In our last blog, we discussed steps a client’s Personal Representative takes as part of the probate process upon the client's death. Today's blog addresses how the client’s Living Trust and their successor Trustee fit into that picture. In most cases, the Successor Trustee plays a significantly larger role in the administration, because a properly funded Living Trust limits the assets that need to pass through the Probate Court.
Unlike a Personal Representative, the Successor Trustee does not need to wait for the Probate Court to approve their appointment. The Successor Trustee can sign an Acceptance of Trust indicating acceptance of the trustee position and then take possession of the trust assets on behalf of the trust beneficiaries. The Trustee is responsible for the care and custody of assets and making investment decisions, but may rely on qualified professionals for assistance. It is important to remember that a Trustee is a "fiduciary" and must meet a very high standard of care with respect to all actions.
One of the first things a Trustee must do is apply for a federal tax identification number for the Trust. While a Living Trust uses the Grantor’s Social Security number during the Grantor’s lifetime, both the Estate of a deceased individual and that person’s Living Trust must have separate tax identification numbers and file income tax returns for as long as the Estate remains open and the Trust continues to hold any assets. In limited circumstances, the Estate and Trust may file a combined return; however, it is important to seek the advice of a qualified professional before filing such return.
Next, the Trustee should provide the beneficiaries of the Trust with certain information, including informing beneficiaries of the existence of the Trust, the name and contact information of the successor Trustee, and information regarding the scope and terms of their individual bequest. This statutorily required notice serves as a check on the Trustee's powers by giving the beneficiaries sufficient information to hold the Trustee responsible for their actions. The Trust normally provides that the Trustee must provide an annual accounting to beneficiaries during the time the trust owns any assets. Prior to making any distributions to the beneficiaries, the Trustee should coordinate with the Personal Representative to pay the grantor’s creditors as may be required by law.
When all Trust Matters are completed, the Trustee distributes the trust assets to beneficiaries pursuant to the Grantor’s instructions. In all circumstances, it is important that a successor Trustee seek the advice of competent counsel in order to comply with all of their responsibilities, and to assist in the smooth administration of the trust to achieve the grantor’s goals. Later this week we will discuss how the successor trustee should handle distributions of particular assets, including personal property and investment accounts.