needed to settle your particular trust. This article will provide a very helpful starting point and reference, but it is imperative that you review the trust document for which you have been named the trustee, and review your obligations with a Trust Attorney.

Step 1: Locating the Estate Documents

The very first step should be to locate the decedent’s (the trustor who passed away) estate planning documents. At a bare minimum, you need to be able to find the original Trust document itself, which presumably you have or know someone who has it (since you know you’re the successor trustee). You’ll also need to track down the decedent’s current, original will. It would also be good to find any burial or funeral instructions (if not already included in the trust or will).

Although not technically thought of as estate planning documents, you will also want to round up the last few years of the decedent’s tax returns, as well as obtain multiple certified copies of the death certificate. Many of the institutions you will be dealing with will want at least a copy of the death certificate, and often a certified copy will be required.

Once you have these documents, place them in a secure and safe place.

Step 2: Creating an Inventory of Trust Property

Once you have rounded up the trust and will, you’ll next need to make an inventory of property owned by the trust, and the decedent. For example, you’ll want to locate and identify the following property and determine whether it was held in trust or by the decedent:

• All bank and brokerage accounts
• Stocks and bond certificates
• Life insurance policies
• Retirement accounts
• Business interests
• Cars, boats, and other vehicles
• Real estate deeds
• Promissory notes
• Contracts (such as premarital agreements, leases, etc.)
• Business licenses
• Art, collectibles, jewelry, and other valuables
• Furniture and other personal items

If there was any property that was not held by the trust, but still held by the decedent individually, that property may end up in the trust if the will is a “pour over” will, which typically provides for any property not previously held in trust to be transferred to the trust. Of note, this may require that the will be probated, depending on the type and value of property still held by the decedent that he/she forgot to put into in the trust while living. A Trust and Probate Attorney can help you determine if probate is necessary and how to navigate this type of scenario.

In addition to property, you should also create an inventory of debts and expenses of the decedent/trust. This could include some or all of the following:

• Mortgages
• Loans
• Medical bills
• Utility bills
• Phone bills
• Storage bills
• Credit cards
• Funeral costs
• Ongoing services (which might need to be shut down)

Once you have identified the assets and debts/ expenses of the trust and decedent, you should make a table of most up to date values for each asset/debt/expense. It doesn’t have to be fancy, but having a summary of each item will be very helpful when discussing the administration of the trust with a Trust Attorney.

Step 3: Review the Trust document

After locating the estate documents, and made an inventory of the assets/debts, it’s time to actually read the trust document itself to get an idea of what you will be doing in your role as successor trustee. It’s very possible that you will not completely understand all of it and/or have questions afterwards. Assuming it is done within a reasonable amount of time, I believe that reading the trust ahead of meeting with a Trust Attorney is generally a good idea because then you’ll have at least some understanding of the trust, and will have an idea of what questions or concerns you have to discuss with a Trust Attorney.

When reading through the trust, make some notes about the following (as well as anything else that stands out to you):

• Instructions about the decedent’s funeral and burial
• All of the different beneficiaries and under which portions of the trust they are covered
• The provision for appointing the successor trustee (to confirm that you are in fact the current successor trustee)
• Date and location where the trust was signed
• Any requirements/options for filing certain tax forms or making tax related elections (these are typically time sensitive)

Step 4: Meet with a Trust Attorney

By meeting with a good Trust Attorney, you will be able to determine if probate is necessary, or even possibly recommended (less common, but possible), what your workload and responsibilities are going to be as trustee, and whether ongoing help from a Trust Attorney is needed.

If the trust will require a good amount of time to administer due to its terms, or is complex, or involves potentially difficult beneficiaries, it may prove very useful to protect yourself by hiring a Trust Attorney to represent you and otherwise guide you through the trust administration process. Most trusts provide for trust assets to be used to retain an attorney for the trustee, so the costs won’t come directly out of your pocket. But if the beneficiaries end up suing you as trustee, any judgments likely will come out of your pocket.

Depending on the assets that are owned by the trust, you might need to enlist the services of various professional appraisers (discussed in the next step). A Trust Attorney that has been in practice for a while will know several good appraisers to help with that step in the process.

Step 5: Appraising Assets in Trust

Some assets will be easy to value, such as cash accounts, publicly traded stocks, and even common vehicles. However, other assets will require professional appraisers, such as real estate, business interests, art, jewelry, collectibles, etc.

Appraising the value of the trust assets is incredibly important and will serve as a potential protection against the IRS and possibly even the beneficiaries. It is important to determine the value of the property held in trust for two primary reasons: to determine if any death taxes will be due, and to establish a tax basis for assets that will be transferred to the beneficiaries.

Importantly, even the value of assets passing outside of the trust, and even outside of the decedent’s probate estate (such as life insurance and/or real estate held in joint tenancy with rights of survivorship) will need to be valued as those items will also be factored into whether estate taxes are due or not.

The value of all the property should be determined as of the date of the decedent’s death.

Step 6: Paying Bills and Taxes

Next, you will need start paying bills that are legitimate and were owed by the decedent at the time of death. Again, this can include medical bills, funeral costs (after death), utilities, etc.

In addition, you will need to pay ongoing administration expenses of the trust, such as legal fees, and appraisal fees for any appraisals that need to be completed. Depending on what property is maintained and for how long, there might also be ongoing expenses such as insurance, mortgage payments, property taxes, association fees, title fees, etc. During this time and throughout the administration of the trust, you might also need to determine whether certain trust property needs to be sold to continue administering the trust, depending on the trust terms and provisions in the trust.

You will also need to pay any taxes that are due. At a minimum, you will need to file the decedent’s final federal and state tax return. A tax return for the trust might be needed too if certain income thresholds are exceeded. You will need to obtain a tax number for the trust for tax filing purposes. If any estate taxes are due, then you will also need to file a federal estate tax form (706). These have different filing deadlines, which an accountant can help you with when filing.

Step 7: Administer, Distribute, and Terminate

After accounting for all of the bills, expenses, and taxes of the trust (or setting aside sufficient reserves for these expenses), then the main actions left are administering the trust (if the trust terms require ongoing administration), final distributions of trust property (when allowed/required by the trust terms) and then termination of the trust.

Conclusion

As you can see, there are a lot of steps to deal with as a successor trustee in settling a trust. That being said, it is not necessarily a very hard job, but it is important to be organized, methodical, and get professional guidance along the way. If you are a successor trustee and have questions about settling the trust over which you serve, please contact us for a free initial phone consult.