The 10 Steps to Winding Down a Trust
“Trust Administration” generally refers to the process of carrying out the terms of a written trust document. If you set up a trust during your lifetime (i.e., a so-called Living Trust), the trust administration process begins as soon as you sign your trust. If you set up a trust within your will (i.e., a so-called Testamentary Trust), the trust administration process begins immediately after your death. The trustee is responsible for properly administering your trust.
Trust Administration during the trust-maker’s life. Unlike a will, a trust should not be put in your safe-deposit box and forgotten. You should take time to learn how to properly maintain or administer your trust. If you do not properly administer your trust during your lifetime, your family will likely be confronted with a greater burden upon your death, and perhaps even financial harm.
Trust Administration after the trust-maker’s death. Contrary to what many people think, even though probate might not be required because of the existence of a fully funded trust, that doesn’t mean that there are no steps required for proper trust administration after the trust-maker’s death. Indeed, as I point out in my published article in the Journal of Taxation of Investments , post-death trust administration is a lot like probate without court involvement.
Here are some of the steps involved in proper trust administration after the trust-maker’s death:
- securing the original trust document(s) and providing copies to the beneficiaries and other interested parties;
- gathering all of the trust-maker’s assets and properly investing the assets during the period of trust administration;
- determining whether a legal notice to potential, unknown creditors should be published in a newspaper;
- paying the final debts of the trust-maker;
- keeping beneficiaries informed as to the process of trust administration, including an estimated time period for completion of trust administration;
- obtaining a tax identification number for the trust;
- filing the trust-maker’s final personal income tax return (Form 1040) and a tax return for the trust (Form 1041);
- filing state and federal estate tax returns for the trust estate;
- preparing a complete trust inventory and accounting; and
- making distributions of trust assets pursuant to the distribution provisions of the trust, and obtaining signed and dated Receipts on Distribution from each beneficiary.
It is very important that a trust be properly administered. If a trust is not properly administered, the beneficiaries of the trust may be harmed. You should only work with an attorney who has a dedicated focus on trust administration.