In earlier posts, we addressed the number one mistake people make with trusts. In this post, we're going to look at another common mistake frequently seen with trusts - failing to take the necessary steps to administer the trust when the grantor dies. This is referred to as trust administration.
Trust administration is the process of implementing the terms of the trust and following IRS and state trust code rules when a grantor dies. A revocable living trust becomes irrevocable when the grantor dies. Many times, people have the misconception that if a trust is created, nothing more needs to be done when the grantor dies. However, when the grantor of a trust dies, the surviving spouse or other successor trustee will need to complete some administrative actions related to the trust.
Trust administration can resemble probate but it has important advantages over probate. Trust administration is not supervised by the court like probate. It is usually much shorter than probate. In general, trusts are more difficult to challenge. If the trust is not challenged, there are no court costs, and trust administration is private.
Although probate is not needed when the trust has been properly funded, the will may still need to be filed with the court. Both North and South Carolina have statutes requiring the possessor of a will of someone who dies to file the will with the court in the decedent's county of residence. This is usually a very short and simple process. The successor trustee will also need to pay the decedent's final bills if directed by the provisions of the trust. In addition to filing the will and paying debts, here are other steps that may be necessary to carry out the terms of the trust and to comply with state and IRS rules.
- Create an administrative trust
- Subdivide the trust if the trust calls for subtrusts
- Obtain EIN numbers for the administrative trust or subtrusts from the IRS
- Set up bank accounts in the name of the administrative trust or subtrusts
- Notify beneficiaries of the trust and the assets of the trust
- Distribute assets to the subtrusts or the beneficiaries according to the terms of the trust
- File tax returns
This list is just an example of some of the things that may need to be done. It is not exhaustive. If you are the successor trustee of a trust and the grantor has died, you should consult with an attorney to make sure you administer the trust as quickly and efficiently as possible. It's always easier to do something right the first time than fix a problem later. If you, a friend or colleague has experienced a death in the family and need help, please don't hesitate to call on us for help. The number for our firm is (704) 887-5242.