If you have been selected as a successor trustee, your first responsibility will be to locate the original trust documents. If you cannot locate them, you should check with family members or friends who may know of their location. If only a copy of the trust documents can be found, you should check with the attorney who drafted them. The attorney’s name and contact information are often found among the trust documents. The attorney may have them or know of their location. Often, attorneys retain “conformed, signed copies” of such documents.
Once the original trust documents are located and your designation as successor trustee is corroborated, appropriate documentation must be created to memorialize your acceptance of such appointment and your agreement to take all actions necessary to settle the trust. Once you have accepted the appointment of successor trustee, Maryland (and many other states) has very specific laws regarding notices you must provide to the trust beneficiaries.
All of the financial institutions at which the deceased trustmaker had assets and all of the insurance companies which issued policies on his or her life must be contacted and advised of his or her death. You will need to obtain certified copies of death certificates to provide to each such financial institution. It is important to correctly complete and submit the paperwork necessary to claim the benefits of any life insurance policies. For bank accounts and financial investments, the proprietary forms to transfer ownership to the beneficiaries designated in the trust must be obtained. The trust beneficiaries may be individuals, charities, or post mortem trusts created for the benefit of the deceased trustmaker’s family. Care must always be taken to obtain the correct forms and complete them to the precise requirements of such financial institutions and insurance companies.
The value of all assets in the trust must be ascertained as of the date of the trustmaker’s death. This is critical not only to determine whether there is any estate tax exposure, but also to provide a new tax basis when such trust assets are liquidated. When an asset is purchased, the purchase price is called its “basis.” If the asset is real estate, the cost of any capital improvements is included in the basis. When a person dies, the basis of his or her assets for capital gains tax purposes is increased or “stepped up” to its date of death value. If you are settling a trust with multiple beneficiaries, you may need to liquidate the trust assets to ensure an accurate distribution of assets to the beneficiaries. By establishing the actual date of death values of the trust assets, you will be able to minimize any capital gains tax exposure when such assets are sold. The capital gains tax upon sale of trust assets will be determined by the difference between the net proceeds of the sale and their “stepped up” basis. In addition, by obtaining accurate date of death values, any capital gains tax exposure to the trust beneficiaries who sell their inherited assets long after the trust is settled will likewise be based upon their stepped up basis.
In order to establish date of death values, real estate must be appraised and the cost of all capital improvements to such real estate must be determined. Tangible personal property such as jewelry, collectibles, and other household items must also be appraised. Valuations of all securities and investments must be determined. If the trustmaker owned a business, an expert in the field of business valuations must be retained. Each appraiser must have specific expertise regarding the types of assets he or she appraises. You should know that there are not many persons well qualified to establish the value of a business.
Often, trusts prepared for married couples include certain estate tax elections called “disclaimers” which must be made within very strict time limitations and with very precise language as required by the Internal Revenue Code and any similar state law. A disclaimer is often utilized to minimize estate tax exposure. Failure to correctly and timely make such an election could result in otherwise avoidable estate tax liability. As a successor trustee, it will be your responsibility to have the disclaimer issue analyzed and if appropriate, properly made and timely effectuated.
An estate tax return may also have to be filed to preserve a second basis step up of post mortem trust assets for the benefit of the trustmaker’s children when his or her surviving spouse dies.
If a trustmaker created trusts for the benefit of a surviving spouse, children, grandchildren, or other beneficiaries, federal tax identification numbers must be obtained for such trusts. And, final income tax returns must be filed for the deceased trustmaker, as well as annual income tax returns for all post mortem trusts.
Claims and liabilities against a deceased trustmaker must be paid or settled, claims of a deceased trustmaker must be prosecuted, and ultimately, the net trust estate must be distributed to the beneficiaries in precise conformity of the trust’s distribution pattern. Ownership of trust assets that were not liquidated, and the proceeds of trust assets that were liquidated, must be assigned and/or distributed to the trust beneficiaries or to post mortem trusts for their benefit.
The settlement of a trust requires not only legal action, but also a network of reliable and competent professionals, such as certified public accountants, certified appraisers, business valuation experts, financial advisors and real estate professionals who can assist with the settlement process. We have the experience, competence and knowledge necessary to settle trusts, as well as, as well as a network of professional colleagues in related fields of expertise, to assist you with settling the trust of a friend or relative.
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