The most important document is the trust document that created the trust – either a living trust document or the decedent’s will. You have to sign it and, depending on state law, you may have to have it notarized or witnessed. The trust document establishes the existence of your trust, the role of the trustee, her authority to deal with third parties such as bank officials, and her authority to liquidate trust assets. She will also need the title deeds to all titled property owned by the trust – real estate deeds and bank account documents, for example.
Your trustee must inventory all trust assets. Normally, these are listed in the trust document or an appendix. She must list all titled property in a living trust that is still held in your name and turn it over to the probate court through the estate executor, because it is likely to be subject to probate. If you created the trust and it was revocable until your death, the trustee needs the value of all your assets, including the value of trust property, to find out if its total value exceeds the estate tax exemption, which is $5,250,000 as of 2013. If it does, a professional appraisal of assets may be necessary.
Settlement of Claims
All trust creditors must be satisfied before any trust assets are distributed to beneficiaries. If the trust owns a house, for example, the mortgage normally must be paid off before any distributions to trust beneficiaries, even if this requires the sale of the house. If the trust was created under your will, state governments generally require the executor to issue public notice of the probate of the estate -- through a newspaper ad, for example -- and allow creditors a statutory period of several weeks to make claims against assets. Trust creditors also include tax authorities, and trust income is subject to taxation if it exceeds $600 in any given tax year. To pay trust income taxes, Form 1041 must be filed with the IRS by April 15. The trustee will also need to collect any debts owed to the trust.
Distribution of Assets
Before the trustee distributes remaining trust assets to your beneficiaries, she needs to create a distribution plan that conforms to the terms set out in the trust document. If one-third of the trust assets go to Beneficiary A, for example, she may simply transfer title to a trust-owned house if its value is appropriate, or sell the house and distribute the proceeds to the beneficiaries. If after trust debts are paid, insufficient assets remain to satisfy all beneficiaries, the trustee will have to prorate the distributions to beneficiaries. If, for example, if trust assets amount only to 80 percent of the amount necessary to give each beneficiary the amount specified in the trust document, each beneficiary will receive 80 percent of the amount specified.