How to Liquidate Trust Assets of a Decedent

By David Carnes

When you die, the trustee of your trust must look to the trust document for guidance on distributing trust assets. Depending on the kind of trust you've set up, your assets may or may not have to go through probate. The assets of a living trust normally do not have to go through probate, but the assets of a trust created by your will always do. If the trust document specifies that its assets are to be distributed upon your death, your trustee must methodically liquidate trust assets – she must terminate the trust by paying off all of its creditors and distributing any remaining assets to its beneficiaries.

Documentation

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.

Inventory

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.

Protect your loved ones. Start My Estate Plan

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.

Protect your loved ones. Start My Estate Plan
How to Create a Legal Trust

References

Resources

Related articles

Living Trusts & Bank Accounts

You can place your bank accounts and other assets in a living trust so they bypass probate when you die. Avoiding probate generally saves time and money for the beneficiaries of your estate. You must physically change the titles of your assets from your individual name to the name of your trust for them to skip the probate process upon your death.

The Responsibilities of the Trustee for a Living Trust in Indiana

A trust is an estate planning document that transfers property of the trust's creator, known as the “settlor,” to the trustee for the benefit of a beneficiary named in the trust document. A trust is considered a living trust when it is created and takes effect during the settlor’s lifetime. A living trust can either be revocable or irrevocable. In a revocable living trust, the settlor can amend or revoke the trust anytime during his lifetime. In Indiana, the trustee's duties are set forth in the Indiana Trust Code.

Things to Do When Someone Dies With a Revocable Trust in Florida

Revocable trusts are a useful tool for avoiding probate in Florida. The process involves transferring property owned during life to the trust with directions on how the assets are to be distributed after death. The individual who establishes the trust is referred to as the settlor, and the person who administers the property is referred to as the trustee. Those who stand to benefit under the trust terms are known as beneficiaries. Upon the death of the settlor, it is the trustee's job to perform certain duties associated with administering the trust in accordance with Florida law.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

What Happens When a Trust No Longer Has Assets?

Trusts must adhere to specific requirements to be valid. All trusts, including living trusts and irrevocable trusts, ...

Responsibilities of a Successor Trustee Upon the Trustees' Deaths

Initially, a successor trustee's job is one of waiting in the wings. As the name of the position suggests, this ...

Does a Trustee Have to Give a Beneficiary a Copy of the Trust?

Rules regarding inheritances are some of the strictest in law. After all, they deal with your lifetime savings and the ...

How to Execute a Living Trust

A living trust allows a person known as a trust grantor to place his assets under the administration of a trustee, who ...

Browse by category
Ready to Begin? GET STARTED