Trust Estate Settlement Process

Transcription

1 Trust Estate Settlement Process Settlement of a trust estate involves the process necessary to transfer asset ownership from the deceased person s trust to the parties entitled to receive the assets, according to the provisions of the decedent s trust. If the decedent s trust was unfunded, the assets must first be transferred from the decedent s probate estate to the trust in accordance with the decedent s will. Following is a summary of the duties and steps common to the administration of most trust estates. Some information may not apply to the particular trust, or you may need further information on the specific aspects of the trust. If, after reading our instructions, you have questions or need further clarification, please contact us. Overview of Duties of Trustee The basic duties of the trustee, working in concert with other parties, such as the attorney for the trust, accountants, investment advisors, the decedent s family and other interested parties, are to: collect, inventory value and conservatively manage the assets; keep accurate records, prepare monthly statements and final accountings; coordinate post death tax and estate planning; oversee the sale of real estate and personal property; protect, preserve and invest the assets; settle claims and pay debts of the decedent and those of his or her estate; prepare, file and pay the decedent s final income tax return, estate tax returns and estate income tax returns; prepare a plan of distribution and then re-title, reregister, and transfer the remaining assets to the proper parties.

2 The nature and scope of these duties will vary according to the size and complexity of each trust and the procedure needed to accomplish them. Some of the duties are discussed in more detail below. Determination of Assets The trustee should collect the trust assets as described below. The trustee should not sell or transfer any assets that were specifically given in the trust agreement to a designated individual. a. Checking Accounts/Trust Checking Accounts Before closing any of the decedent's accounts, the trustee first should determine if there are any accounts in joint tenancy or any accounts in trust for or payable on death to a designated beneficiary. These accounts would usually be payable to the joint owner or designated beneficiary, rather than to the trust beneficiaries. The trustee should create or retain one trust checking account at a bank convenient to the trustee. b. Receipts/Deposits All money you receive on behalf of the trust, such as dividends, interest, refunds, insurance proceeds, sale of assets, etc., should be deposited in the trust checking account. The trustee should record every deposit on the checking account ledger by listing each individual check being deposited. Likewise, the trustee should pay all allowable expenses or claims incurred by the decedent or the trust with trust checks. c. Savings Accounts/Investments The trustee should analyze all of the existing savings accounts and savings certificates as to interest, due date, etc. The trustee should usually retain accounts with yields which are higher than the current market interest rates unless these funds are needed to pay bills. Once an owner has died, the account can generally be withdrawn without any prepayment penalty. Thus, the trustee can leave those accounts until the funds are needed. The trustee should

3 notify the bank that any future interest payments on any savings certificates which the trustee leaves intact should be forwarded to the trustee s address. Any savings accounts or savings certificates that the trustee cashes in should be deposited into the trust checking account. If the trustee wishes to reinvest the funds, the trustee should then write a trust check to the institution in which the trustee will be reinvesting the funds. This will preserve a record of the transactions. d. Investing Trust Assets As a person in a fiduciary relationship to the other heirs or devisees under the trust agreement, the trustee is charged with the responsibility of investing the funds of the trust. All accounts must by in the name of the trust. We recommend keeping the funds in short-term savings certificates or money market savings accounts or buying short-term Treasury bills. FDIC insurance will insure total accounts in a bank for an existing entity up to a total of $100,000. Any sums in excess of $100,000 are not covered by insurance. e. Liquidation/Distribution of Assets All sale proceeds should generally be deposited into the checking account before reinvestment. The trustee is required to account for all assets owned by the decedent s trust. All heirs receiving items from the trust should sign a receipt, and all assets sold should be reflected in the trust s accounting. f. Reimbursement for Expenses The trustee should use a trust check to pay for any trust expenses. If the trustee writes a personal check, the trustee should obtain a receipt and then reimburse himself or herself with a trust check. The trustee should itemize those expenses which are being reimbursed and attach a copy of any invoices or receipts. g. Mail The trustee should have the mail for the decedent forwarded to the trustee s home. h. Social Security Any Social Security checks received after the date of death should be returned pursuant to the instructions from the Social Security Administration. Likewise, if

