Before assets are distributed to beneficiaries, the successor trustee must complete other necessary duties.
With an revocable trust, the grantor (the person who creates the trust, also known as the settlor or trustor) typically acts as a trustee, so when they die a successor trustee steps in and takes over responsibilities — which ultimately end with distributing the trust assets to the proper people. The trust also becomes irrevocable upon the grantor’s death; you can only amend a irrevocable trust under certain circumstances permitted by law.
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Property in a living trust can avoid probate so if you're the beneficiary you can receive the assets without court involvement (unlike with a will). But before anyone can get their inheritance, the successor trustee must complete a number of tasks first as part of trust administration, which include:
Taking inventory and assessing trust property
Paying trust expenses, debts, and taxes
Distributing trust assets
A successor trustee handles the trust’s affairs when the creator of a revocable trust dies
Trustees can administer the trust on their own, but may need the assistance of an estate or trust attorney
A revocable living trust becomes irrevocable once the grantor dies
It can take as long as 18 months for beneficiaries to receive assets from the trust
A trust beneficiary has the right to know they’ve been named in a trust after the grantor dies, and they may even be entitled to a copy of the trust document. The successor trustee may also be obligated to let other people know, like creditors, the grantor's surviving spouse, and next of kin — people who would be next in line to inherit assets if the grantor didn't make the trust or a proper estate plan.
The successor trustee has a fiduciary duty to the trust and should stay on top of all activity and paperwork related to the trust. They should verify what assets the trust held before the grantor died. A good starting point is the trust’s schedule of assets, also called a Schedule A or trust inventory. If the grantor created one, it may be attached to the trust document.
Any assets that weren't properly transferred into the trust during the grantor’s lifetime are subject to probate. Similarly, if the grantor intentionally instructed assets to transfer into their trust after they died (through a pour-over will), the assets must be probated as well.
Once a list of trust assets have been made, the trustee should determine their value. For financial assets, like stocks or a bank account, you can reach out to the institution that holds the asset and show them a certificate of trust to get the proper information. For tangible assets, like artwork or real estate, you may need to call an appraiser.
The value of the trust assets at the time of the grantor's death is necessary for determining the value of their estate, discussed next.
Settling a trust can take time, so it’s likely the trust will incur expenses that need to be paid. The trustee must continue paying any insurance premiums, fees for lawyers or accountants, appraisal fees, and general maintenance fees related to the trust. They aren’t required to pay out of their own pocket and are entitled to make payments with the trust funds.
When you die, your debt doesn’t disappear. The trustee will be responsible for settling or paying any outstanding debts, and if there isn’t enough money in the trust, the trustee can sell trust property. If the decedent owed a large amount of debt, then it might diminish a beneficiary’s inheritance. (A revocable trust doesn’t protect assets from creditors. To prevent this, consider opening an asset protection trust.)
The assets in a revocable trust aren’t counted as probate assets, but their value will count towards the value of the estate for estate tax purposes. If the gross value of the estate is over the estate tax exemption — $11.7 million in 2021 — then the estate may have to pay federal estate taxes. (Revocable trust assets are included in the estate value because the grantor still legally owns property in a revocable trust for tax and income purposes. If you’re interested in minimizing your tax burden, you need to open an irrevocable trust.)
The successor trustee may need to coordinate with the executor when it comes to paying estate tax and filing the estate tax return, as well as a final income tax return for the decedent.
The trustee is also required to file a fiduciary income tax return, IRS Form 1041, on behalf of the trust after the grantor dies.
Learn more about how trusts are taxed, including trust tax rates and what forms to use when you file.
Once the trustee has settled or paid all debts and taxes, they can finally begin to distribute assets to the beneficiaries.
A simple trust might pay out all the assets to beneficiaries upon the grantor’s death, or it might require the trustee to hold onto the assets until certain conditions are met, like until a beneficiary reaches a certain age. More complex trusts may have strict rules about what assets (principal or income) the beneficiaries might receive and when.
You can learn more in this guide on how to distribute trust assets to beneficiaries.
Trust distribution can take as long as 18 months in some cases and some states might require the trustee to get formal permission from a court to make distributions and terminate the trust when they’re finished. The American Bar Association recommends that trustees prepare a receipt for beneficiaries and have them sign it so there’s a record to help prevent future disputes.