What Happens When the Grantor of a Living Trust Dies?
When the grantor of a revocable living trust dies, the trust usually becomes irrevocable, and the successor trustee takes control of trust assets without probate. The trustee gathers and values assets, notifies beneficiaries as state law requires, pays the grantor's debts, expenses and taxes, keeps records, and distributes assets according to the trust's terms. Retirement accounts naming the trust follow special tax rules.
A living trust is designed to make this moment easier. Still, the successor trustee has real work and legal duties.
The trust becomes irrevocable
At the grantor's death, a revocable trust generally can no longer be changed (Cornell LII). If a married couple had a joint trust, the terms may split it into separate shares, with the survivor's share remaining revocable.
The successor trustee takes over
The successor trustee named in the trust document steps in, usually showing financial institutions a death certificate and a certification of trust. No court appointment is normally required.
The trustee's main tasks
- Locate the trust document and any amendments, and the grantor's pour-over will.
- Get an EIN for the now-irrevocable trust and open a trust account.
- Inventory and value assets as of the date of death; this establishes the stepped-up basis for many assets (26 U.S.C. 1014).
- Notify beneficiaries and heirs as state law requires; many states require notice within a set period and give beneficiaries a right to information.
- Pay debts, expenses and taxes: the grantor's final income tax return, trust income tax returns, and any estate tax.
- Manage assets prudently until distribution.
- Distribute assets to beneficiaries as the trust directs, outright or in continuing trusts.
- Account to beneficiaries.
Assets outside the trust
Assets not transferred into the trust may need probate, often through the pour-over will. Small estate procedures may help; see how probate works.
Retirement accounts
If a trust is the beneficiary of an IRA or 401(k), special distribution rules apply, which can affect taxes (IRS). The trustee should get professional advice before taking distributions.
Trustee duties and liability
The trustee is a fiduciary who must follow the trust terms, be impartial among beneficiaries, avoid self-dealing, and keep beneficiaries reasonably informed (Cornell LII). A trustee can usually be paid reasonable compensation.
How long it takes
Simple trust administrations can wrap up within months; complex ones with real estate or tax issues take longer.
Disputes
Beneficiaries can challenge a trust or ask a court to supervise or remove a trustee. Deadlines to contest are often short after notice.
An estate planning lawyer can guide successor trustees. See also what an executor does, since the roles overlap.
Sources
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This article is general legal information, not legal advice, and reading it does not create an attorney-client relationship. Laws differ by state and change over time; talk to a licensed attorney in your state about your situation.