Trustee Responsibilities for Closing Out a Revocable Trust
The most common question I hear from clients appointed as successor trustees of a revocable living trust is “What do trustees do?” Simply put, the successor trustee’s responsibility is to close out a revocable living trust and distribute the trust assets to beneficiaries. The steps for actually doing this can be complicated and time consuming, as you work to settle all the decedent’s accounts and distribute the assets within the trust.
If you have recently been appointed as a successor trustee, contact a Clarksville estate planning attorney for assistance with your trustee duties. Then use the steps below as a checklist for closing out the revocable trust.
Plan Ahead for Estate Expenses
Open an estate account.
Depending on the complexity of the trust, a administrating a trust can be a significant job. The trustee will likely incur expenses in managing and closing out the trust. If there are costs, the expenses should be paid out of the trust assets. The successor trustee should not have to pay the decedent’s debts or trust expenses out of his or her own pocket. If the trustee must pay for these expenses, then they are entitled to reimbursement before the trust assets are distributed.
The successor trustee should document and account for any expenses which he or she pays out of pocket.
Identify the decedent’s debts.
It is the successor trustee’s responsibility to pay the decedent’s monthly expenses. Identify any outstanding debts owed to any creditor to make sure the trust properties and other assets stay current. For example, you do not want to be surprised to learn that real estate owned by the trust has a mortgage that has not been paid in several months. If the debt is unknown to the successor trustee, that house could face foreclosure.
Be aware of creditors.
Successor trustee responsibilities include paying off the expenses of the decedent. If the trustee is aware that the decedent had a monthly credit card balance that was paid off every month or other recurring expense, these debts should be satisfied. However, be aware that this duty does not include a duty to immediately paying expenses that seem out of place or unusual. Creditors must file a claim against the decedent’s estate in order to receive compensation for unsecured debt. If there is no estate opened, then the creditor must file to open a claim. If a creditor does file a claim, the trustee should seek legal counsel and communicate with the executor of the estate about the best way handle the claim.
Identify trust assets.
Before settling the decedent’s accounts, the successor trustee should identify all the assets in the trust.
The original trust document should contain a list of assets that were transferred into the trust. It is the trustee’s duty to double check that all the assets inventoried in the trust document were legally titled in that entity’s name. Just because the trust document states that an asset is part of the trust does not mean it was actually put into the trust. It could be the settlor neglected to transfer the asset from his or her name to the name of the trust. If that is the case, then that asset is not controlled by the trust and is subject to probate.
If the trust document does not contain a list of assets, you will have to inventory the trust assets yourself. This takes some digging, and sometimes requires the assistance of an experienced estate planning attorney to determine which properties and accounts are titled as settlor’s trust.
If the decedent had assets outside of the trust, the trustee should attempt to find the decedent’s will. Most likely, a “pour-over will” was created at the same time the trust was established. Depending on the nature and value of the assets, probate may be required to transfer those assets from the deceased’s estate to the trust. Once the estate assets are transferred to the trust, they will be included with the overall list of trust assets.
Determine asset value.
The successor trustee’s next step is to determine the current value of the assets in the trust. To access the decedent’s personal accounts and statements, you may need to show them a copy of the trust or a certification of trust to show that you are the trustee.
As you gather information on the current value of trust assets, make sure that the assets are secure. Part of your responsibility to the trust beneficiaries is to keep their inheritance safe until the trust assets can be distributed.
Temporarily manage trust assets.
Assets in a trust can be distributed to the beneficiaries faster than assets in a will, but closing out a trust can still take up to a year. Until assets can be distributed, the successor trust is responsible for managing and maintaining the decedent’s assets.
Successor trustee duties include real estate responsibilities, such as paying mortgages or property maintenance to keep everything in good condition. The successor trustee is also responsible for paying expenses, such as insurance premiums, utilities, as well as administrative and legal fees. To be sure, trust expenses can be paid with liquid assets from the trust rather than out of the trustee’s pocket.
Pay Final Income Taxes.
After the decedent’s debts and estate expenses have all been paid, the successor trustee should coordinate with the executor to make sure that the decedent’s last federal income tax return is prepared and filed. The return must be filed by April 15 of the year after the deceased person’s death. Once the decedent’s tax return is filed, the successor trustee may have to pay any due taxes out of the estate, as well as unpaid taxes due from previous years. Contact an accountant or an estate attorney for help with filing and paying a decedent’s taxes.
Pay Estate or Inheritance Taxes.
While 99% of Americans currently do not have to pay federal estate taxes, if the decedent had estate worth $11.2 million or above, the successor trustee must file federal estate tax return and pay due taxes from the estate.
As of 2016, Tennessee does not have an inheritance tax for beneficiaries. So if you are a successor trustee administrating an estate in Clarksville, inheritance tax is one less thing you have to worry about.
If you reside in Kentucky, you will need to file a Kentucky Inheritance Tax return.
Prosecute Legal Actions.
The successor trustee role includes defending the trust against lawsuits. If the decedent’s estate or trust is sued, the trustee should seek legal counsel to ensure that trust assets are protected.
Additionally, if an heir of the estate contests the terms of the decedent’s revocable trust, the trustee must advocate for the validity of the trust.
Distribute Assets to Beneficiaries
Once all the estate accounts are settled, the successor trustee’s last step to close out a revocable trust is to distribute trust assets to the beneficiaries.
It is best to acquire the assistance of a financial advisor and an experienced estate planning attorney to make sure that all assets are distributed correctly when it comes time to cut the checks.