What Happens To Assets Not In A Revocable Living Trust After Death?

What happens to a revocable trust at death?

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Once Death Occurs A Living Revocable Trust Turns Into An Irrevocable Trust.

Have you created your Trust and wondered what happens to your Revocable Trust if your chosen Trustee dies? We explain the path to take.

People carry a casket for a burial.

Everyone wants to make sure their loved ones are protected, no matter what. For most, that entails having an Estate Plan. Like a Trust-Based Estate Plan with Trust & Will, a comprehensive estate plan includes everything you need to protect your assets and loved ones, both in life and after death. But when the Trustee of a Revocable Trust dies, it is up to their Successor to settle their loved one’s affairs and close the Trust.

Settling a Trust After Death

When settling a trust, you will need to know the many aspects of how to execute a living trust after death. So what happens to a living trust after death? A living trust, i.e., a revocable trust, automatically converts to an irrevocable trust at death. If a Social Security check is in the mail, the Trustee should return it to the state. Once all the assets, taxes, and debts have been distributed and paid off, dissolving the Trust is possible.

But what are the steps involved in settling an estate after death?

How to close a revocable trust after death

The successor trustee checklist for California describes the steps below.

Note: The trust checklist below is a framework, but each estate is different, so ask an estate planning attorney to guide you on how to administer a trust. Avoid: What an Executor of an Estate Cannot do.

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Trust Administration Steps for Trust Settlement

Step 1: Take care of settlor funeral arrangements:

If applicable, locate Pour-Over Will: The grantor may have left funeral instructions.

Spend time with family and let them know you will be the Successor Trustee. Now, order as many original death certificates as you need for each asset in the estate. For example, if there are six homes in the estate for distribution, you will need six death certificates alerting the banks, for instance, of the death. Also, bank accounts, saving accounts, insurance policies, etc., will need a death certificate affixed to the accounts. The easiest way to get certified copies of a death certificate is to order them through the funeral home or mortuary at the time of death. Get at least 12 copies.

Step 2: Gather Important Documents (Inventory): Now that the funeral arrangements have been satisfied, it’s time to collect the inventory of the estate. To understand what the estate has for distribution to the beneficiaries, you must get the Trust document. Note: There may be more than one Trust document, i.e., there may be dynasty trusts QTIP trusts, which is a form of advanced estate planning. Important point: When the trustor dies, however, the revocable Trust automatically changes to an irrevocable trust, and thus it is required to file for a Federal Tax Identification Number (TIN | EIN).

See below a list of needed documents to attain.

Step 3: Review the Trust Document with a Trust & Estate Attorney: The document is the instructions on the distribution of assets within the Trust. Once you review them, contact an attorney to ensure you are on the right track. Note: There are timetables to be met to stay compliant with your fiduciary duties.  

Step 4: Value the Assets in the Trust: In step 2, you will have inventoried the assets, including any jewelry, collectibles, artwork, and other trinkets. Take note: Unfortunately, there are times when family members may try to hoard the assets like jewelry, artwork, etc., so you need to move fast and take pictures and, if necessary, remove the offender as the Trustee has a fiduciary duty to protect the assets. If there are properties, then appraisals should be completed to show fair market value should selling the properties is necessary.

Step 5: Pay off all debt, including credit cards, loans, and other debt instruments: Once all the valuation of the assets has been ascertained, some assets may need to be sold to continue the payments for ongoing expenses like mortgage payments, insurance premiums, accounting fees, legal fees, and so on. The selling of assets can be a point of contention with Beneficiaries. Now, transparency is the best advice for any Trustee and Co-Trustee. Keeping accurate bookkeeping is a fundamental core tenant of meeting the fiduciary duty of a Trustee.

Step 6: Pay Income Taxes and death taxes that may be due: Now that you manage all debts, i.e., mortgage payments, etc., the Successor Trustee will need to prepare and file the grantor’s final federal and state income tax returns.

Step 7: Dissolving a Trust After Death: The time-frame will be around 12-18 months since the grantor/settlor has passed away. There is a living trust distribution time limit, but the transparency of all matters can allow a probate court to extend above the 12-18 months. All assets have been accounted for, sold when needed, taxes paid, etc. Now it’s time to distribute trust assets to beneficiaries.

The above steps are guides to understanding the big picture. Of course, there will be unforeseen circumstances that may arise. Therefore, it’s prudent and wise to seek counsel.

What are some circumstances that may cause a breach of fiduciary duty?

As a Trustee, you have an obligation to the Beneficiary to keep them abreast of the estate and administration. The Beneficiary, on the other hand, needs to have reasonable expectations and understand the time-frames of each step of the process. Now, some Beneficiaries feel slighted because of their inheritance or lack thereof. It is crucial, then, to keep all receipts, get two appraisals, etc. if needed to ensure no one thinks the following:

Embezzlement

Self-dealing

Carelessness

The last thing, remember, the Trust is not a bank account in that the Trustee can borrow money even in the event it’s paid the next day. Understanding the Trustee’s obligations is key to successfully distributing trust assets to the beneficiaries.

SETTLING A TRUST AFTER DEATH

The procedure for settling a trust after death entails:

Step 1: Get death certificate copies.

Step 2: Inventory the assets in the estate

Step 3: Work with a trust attorney to understand the grantor’s distribution wishes, timelines, and fiduciary responsibilities.

Step 4: Asset appraisal

Step 5: Pay taxes

Step 6: Distribute assets and dissolve the Trust.

What Happens to a Living Trust after Death

Settling a trust after the death of a loved one is a very trying and stressful time. We hope to simplify the trust administration process so that the distribution of trust assets to beneficiaries happens sooner than later. It is imperative that the Trustee and Co-Trustee prepare an inventory of the estate, including all assets and liabilities, and consult an estate planning attorney. All these steps are of the utmost importance.

How to Execute a Living Trust After Death   

To execute a living trust after death consists of attending to the wishes of the trustor/grantor on burial wishes, etc.

Once all this finalizes, it calls for the Trustee to alert all Beneficiary and heirs of the trustor’s death and the Trustee’s personal information, including names, addresses, phone numbers, email, etc., that communication and transparency stay open. Real estate will have to change the title; assets collected and protected from stealing are just some aspects of the execution of a trust. A living trust converts to an irrevocable trust the moment the trustor dies. The trust administration process can typically take ten months to 18 months.

Distribute assets

Once all expenses relating to administering the Trust and all taxes are paid, the Successor Trustee distributes the remaining assets to their Beneficiaries using the Decedent’s Revocable Living Trust.

A Trust only exists as long as it takes for the Successor Trustee to distribute the Decedent’s assets to the Beneficiaries. Once the Beneficiaries receive their inheritance, the Trust is considered complete and closed.

Create a Revocable Trust with Trust & Will

A Revocable Living Trust allows you the freedom of knowing that your assets and loved ones are protected now and later down the road. Trust & Will can help you get your affairs in order and lessen the burden on your Successors.