Now What? – Managing Trust Administration when a Loved One Passes
Attorney | Vandenack Weaver
Your mom or your dad just passed away. It has been coming for a while, their health steadily declining, but nobody can be fully prepared for the death of a parent. Family travels in, and friends visit and offer condolences. Your parents had prepaid their funeral so you do not have pick out a casket, but you plan the ceremony. By now your siblings have arrived to help. Your family gets along and you are grateful. It is a beautiful ceremony and you are overcome with emotion as your parent is laid to rest next to their spouse.
You had been helping over the last year with balancing the checkbook, so you know that the checking and saving accounts were held in a trust your parents set up. You have seen envelopes from brokerage firms addressed to the trust and your parents periodically discussed their investments and IRAs. When they set up their trust, they had mentioned that they wanted you to be the successor trustee, whatever that means.
Your parents were able to stay in the home they purchased over 30 years ago. Your first step will likely be to secure the house and make sure that you know who has keys. Bills such as utilities and home owner’s insurance still need to be paid, and you may not have access to the bank accounts. Your next step should be to locate the actual trust document. If this is not easily located, ask the attorney who assisted your parents with their estate plan. The trust document will confirm who is to serve as successor trustee. It will also explain how the assets are to be distributed, if there are any charitable bequests or how specific items should be disposed of.
When your parents died, the trust became irrevocable – it cannot be changed – in what is called an “administrative trust.” This describes its function, the name itself does not change. It is now your duty to execute the provisions of the trust distributing the property. The first obstacle you will meet is the fact that a person’s social security number dies with them. Up until now, financial institutions have been using your parents’ social security numbers. This is no longer possible, and the trust needs a new tax identification number. At this point you will likely want to hire an attorney to assist in the administration process.
Your lawyer will ask you to look through your parents’ papers and find documentation for your parents’ assets. Your lawyer will also draft a Certification of Trust, a document documenting your status as trustee and the new tax id number. You will use this to gain access to all assets held by the trust.
In conjunction with your attorney, you will now identify and sort all assets into three categories:
- Assets held by the trust.
- Assets held outside of the trust but with beneficiary designation – IRAs fall into this category as they cannot be held in trust and your parents likely will have set up direct pay beneficiaries.
- All other assets. The hope always is that category 3 is empty as this would require some form of probate to distribute.
Finally, you have to provide notice to all beneficiaries that the trust is being administered.
Once the assets are identified, your attorney will assist you in valuing them as of the date of death. This is done for two reasons:
- Nebraska is one of six states that imposes an inheritance tax.
- In most cases, the assets will receive a step up in basis. This will provide significant tax benefits. Ordinarily, if you sell an asset you will pay capital gains tax on the difference between the purchase price, the basis, and the sale price. The step up in basis increases the basis amount to the value as of the date of death which will eliminate or reduce any capital gains.
During the valuation process you may have other tasks that need your attention. Your parent’s final tax return will need to be prepared. If the residence, or any other real estate, is to be sold, you will need to prepare it for sale and hire the appropriate professionals. Depending on the market, investment decisions might need to be made. The IRAs will require their own paperwork to be completed to divide them among the designated beneficiaries. Once the assets are inventoried and valued, inheritance tax pleadings will be prepared and filed and any tax due paid.
The final part of the administration is the distribution. This can vary greatly depending on your parents’ plan. Distributions can be made outright or in trust – necessitating further paperwork. If real estate is to be sold, you will likely delay the distribution. Occasionally, siblings elect to keep the real property in the family and deeds will need to be drafted and filed to accomplish this. Finally, the trust itself will need to file a final tax return.
Now you breathe. You fulfilled your role. You fulfilled your parents’ wishes. Nobody is ever excited to be a successor trustee, but you served in that role well. It can seem like a convoluted path, but you do not have to walk it alone. Now, you rest.