Thinking about a Trust at the death of a spouse can be a very difficult prospect during a very emotional time. Nonetheless, the death of a spouse can bring about complex financial issues that must be addressed. Although administering the Trust may appear daunting, there is a process to follow, as well as resources to help you along the way.
The First Steps After the Death of a Spouse
The first step is to call your estate planning attorney. They have helped you create your Trust and can help you understand your duties as you administer that Trust. If you are no longer in touch with the attorney that planned the Trust, then be sure to find an “experienced” estate planning attorney to help you. Plan a meeting with this attorney two to three weeks after the death of your spouse.
The next thing you will need to do is find the Trust documents. This can result in a frustrating search, especially if your spouse was not organized or did not let you know where he/she kept important papers. This is where pre-planning comes in handy. Knowing beforehand where such important papers are kept will help things run more smoothly.
Once you have located the Trust papers, you will need to gather all the financial information about the assets. This includes:
• Deeds
• Bank Statements
• Brokerage Statements
• Tax Returns for the last three years
• Titles
• Other records of ownership
While gathering this information, be sure that you do not change the title of any assets. This will create undue problems for you.
Finally, you will need to attend the meeting with your estate planning lawyer. During this meeting, the attorney will help you understand the legal and tax requirements and let you know the terms of the Trust that you will need to follow.
If you, as the Trustee, are slow in acting, others may take advantage of the situation. For instance, someone may take possession of items in the deceased’s home or take other actions that make it difficult to carry out the terms of the Trust. Although the death of a loved one is sad, it would be sadder still to know that your loved one’s last requests could not be honored. As a Trustee, it is imperative that you act swiftly.\
Stages of Trust Administration
Once you have met with the attorney, you must then begin your Trust Administration duties. These include:
• Taking an inventory of assets
• Determining estate tax
• Dividing Trust assets
• Filing tax forms
• Distributing assets to beneficiaries
Taking an Inventory of Assets
The very first task as Trustee is to take inventory of the assets of the Trust. This is more than just making a list. It also includes listing the ownership of each asset as well as the date-of-death valuation. Knowing the ownership of each asset will ensure that all assets that are supposed to be in the Trust are indeed owned by the Trust. Knowing the valuation of the assets will have important tax implications. Your estate planning attorney can recommend the right professionals to help you obtain the correct asset valuations.
Determining Estate Tax
There will be no estate tax due after the death of the first spouse due to the unlimited marital deduction. However, after the death of a surviving spouse or a single individual, estate taxes become very important.
Any assets over $3.5 million in 2009 will be taxed at 45 percent and must be paid within nine months of the date of death using IRS Form 706. Once again, a qualified estate planning attorney will help you determine which assets will be subject to the estate tax.
Dividing Trust Assets
It is the job of the Trustee to split the assets from the Joint Trust into two or three different Trusts. These Trusts include the Survivor’s Trust, the Family Trust, and potentially the Marital Trust.
The Survivor’s Trust is exactly what it sounds like – a Trust that holds the surviving spouse’s assets. These are assets that were once held jointly in the Joint Trust.
The deceased spouse’s assets are either put completely into a Family Trust, or split between a Family Trust and a Marital Trust. The Family Trust will no longer be considered part of the surviving spouse’s estate upon death. The purpose of this Trust is to keep assets out of the surviving spouse’s estate while still providing income to the surviving spouse.
It is very important that the Trustee properly fund these Trusts. If assets are not transferred correctly, they will be considered part of the estate and subject to Probate.
Filing Tax Forms
In addition to income tax returns for the deceased for the year of his or her death, it may also be necessary to file IRS Form 706 to declare any estate taxes due. Additionally, Form 1041 is due annually for the Trust in every year after the death of the original Trustor. Not filing these forms on time can result in penalties and interest due.
Distributing Assets to Beneficiaries
As a Trustee, you do not determine how the Trust’s assets will be distributed. Instead, you merely carry out the terms of the Trust. Once bills and taxes are paid and all assets have been accounted for, the Trustee will then pay out any assets due to beneficiaries. This process usually takes four to six weeks – far faster than the nine or more months needed to go through Probate.
Frequently Asked Questions Concerning the Trust Administration Process
Should I expect a cost when one spouse dies?
Whenever a Trust changes, there will be a fee involved. The fee will vary from situation to situation depending upon the type of assets and the complexity of the Trust. Typically, this fee will be significantly less than Probate would have been.
What happens if I am single when I die?
Your Successor Trustee will follow the same steps that would be followed if you had a living spouse at the time of your death. The only difference is that the Trust will not be split into a Survivor’s Trust or a Marital Trust.
The death of a loved one is a trying and emotional time. Yet, it is necessary as the Successor Trustee to administer the Trust the decedent left behind. By following the steps laid out in this chapter and working with an experienced estate planning attorney, you will be able to carry out the wishes of the deceased individual.
For more information, please visit our website:
www.NJTrustLawyer.com
