When the unmarried maker of a revocable trust dies, the trust becomes irrevocable, and the successor trustee steps in to administer the trust. The successor trustee is responsible for taking the necessary steps to distribute the assets to the remaining beneficiaries, according to the terms of the trust. If the trust calls for the assets to be distributed outright and free of further trust, the successor trust will manage the process of winding up the trust. The successor trustee can name a co-trustee and can hire professional assistance, unless the trust specifically disallows that. Administrative costs are expenses for the trust.
One of the first items of business is to obtain a new taxpayer identification number with IRS. The successor trustee should provide the new number to financial institutions. The successor trustee should file a Form 56, Notice of Fiduciary Relationship, with IRS to advise that the trust maker has passed away, and the successor trustee will be filing future tax returns. Other tax matters concern filing an Estate Tax return within nine months if the estate is large enough to be subject to estate tax. The successor trustee will be responsible for filing the trust maker’s final personal income tax return (Form 1040) in April of the following year, as well as a tax return for the trust (Form 1041).
The trustee must identify and establish the value of the trust assets. There should be an assignment of personal property and assignments of any business interests signed when the trust was created or amended. It is also necessary to review all non-trust paperwork carefully for any accounts or assets outside the trust, and to determine if it is necessary to open a formal probate process to make the legal transfer from the decedent to the heirs. Many states have a “small estate” procedure for assets not exceeding a set value, providing a streamlined method of transferring ownership; in Virginia, a “Small Estate Affidavit” can be prepared to transfer assets worth less than $50,000 without probate.
It is important to establish the value of the assets in the trust as of the date of death of the deceased trust maker. The heirs will take the trust assets with an income tax basis of the fair market value on the deceased trust maker’s date of death. Financial institutions can provide the correct date of death value for stocks and mutual funds. The trustee is responsible for obtaining appraisals to establish the fair market value of real estate, an ongoing business, valuable collectibles, antiques, etc.
The successor trustee has a fiduciary or legal responsibility to manage the trust assets in the best interest of the beneficiaries, and to keep them informed. As an initial step, the trustee should send written notification of the trustmaker’s death and information on the steps that will be taken to distribute the trust assets. The successor trustee should prepare an inventory of the trust assets for the beneficiaries. Once the trustee is ready to begin distributing the inheritance, the beneficiaries should receive a release form to sign, acknowledging that they have received a specific amount and that they release the successor trustee from any further responsibility for what they have already received. It is usually a good idea to retain a percentage of the trust assets until all final expenses are accounted for, including compensation paid to the trustee. If there is a second distribution to the beneficiaries, they should sign a second release form. The trustee should get taxpayer identification information from the beneficiaries and inform them that they will be receiving tax documents regarding the inheritance in time for tax preparation time.
