Settling a Revocable Living Trust
What happens after the grantor of revocable living trust dies? Phelps LaClair, serving Mesa, Chandler, and Phoenix, has heard this question hundreds of times. In fact, revocable living trust distribution is one of the things written into every trust we design. But if you have been named as Successor Trustee, you may not be familiar with the process of settling a revocable living trust. Here are six steps you will need to take in order to make it happen.
Gather important papers
You will first need to locate the original revocable living trust agreement, any trust amendments, and any other important documents relating to the trust. These documents will contain records of all assets in the trust, including bank accounts, insurance policies, titles, and deeds. You will also need documents showing all outstanding debts, loans, mortgages, and medical and funeral bills.
Review the trust
Next, you will review and summarize the trust documents. You need to determine if there are any special burial instructions. You will also note who are the beneficiaries and what has been left to them. There may be special bequeaths, or beneficiaries of a residual trust that need to be notified. You will need to know where and when the trust agreement was made, the notary official and, witnesses to the signing. The trust may also require new trusts to be made upon the death of the decedent.
As part of the summary review, you need to make a list of what is owned and what is owed. There may be assets owned that are not included in the trust; these assets may be taxed. Debts that are owed should have a statement revealing the amount owed and the date of incurrence. Bank loans, mortgages, and credit cards will have detailed statements. It is also good to have three years’ worth of tax returns on hand.
At this time, you probably want to meet with a trust attorney. At minimum, you will want their advice on whether probate will be necessary for any assets not included in the trust. At Phelps LaClair, we know the process of terminating a revocable living trust, and we can help you navigate all the details of closing a trust, paying off debts and taxes, and distributing assets.
The date-of-death value of all applicable assets must be determined. Stocks, retirement accounts, insurance policies, and annuities will all have a valuation based on the day the decedent died. Some of these holdings may be subject to taxation. Listed assets such as real estate, jewelry, collectible art, and vehicles must be appraised by a professional. The cost of these appraisals will be paid out of the funds of the estate.
When asset values have been determined, it is time to pay off any debts, bills, or fees relating to the estate. In some cases it may be necessary to sell off real estate or business interests in order to raise cash to pay these debts. As mentioned above, you will also need to pay the expenses of settling the estate.
As successor trustee, you will need to prepare and file the decedent’s final income tax returns. Any money owed will be paid from the estate. There may also be inheritance taxes due. This varies from state to state. If the estate earns income from investment accounts or royalties while the trust is being administered, there may be taxes due on this income. The successor trustee will need to prepare and file federal (and possibly state) estate tax returns. Again, it is wise to consult with a trust attorney in these circumstances.
Distributing the inheritance
The final step in settling a revocable living trust, after all the expenses and taxes have been paid, is to distribute the assets to the beneficiaries. If any of the assets of the estate have gone to probate, then the distribution must wait until the probate case is closed. Only then can the beneficiaries receive their inheritance.
As you can see, terminating a revocable living trust can be a time consuming and complex process. Once again, seeking the help of a trust attorney is a wise decision. At Phelps LaClair, our real strength is estate planning. Revocable living trust distribution and termination is part of our business. As a second generation firm, we have helped hundreds of families come through the process successfully. We can help you, too. Give us a call for a consultation. Let us help you carry the burden.