In the area of estate planning, there are so many different types of trusts that serve very different purposes. Creating a living trust basically requires transferring the title or ownership of your assets to the trust. A common question asked by clients is — what happens to a living trust at death? Here is what you need to know.
What is a living trust?
A “living trust” is a trust that becomes effective during your lifetime, as opposed to only becoming effective after your death. Like other types of trusts, property transferred to a living trust will be held and managed by your trustee until it is time to transfer the trust property to your heirs. There are a few straightforward steps required to create a revocable living trust. Your estate planning attorney will initially meet with you to determine what your particular needs are. From this, your attorney will draft the trust document which contains all of the terms of the trust. That is the instructions for the trustee to follow. After drafting the trust document, the property must be transferred or “funded” into the trust. It’s really that simple if you have the assistance of one of our living trust attorneys.
What is the First Step the Trustee Should Take?
So, what happens to a living trust at death? Upon the death of the owner of a living trust, the successor trustee will take over. The first step is to contact the investment firm that is holding the living trust or the attorney representing the trust owner. They will have the necessary documents (the trust agreement) in order to begin executing the provisions of the trust.
Applying for a Federal Tax ID Number
The next step for the successor trustee is to submit an application for a federal tax identification number that will belong to the trust. In most cases this is necessary. Although during the living trust owner’s lifetime trust income is reported for tax purposes under the owner’s Social Security number, after the owner’s death, it must have its own federal tax id number or EIN.
Notifying Beneficiaries and Executing the Trust Provisions
The next step for the successor trustee is to notify the trust beneficiaries. Carrying out the provisions of the living trust includes distributing the trust property in the manner provided by the trust terms. Distribution may include writing checks from the trust account, transferring any real property to the appropriate beneficiaries, or making any other specific distributions as spelled out in the trust agreement. If there was also a will, then the successor trustee may work in conjunction with the executor of the estate.
How Does the Trust End?
Depending on the terms of the trust, it may be dissolved after all of the trust property has been distributed. But, if the terms call for something other than direct distribution to heirs, it may be necessary to maintain the trust for a period of time. For instance, the trust owner may have left money to a minor child which would require that the trust retain the funds until the child reaches the age of majority in the state of the child’s residence. If that is the case, the trustee will remain responsible for the trust until it is time to make the final distributions.
The Final Step Once Distribution is Done
Once all of the terms of the trust have been carried out, the successor trustee will then file federal and state tax returns for the trust account based on the trust income. A Schedule K-1 must also be provided to every beneficiary who received any income distributions from the trust.
Whose Interests are the Trustee Required to Represent?
The trustee is considered a fiduciary and is expected to always look beyond his or her own interests in complying with the terms of the trust document in every decision that is made. Unfortunately, this can be more difficult than you may expect. Remaining impartial can be especially challenging when you have a relationship with any of the beneficiaries of the trust, or if you have any emotional connection to the family in general. Regardless of your relationships, a trustee is expected to remain a neutral party in every transaction affecting the trust.
Join us for a free seminar today! If you have questions regarding what happens to a living trust at death, trust contests, or any other trust administration issues, please contact the Schomer Law Group either online or by calling us in Los Angeles at (310) 337-7696, and in Orange County at (562) 346-3209.
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Scott Schomer, Estate Planning Attorney
A graduate of Boston University School of Law, Scott P. Schomer is a frequent lecturer on estate planning and elder law issues, having discussed these important issues on local and national television. A seasoned courtroom advocate, Scott has obtained combined judgments and verdicts in excess of twenty-five million dollars for his clients. Scott has served as a member of the Los Angeles Superior Court Probate Volunteer Panel (PVP Attorney), Probate Settlement Panel and a Judge Pro Tempore. Scott’s expertise has been recognized by his peers with such accolades as a life-time membership in the Multi-Million Dollar Advocates Forum, the Five Star Wealth Manager designation, and repeated nominations as California Super Lawyer.
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