4 the decedent had the funds automatically deposited into a bank account, the trustee should notify Social Security of the decedent's death so they will stop the deposits. The trustee should check with the bank about this, since banks will often notify Social Security and return any checks paid after death. i. Credit Cards Credit cards or lines of credit in the name of the Decedent should not be used after the Decedent s death. Credit cards should be destroyed and all credit lines should be cancelled. Protection and Maintenance of Assets All assets should be properly maintained to preserve their value. You should determine whether the property is insured, keep insurance premiums current, and examine insurance policies to make sure they provide for adequate coverage. If you want us to review the policies, please let me know. This includes insurance on any automobiles. In no event should the decedent's automobiles be driven without adequate insurance coverage. If the trust owns a house, you should arrange to have someone do normal yard work and snow shoveling to preserve value and to reduce the risk of vandalism. While it is important that you take care of normal maintenance of the property, you should usually not make major expenditures to increase the value of the property. Payment of Expenses Certain expenses and claims have priority. If it appears that the trust will not have sufficient assets to pay all of the expenses and claims, you should contact us before payment of any bills to discuss the proper procedure. If the trust appears to have sufficient assets, you may

5 pay the bills as they come in. Please note that if the trust were to become insolvent and the trustee has paid bills that do not have priority, the trustee could be exposed to liability. Inventory You should prepare an Inventory listing the date-of-death value of all assets of the trust. A copy of the Inventory should be provided to the beneficiaries of the trust. Final Account A Final Account lists all assets received during trust administration and all expenses paid. If you have followed the directions specified above, most, if not all, information required for the Final Account can be obtained from your check account register, current investments statements and closing statement for the sale of real estate, if applicable. A copy of the Final Account should generally be sent to all residuary beneficiaries. In some cases it may be unnecessary to prepare a Final Account.

6 Trustee s Fees A trustee is entitled to charge a reasonable fee for services performed in administering the trust. Any trustee fee is taxable income to the trustee in the year it is received. Not all trustees elect to take a fee. The fees are not mandatory and may be waived. If the trustee is a beneficiary, it may not make sense to decrease the trustee's nontaxable distribution by a trustee s fee that would be subject to taxation. If you do want to charge a trustee's fee, you should keep a list of the work you do and the time spent. You should not charge for time spent when other heirs are helping you, unless they are also being paid. You should also document your mileage and other out-of-pocket expenses. Tax Considerations The tax considerations for a trust are as follows: a. Decedent s Final Income Tax Return Federal and state income tax returns may have to be filed if the decedent's income for the year of death exceeds the filing requirements or if there has been withholding. Only income actually received before death is includable on the final income tax returns. b. Trust Income Tax Return Any income received after death is taxable to the trust, which becomes a separate tax-paying entity. The trustee must file income tax returns for the trust on Form 1041 for each tax year of the trust in which the trust has "any taxable income" or has $600 or more of gross income regardless of the amount of taxable income. The return and payment of tax are due by the 15 th day of the fourth month following the end of the trust s tax year. Taxable income includes any wages or other income earned before death but not received until after death, taxable IRA distributions received by the estate, interest, dividends and

7 other income received by the estate. Expenses of administration are deductible expenses The trustee must obtain an employer identification number to use on all returns filed for the trust. The trustee should file a request for this number on Form SS-4. Upon assuming the duties as trustee, the trustee should request each beneficiary to furnish the trustee with a taxpayer identification number. This number should be shown on Form 1041 and its schedules immediately following each beneficiary's name. c. Estate Taxes United States estate taxes apply to estates (including trusts) having a total value exceeding $5,430,000 (adjusted for inflation) for decedents dying in Minnesota estate taxes apply to estates having a total value exceeding $1,400,000 for decedents dying in Estate taxes are based on the value of all the decedent's assets, including nonprobate assets (i.e., trusts, joint tenancy, life insurance, annuities, retirement plans, etc.) after applicable deductions, including marital and charitable. Estate tax returns and payments are due nine months from the date of death, and distribution of the trust may be prolonged until estate tax clearance is received from the IRS and any state for which a return is required d. Property Tax and Rent Credit Refunds Only a surviving spouse or dependent can receive these tax refunds. If there is no surviving spouse or dependent, the right to the credit lapses. Distribution and Closing of the Trust When all debts have been paid, all assets have been collected, and estate tax clearance, if applicable, has been received, assets can be distributed and the trust can be closed. For any heirs whose shares are affected by receipts and disbursements of the trust, you may prepare a reconciliation explaining the additional receipts or

8 disbursements since the preparation of the Final Account and showing how you calculated each heir's share. You will write out distribution checks and forward the checks, reconciliation, if any, a receipt and letter of explanation to the heirs.