Trusts are important estate planning tools. In a trust, an individual (also known as the settlor) can state how his or her estate will be managed and distributed after their death. A trust is created on paper and can be established as either a living trust or a testamentary trust.
Advantages of Trusts
Establishing a trust is beneficial for several reasons. When an individual passes away but does not state how they want their estate to be managed, their estate must go through probate court. The probate process is often both time-consuming and costly. On the other hand, a trust cuts down on both time and expenses.
Additionally, probate court is a public process. A trust allows the individual’s wishes to be handled privately after their passing, providing more comfort for the family.
The Role of the Trustee
The trustee plays a critically important role in the management of the trust. Typically, the trustee will need to manage the trust in the six months after the individual’s passing, but the timeline could be longer, especially if the trust contains provisions regarding payments to minor children.
There are several important steps that the trustee must take:
Not long after the settlor passes away, the trustee must identify the beneficiaries of the trust and inform them of what the settlor designated for them.
Pay Administrative Expenses
There are many costs that must be managed after a person passes away. The trustee will manage funeral expenses, tax preparation expenses, and all other bills.
If the person who passed away left behind any debt, such as medical or consumer debt, the trustee must also manage payments for that debt.
The trustee is responsible for distributing the settlor’s assets and must make sure he or she follows the letter of the law in doing so. For example, if the person who passed away left real property to one of their beneficiaries, the trustee must ensure that the beneficiary receives the title or deed to that property and that it is properly transferred over to them.
The taxes surrounding a trust can be quite complicated. If the settlor was working at the time of their death, then their estate may owe income taxes in addition to estate taxes.
No matter what the situation is, it is the trustee’s responsibility to make sure that all the appropriate taxes are paid. Because estate taxes are typically very complicated, it’s advisable to work with an estate planning attorney so that no taxes are left unpaid.
Create a Reserve Fund
It’s a wise idea for the trustee to create a reserve fund. This will help pay any due but unpaid estate expenses or taxes.