19 Significant Tasks After a Death
There is often a misunderstanding that having a living trust means that nothing needs to be done following the death of the creator (Settlor) of the trust. While having a trust may avoid probate, there still can be many issues that need to be addressed and many tasks to be performed by the Trustee. Below is a partial list of those issues and tasks.
1. If not already serving as trustee, the successor trustee needs to consent to act as trustee and record an affidavit against all real property held in the trust
2. The trustee must provide timely notice of the trust’s existence and terms to beneficiaries and heirs at law. Failure to do so may result in liability to the trustee.
3. Obtain tax identification number(s) for any trust(s) that have become irrevocable.
4. Prepare inventory of all property held by the trust. If the Trustee is also the personal representative, then the Trustee should inventory all property held by the decedent, even if not in the trust.
5. Prepare a list of, and provide for payment of, all decedent’s debts. Consider giving notice to all creditors to reduce statute of limitations period.
6. Obtain professional appraisals of the property.
7. Take action with respect to assets made payable to the trust such as insurance or IRAs.
- Make application for payment of those assets
- Make appropriate income tax decisions with respect to the payment of tax-deferred assets such as IRAs.
8. Prudently manage, protect, and invest the trust’s assets, including maintaining appropriate property and liability insurance.
9. For real property, send notification to the county assessor of the changes in ownership resulting from decedent’s death, and file forms required to avoid property tax reassessment, if applicable.
10. Prepare and file decedent’s income tax returns for the income received before death.
11. Prepare and file one or more California and federal income tax returns for the various trusts. These will be required annually.
12. Prepare and file federal estate tax return, if required.
- The return and tax are due nine months after decedent’s death, although extensions are available. Interest accrues on unpaid estate tax after 9 months. There are substantial penalties for failing to file an estate tax return or timely pay estate tax.
- Consider taking administration related expenses as a deduction on the estate tax return or the trust’s income tax return.
- Considering revaluing all assets at the alternate valuation date if that will lower the estate tax.
- Consider paying estate tax in installments if the estate owned a closely held business.
13. If the trust divides into sub-trusts (for example, a survivor’s trust and a bypass trust), determine allocation among the various sub-trusts and arrange to transfer assets to the various sub-trusts.
14. Address income tax issues when funding sub-trusts, including
- Potential capital gains tax due to post-death appreciation, and
- Potential income tax if pecuniary bequests are funded with IRD assets.
- If the trust holds an S-corporation, make sure that the election remains intact.
16. If the trust holds interests in partnerships or limited liability companies, consider a 754 election to adjust the inside basis of the entity’s assets.
17. Deal with special situations, including:
- A non-citizen surviving spouse
- Toxic waste
- Litigation in which the decedent was involved
- Partnership in which the decedent was a general partner
- Escrows already open at death
18. Make appropriate distributions of income and principal pursuant to the terms of the trust.
19. Prepare periodic reports to remainder beneficiaries on the financial status of the trusts.