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

By Lisa McQuerrey

A living trust is a legal document drawn up before an individual’s death. The owner of a trust may place assets in the trust while he is alive and use the trust to dictate how those assets will be handled both before and after his death. A living trust is much more difficult to contest than a will, and it is not subject to probate, so distribution of assets is handled quickly. The trust owner names a successor trustee to administer the trust after his death. If you have been named a successor trustee, it will be your job to follow the instructions outlined in the trust.

Step 1

Assume your position as successor trustee. Your role automatically begins upon the living trust owner’s death. Contact the financial or investment firm that holds the living trust and/or consult with the trust owner’s attorney to access pertinent documents to begin executing the trust’s instructions.

Step 2

Apply for a federal tax identification number for the trust, if necessary. If the trust was a revocable grantor trust, the owner most likely reported trust income for taxes under his Social Security number during his lifetime. At the owner's death, the trust becomes irrevocable and must file under its own EIN.

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Step 3

Notify beneficiaries of the trust. You may want to consult with a lawyer in the state in which the deceased lived for special instructions on when and how beneficiaries should be notified.

Step 4

Carry out the instructions in the living trust with regard to distribution of assets. This may include writing checks from the trust to heirs, transferring real property to beneficiaries or otherwise distributing assets as outlined by the living trust owner. You may work with an executor, if one was named in the deceased's will.

Step 5

Dissolve the trust or continue to maintain the trust if the trust states that assets are to be managed in some way other than direct distribution. For example, if the owner of a living trust bequeaths money to minor children but includes a provision that the trust maintain the funds until the children are of legal age, it will be your responsibility to maintain the trust until the assets can be distributed.

Step 6

File tax returns for the trust. You will be responsible for filing both federal and state tax returns for any trust income. You may also be responsible for completing and providing a Schedule K-1 to each beneficiary who received distributions of income from the trust.

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References

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