How to Settle a Living Trust After the Settlor's Death

Settling a living trust after the death of the settlor involves a series of important steps to ensure that the assets are distributed according to the settlor’s wishes. Here’s a comprehensive guide to help you through the process:

1. Understand the Trust Document

• Review the Trust Document: Carefully review the terms of the trust document to understand the specific instructions and provisions set by the settlor. This includes distribution details, named beneficiaries, and any special conditions.

2. Gather Necessary Documents

• Death Certificate: Obtain several certified copies of the death certificate, as you will need them to deal with financial institutions and other entities.
• Identification and Trust Documents: Have all necessary identification and copies of the trust documents ready for reference.

3. Inventory the Trust Assets

• List All Assets: Make a comprehensive list of all assets held in the trust. This includes real estate, bank accounts, investment portfolios, personal property, and any other items specified in the trust.
• Appraise Assets: For certain assets like real estate or valuable personal property, consider getting professional appraisals to determine their current value, especially if estate is due which is based on the fair market value of the assets upon the date of death. In addition, the value of the assets at death establishes the capital gains tax basis for beneficiaries.

4. Notify Beneficiaries

• Inform Beneficiaries: Notify all beneficiaries named in the trust about the settlor’s death and their interest in the trust. Provide them with relevant details about their inheritance.

5. Settle Debts and Taxes

• Pay Debts: Use trust assets to settle any outstanding debts or liabilities of the settlor. This may include mortgages, credit card balances, or other financial obligations.
• File Tax Returns: File any necessary income tax returns for the settlor and the trust. This may include a final individual tax return, an income tax return for the trust, and an estate tax return, if applicable.

6. Distribute the Assets

• Follow the Trust Instructions: Distribute the trust assets to the beneficiaries as outlined in the trust document. This may involve transferring ownership of real estate, distributing funds from bank accounts, or conveying personal property.
• Obtain Receipts: It’s a good practice to obtain receipts or acknowledgments from beneficiaries for the assets they receive.

7. Close the Trust

• Final Accounting: Prepare a final accounting of the trust’s activities, showing how assets were managed, debts paid, and distributions made.
• Close Trust Accounts: Close any bank or investment accounts associated with the trust once all distributions are complete and ensure there are no remaining obligations.

8. Seek Professional Assistance

• Consult Professionals: Consider seeking the advice of an accountant or attorney specializing in trusts and estates or to ensure compliance with legal requirements and proper administration of the trust.

Conclusion

Settling a living trust after the settlor’s death requires careful attention to detail and adherence to the settlor’s wishes. By following these steps and consulting professionals as needed, you can effectively manage and distribute the trust assets, providing a smooth transition for the beneficiaries.

Here's a video I made a few years ago (that's still applicable today) regarding when it may be appropriate to retain the services of a trust administration attorney to assist with trust settlement.