What Do You Do When the Owner of a Living Trust Dies?

By Larissa Bodniowycz, J.D.

What Do You Do When the Owner of a Living Trust Dies?

By Larissa Bodniowycz, J.D.

A living trust is a form of estate planning set up by a person during their lifetime that allows them to continue benefiting from their assets while they are living and helps manage the distribution of their property when they pass away. When the owner passes away, the successor trustee must begin managing the estate and distributing assets in accordance with the terms of the planning document.

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Living Trust

The owner, called the settlor, is the person who sets up the estate account while they are alive. This individual can utilize this form of estate planning in addition to or in place of a will. The owner often chooses this format instead of a will because it helps them avoid or minimize probate for their assets, and probate can be costly and time-consuming.

A trust consists of the assets the settlor wants to pass through it. It can contain a variety of types of assets, such as insurance policies, investment accounts, cash accounts, personal property, and real estate. The owner transfers assets into the account during their lifetime. When they pass away, the assets are distributed to beneficiaries, or the individuals they have chosen to receive their assets.

A settlor can change or terminate a revocable trust during their lifetime. Generally, once they die, it becomes irrevocable and is no longer modifiable.

Successor Trustee

In the legal agreement, the settlor names a successor trustee. When they pass away, the person named takes over and becomes responsible for distributing the settlor's assets according to the method set out in the agreement. In the case of a joint trust, such as one set up by a husband and wife, upon the death of one settlor, the surviving one typically manages the assets as the sole agent.

If you are named as a successor, your role begins automatically upon the estate owner's death. You can start fulfilling your duties by taking the following steps.

1. Review the agreement.

Your first action is to read the agreement. This document is your compass. It tells you what your responsibilities are and how to distribute assets. Your main obligation is to follow the settlor's instructions as laid out in the agreement.

2. Contact institutions and professionals.

When administering the agreement, you will need the help of other people and institutions. You should contact each institution that holds relevant assets to introduce yourself and determine their requirements for accessing them. You should also consider retaining an attorney and a tax professional to help you with the process.

3. Keep beneficiaries informed.

You have an ongoing duty to provide information to the owner's beneficiaries when the settlor dies. You should consult the laws of your jurisdiction and an estate attorney to find out what information you must provide. You will also likely need to provide ongoing information to the beneficiaries regarding the status of the account.

4. Obtain a tax identification number.

This form of estate planning means the assets are considered as one taxable entity separate from the settlor and beneficiaries. You should obtain a tax identification number for the asset and arrange for all tax-related correspondence to come to you.

5. Distribute assets.

You must distribute assets to the beneficiaries according to the documented instructions. The agreement may simply instruct you to distribute the assets and property upon the settlor's death and then close the trust. It could also contain more complicated instructions.

You might need to invest and manage assets until you can distribute them to the beneficiaries. For example, someone may wish to set aside assets for the benefit of minor children and may request that you keep the account open until the children reach a certain age.

6. File tax returns.

You are required to prepare and file tax returns for the trust. You must file both state and federal income tax and estate tax returns. You may also have to complete a Beneficiary's Share of Income, Deductions, Credits, etc. (Form 1041, Schedule K-1) for each beneficiary who received a distribution of assets or income. If your administration over these assets spans multiple years, you must file a tax return for each year the administer remains in existence.

7. Close or continue the trust.

Once you have distributed all assets according to the terms of the agreement, you can usually close the trust and end your obligations, also called dissolution. In most cases, you must notify the beneficiaries and prepare a written document detailing the terms of the closure.

Administering someone's estate can be a time-consuming and confusing task. Preparing in advance by familiarizing yourself with your responsibilities and the agreement can help ease the burden. If you decide to hire professionals to help you, you may be able to pay their fees from the assets you're managing.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.