Trustee's Duties Upon the Death of the Grantor

Here’s a “to do” list, including both legal and practical responsibilities, of the trustee upon the death of the grantor.

• Locate and review all of the deceased’s important papers. Sometimes directions for funeral and other pertinent information may be located, so these documents should be reviewed as quickly as possible.

• If the deceased was living alone, change locks and take any steps necessary to close the house. If the house will be vacant, insurance carriers should be notified of this fact. Check on auto and property insurance to be certain trust assets are insured against loss or liability.

• Obtain certified copies of the death certificate from the funeral director, or the city, town or village clerk where the death occurred.

• Make a list of all household goods to be distributed to beneficiaries. To be absolutely safe, if several beneficiaries are involved, photograph personal property and take an unrelated, disinterested witness along when you make your list.

• Create a complete list of all assets and establish the value of those assets. The value at the time of death determines the new tax basis of appreciated assets, since all capital gains on assets is forgiven upon death. Even if the real estate, stock, or any other appreciated asset is not sold immediately, establishing a fair market value as of date of death is necessary to establish the new tax basis for future appreciation purposes, to determine whether state or federal estate tax is an issue, and to equitably distribute assets to beneficiaries as provided in the trust agreement.

• If several different accounts exist, it simplifies things greatly if liquid assets are consolidated into one account (or one savings and one checking account). That way, the check register for the account becomes a record of bills paid, deposits made or any other trust activity. As trustee, you are responsible for safeguarding the funds for the beneficiaries.

• Pay outstanding bills or debts. If the trustee does not pay bills, he or she may be held personally liable.

• If the trust will generate more than $600 in income from the date of death until all trust assets are distributed (which is generally the case), a tax identification number needs to be obtained for the trust. Where the grantor was their own trustee, their social security number was the tax identification number and the trust income was simply reported on their annual 1040 tax return. But in an irrevocable trust (which is the case where the grantor of a revocable trust dies), the trust is required to report income under its own tax identification number. In a revocable trust, for the year of death, income earned from January 1 through date of death will be reported on the grantor’s final 1040. Income earned from date of death to date of distribution of all assets will be reported on a form 1041.

• Be certain that all required tax returns are filed. If the deceased’s state of residence has an estate tax, an estate tax return may be necessary. A Federal estate tax return may also be necessary for larger estates. If significant lifetime gifts were made, estate tax returns may also be required.

• File any claims for life insurance, IRA’s and other assets needing claims forms. Liquidate any assets that need to be liquidated. Make sure to get professional advice before retitling or liquidating IRA’s as there may be serious tax consequences if you make a mistake in this area.

• Create an accounting which begins with the inventory listing all assets existing on the date of death, show all additions of any type, subtract all expenses paid, and show current assets on hand. When you are ready to create the final accounting right before distribution of assets to beneficiaries, it is easiest if assets are placed in a non-interest bearing account. That way values are not constantly changing.

• Have a legal professional prepare a receipt and release form for each beneficiary to sign, simply stating that they have received the inheritance and that they release the trustee from further responsibility or liability.

• Settlement of a trust is easier than going through the probate process since court paperwork and proceedings are avoided. The trustee can access accounts immediately, so debts and expenses may be satisfied without delay and accounts may be consolidated. Most statutory waiting periods are also avoided. However, even with a trust, it is very important that specific steps be completed. It is not feasible to list here all steps which would need to be completed in each circumstance. Legal help in designing and terminating trusts streamlines the process, and saves time and money by taking advantage of all tax planning opportunities available to you, and by completing all steps in the easiest way possible.