Trust Settlement
Trust Settlement is the legal and administrative process of settling a trust plan at the death of the trustmaker. Trust settlement is typically facilitated by the trustees of the trust in primary partnership with an estate planning attorney and with the assistance of other professional advisors.
Depending on the complexity of the administration, the legal and practical work of trust settlement can take up to a year to complete. More involved cases or settlements for trusts that have not been maintained may take longer.
There is nothing intuitive about settling a trust after the trust maker dies. The process is tedious and requires locating countless documents, including: original estate planning documents, pour-over will, funeral and burial instructions, bank and brokerage statements, income tax returns, stock and bond certificates, life insurance policies, vehicle titles, utility bills, credit card bills, mortgages, and other important documents. The trustee is then required to strictly follow the trust instructions regarding burial and funeral arrangements, distribution of personal effects, and specific bequests, among other responsibilities. This is only the beginning of settling the trust.
Most trusts will not be required to go through probate, allowing your family and loved ones to avoid costly, time-consuming court proceedings. However, there are still legal hurdles that must be cleared to properly and legally settle the trust estate. Not only do I work with clients to create an effective trust for their family’s future finances, but I also have the experience to effectively settle the trust.
It should be noted that the terms of the trust will ultimately govern how, when and in what manner the trust will be settled. These terms may differ from the general descriptions that follow.
Irrevocability
In terms of the revocable living trust, the trust’s creator (or grantor) holds the power to amend or revoke during her lifetime. This ability to amend or revoke, among others, is what makes the trust a disregarded entity for tax purposes. In other words, the property inside of the trust is still identified with the grantor’s social security number, and any income generated by the property is reported on the grantor’s tax return. However, when the grantor dies (or in the case of a joint trust, upon the death of the last grantor), there is then no one able to amend or revoke the trust. The trust at this point becomes irrevocable. As a result of this change in status from revocable to irrevocable, it is necessary for the trust to have a federal tax id number, and to file a separate tax return for any income maintained in the trust.
Coordination
If the trust was not fully funded with all of the grantor’s assets, and the grantor died owning assets in his name that are subject to probate, there will be a probate court proceeding alongside the trust settlement. Typically the grantor’s will and trust are drafted in such a way to allow for coordination of efforts between the trustee and the executor. For instance, if there are debts that need to be satisfied for the probate estate to close, the trustee may be able to satisfy the debt using trust assets.
Collection
The trust agreement generally charges the trustee with the duty to collect any assets that name the trust as beneficiary. These may come in the form of life insurance proceeds, retirement account proceeds, or in the case of an estate with probate assets, by way of distribution via probate.
Payment
The trust agreement generally directs the trustee to pay any debts owed by the grantor, any income or estate taxes, and the costs of administering the estate (e.g. funeral costs, professional advisor’s, etc.).
Administration
The trustee has the responsibility of administering the trust estate: ensuring taxes are timely filed, the trust books are being properly kept, and the trust assets are being properly invested/cared for.
Distribution
After all property has been collected, and all debts, taxes and expenses of the estate have been paid, the trustee will then allocate and distribute the assets according to the terms of the trust.
Generally, settling a trust is a much faster process than a probate estate. This is simply due to the lack of court involvement and oversight (e.g. mandatory accountings, requesting permission from the court to take certain actions, etc.). While trust settlement is generally faster, it is not instantaneous. Depending on the complexity of the estate, settling a trust estate could take many months or years.
Again, it bears noting that the description above is general in nature, and may not apply to all situations. The terms of the trust govern, and the trustee is legally bound to follow the trust’s provisions.
When your property is protected in a trust, it is legally bound to the terms and provisions of that trust. This means that your family or loved ones will need to follow the specific terms of your trust before they can distribute or receive any finances. A trust will not typically require any court involvement, which can be very beneficial to those involved. While this is true, you will still need to enlist the services of a skilled lawyer to help settle the trust efficiently.
Depending on the complexity of the administration, the legal and practical work of trust settlement can take up to a year to complete. More involved cases or settlements for trusts that have not been maintained may take longer.
A trustee cannot settle a trust immediately, and will be required to follow several legal regulations, including the administration of the trust, before settling it. There are a variety of options your loved one might have used, such as revocable living trusts, life insurance trusts or irrevocable trusts. Each trust has different requirements and complex processes that will need to be followed.
To settle a trust, it often involves the following:
- Closing out bank accounts
- Collecting assets
- Paying taxes
- Repaying creditors
- Distributing assets
Brady Cobin Law Group PLLC Can Update Your Trust
At Brady Cobin Law Group, PLLC, we would be happy to review your trust or create a new plan to meet your needs for the immediate and distant future. Contact us today to get started.