Some people contacting my office with confusion in their voices are children of parents who set up a living trust and failed to communicate to their children the responsibilities they would have when mom and dad died or became incapacitated. So when that occurs, the children either ignore the trust or enjoy the fruits of the trust without ever looking at it closely. If your parents have a living trust and have made you or one of your siblings the successor trustee when your parents die or become incapacitated, you should read the information below.
A living trust has many advantages for some people and in some circumstances. It is not necessarily the best estate planning alternative for everyone. But one of the big advantages listed by promoters of living trusts is the avoidance of probate upon the death of the trust-makers. That’s because unlike a will, a trust is a private document and is not filed with the probate court.
Nonetheless, the successor trustee (the person appointed in the living trust to become trustee when the trust-makers die) must still take steps to administer the trust: beneficiaries must be contacted and kept informed; the trust-maker’s assets gathered and invested; any debts paid; potential creditors notified; taxes filed and paid; and assets and/or income distributed in conformity with trust provisions to beneficiaries.
Successor trustees often lack the time, resources or knowledge to personally administer the trust, and therefore may call upon legal, accounting and investment professionals for assistance. The successor trustee must undertake many activities, some of which are listed below.
- Read and understand at least the basic terms of the trust.
- Place the interests of the trust beneficiaries upmost and deal with them impartially; avoid conflicts of interest and self-dealing.
- Following the terms of the trust, ensure that trust assets are properly titled and invested prudently; diversify, review periodically and consult with a professional regarding the balance of income versus growth of the trust assets.
- Keep trust beneficiaries regularly informed about the trust.
- Maintain proper accounting records, file appropriate tax returns and pay any tax due.
- Make distributions from the trust in accordance with the trust document.
So while a living trust can help you avoid probate, a deceased trust-maker’s family are still well-advised to contact an estate planning attorney to discuss what steps they should undertake to ensure the trust is handled in a way to fulfill mom’s and dad’s wishes.