A Successor Trustee must be aware of his or her responsibilities at the death of the Grantor. Many times the creation of a trust, whether it be to avoid probate, ease administration, or protect family assets, sets unrealistic expectations as to what occurs at the death of the Grantor of the trust. Many successor trustees assume that the division and distribute of the trust at the death of the Grantor is “automatic” or that it alleviates the need for any post-death tasks. However, this could not be further from the truth. The successor trustee will likely need the assistance of legal counsel, a CPA, and financial advisor to complete final Trust tasks before terminating it. Skipping steps, not following the trust’s directions, or ignoring trust law could unintentionally make the trustee liable for mismanagement of the trust. Here are just a few issues a Successor Trustee should be aware.
- Final expenses. The Successor Trustee should carefully review the Trust document to determine how the decedent’s final expenses will be paid. Paying an expense in which the Trustee is not permitted could open up the Successor Trustee to liability to the beneficiaries. For example, Indiana law requires many creditors to follow a precise process through the court system in order to be paid on its claim. Letting the creditor skip this statutory required process could open the Trustee up to liability.
- Income tax. If the trust was a Grantor Trust, the taxation of trust assets will change significantly upon the death of the Grantor. Most often a new tax identification number for the trust will need to be obtained. The Trustee must also be aware of the income tax ramification of any IRAs payable to the Trustee at the death of the decedent. A misstep here could cost the beneficiary of the trust and the blame will be placed directly on the Trustee.
- Gather assets. If the Successor Trustee’s duties began upon the death of the decedent, then he or she must notify and provide proof to each institution in which the trust has assets that he or she is now the acting Trustee.
- Accounting. The trust document should be reviewed to determine what kind of accounting the Successor Trustee must deliver to the trust beneficiaries. The accounting will typically demonstrate how the Successor Trustee spent trust money, what assets the Successor Trustee obtained, and the disbursements of trust assets made. It is important for the Successor Trustee to be aware of the Trustee’s accounting responsibilities. While Indiana Trust Law provides for a statute of limitations for beneficiaries to object to the way the Successor Trustee administered the Trust, this statute of limitations period does not start until a proper accounting is delivered to the beneficiaries.
- Distribution. Indiana Trust Law requires that each beneficiary receive a pro rata share of each trust asset. The trust document may modify this default rule, but the Successor Trustee must know how to distribute assets to the beneficiaries. In addition, the Successor Trustee will be responsibility for ensuring any trusts for the remainder beneficiaries are established before making distribution.
- Non-Trust Issues. The deceased’s affairs may require other tasks to be completed. For example, the decedent’s final income tax return will need to be failed. In rare circumstances, a death tax return may also be required. It is typically also a good rule of thumb to file the decedent’s Last Will and Testament with the Court even if a probate estate will not be opened.
The Successor Trustee should not overlook his or her responsibilities upon the death of the Grantor of the Trust. Following the Trust’s instructions and consulting appropriate professionals is the best method to maintain family harmony and avoid unintended liability claims.
Jeff is Certified as an Elder Law Attorney (CELA) by the National Elder Law Foundation, a distinction held by only a handful of lawyers in Indiana. For almost 20 years, he has focused on elder law, estate planning, long-term care planning, Medicaid planning, Veterans Affairs benefits planning, special needs planning, guardianships, and estate administration.