Trust settlement is needed to distribute the trust’s assets following the grantor’s death. Many married couples have a joint revocable living trust. The trust settlement process for such a joint trust does not start until both grantors have passed away. The trust agreement will name a successor trustee who is responsible for the settlement process.
Trust settlement involves the management and distribution of the trust’s assets. The successor trustee only has authority to manage and distribute the assets owned by the trust. Therefore, the first step in trust settlement is determining the funding status of the trust (what assets are owned by the trust). The successor trustee would check the funding status by reviewing the trust agreement, decedent’s records and the titles of decedent’s assets. Such review would include documents like real property deeds and bank statements. The successor trustee should prepare a written inventory of the trust’s asset during this process.
Only a fully funded trust (grantor does not own any assets in his/her own name) will avoid probate. If trust was not fully funded (for example if decedent owned real estate in his/her individual name) then a probate estate will need to be opened to manage and distribute that individually-owned asset. Most trust-based estate plans include an additional document called a pour-over will. A pour-over will is a safety device which is only needed if trust was not fully funded prior to grantor’s death. Like all wills, a pour-over will must be probated. Pour-over wills have a single beneficiary, the decedent’s revocable living trust. As a result, once the probate process is completed, the trust is fully funded and the trust settlement process can proceed.
The decedent’s trust agreement will outline the successor trustee’s authority and direct how the trust’s assets are to be distributed during trust settlement. The successor trustee needs to carefully review these provisions of the trust agreement to fully understand his/her duties. The beneficiaries of the trust are entitled to a copy of the trust agreement upon request.
Successor trustee is responsible for managing the trust’s assets, not just distributing them to the beneficiaries. This includes paying any debts and expenses and maintaining the trust’s property. As a best practice, successor trustee should regularly communicate with the trust’s beneficiaries regarding the status of the settlement process. Although not always required by state law, it’s a good idea for successor trustee to post a notice of the trust’s settlement to take advantage of the limited notice of claim time period.
Once the trust’s debts and expenses are satisfied, the remaining assets can be distributed to, or for the benefit of, the trust’s beneficiaries. Many trusts direct that the assets are distributed directly to the beneficiaries as quickly as possible. However, trusts can also include provisions that delay distributions for a specific period of time, until beneficiaries reach a certain age and for a number of other reasons. As a result, some trusts remain open for an extended period following grantor’s death. The successor trustee is required to follow the trust agreement’s distribution provisions.
Once the trust has achieved its purpose(s), it will terminate. Generally, the trust will terminate after successor trustee has paid all debts and expenses and distributed all assets. Unlike a probate estate, successor trustee does not require a court’s permission to distribute the trust’s remaining assets to the beneficiaries. Successor trustee should send the beneficiaries a written notice of the trust’s termination and include an accounting of how the trust’s assets where managed and distributed.