After someone passes away, there are several things that a trustee needs to do to make sure that a trust is administered properly. In order that the successor trustee doesn’t miss any steps, I always recommend seeking the advice of an experience attorney to assist them in the process. In addition, I recommend that successor trustees meet with a trust attorney and his or her other advisors as soon as possible after a loved one passes away. Depending on the type of trust, there may be deadlines to make certain tax and other elections that need to occur within a certain time frame after the trust creator’s death. Obviously, it is important to be sensitive to the family, but, in general, I recommend meeting with the successor trustee within 30 days after the family member’s death.
In the initial meeting with the successor trustee, I educate the successor trustee about the many duties and responsibilities of serving as a trustee. In general, I cover the following items in order to make sure that the successor trustee understands his or her duties:
In order to assist my clients and help them understand all of the responsibilities of a successor trustee, I typically send each of my successor trustee clients a detailed instruction letter outlining all of their duties and responsibilities.
Obtain a Tax ID for the Trust. After the initial meeting, the successor trustee will need to obtain a Tax ID number for the trust and open a trust checking account if one has not already been opened. I typically help my clients obtain this Tax ID number online. Please note that the bank will not let you set up a bank account in the name of the trust without it.
Complete List of Assets and Liabilities. In addition, after the initial meeting, the successor trustee will need to compile a complete list of all of the assets and liabilities of the trust (or that should go into the trust). Moreover, the date-of-death values are important for purposes of determining whether the trust is subject to federal estate taxes, establishing the new stepped-up income tax basis, and assisting the successor trustee in the distribution process from the trust.
Deal with Creditors. Next, under A.R.S. § 14-6103, it is possible to shorten the statute of limitations for claims against the trust by publishing a notice to creditor’s according to this statute. Similar to the procedure in probate cases, this publication has the effect of shortening any statutes of limitations for any unknown claims to 4 months from the date of first publication. Like probate administrations, I always recommend that my clients “close the door” on any potential claims against the trust after this deadline by publishing according to this procedure.
“Administer” the Assets of the Trust. During the 4-month creditor period, the successor trustee can administer all of the assets of the trust according to the terms of the trust. By administering, I mean liquidate and deposit the funds into the trust checking account. However, sometimes the beneficiaries want to keep certain assets in the trust and distribute them in kind. If mom or dad had a house that needs to be sold, then the successor trustee can list the house and sell it. If mom or dad had an investment account that needs to be liquidated, then it can be liquidated and deposited into the trust checking account. If an asset, such as a car, is in mom or dad’s name and needs to be transferred into the trust, it can be transferred though opening a probate case or a small estate affidavit, and then this asset can be sold.
Prepare Final Accounting and Make Distributions from the Trust. After the 4-month creditor’s claim period has ended, provided that all of the assets in the trust have been appropriately administered, then the successor trustee will need to prepare a trust accounting until the date of the proposed distribution. The accounting should list all of the administrative expenses and taxes that have been paid, and all of the anticipated administrative expenses and taxes yet to be paid and will typically include a “holdback amount” to take care of these final expenses. A.R.S. § 14-10817 provides that a successor trustee may send out a proposal for distribution and give the beneficiaries 30 days to object to same, or such beneficiaries waive their objection. If there are no objections to the proposed distribution, then the successor trustee can make the proposed distributions to the beneficiaries.
Termination of Trust. Finally, after all taxes and expenses have been paid, and all distributions have been made, I recommend having the successor trustee sign a Termination of Trust document. This Termination of Trust is the final document that the successor trustee signs at the end of the trust administration process.
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