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Starting the process

couple sitting and going over important planning documents

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, the decedent's records and the titles of the 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 (in which the grantor does not own any assets in thier own name) will avoid probate. If the trust was not fully funded (for example, if the decedent owned real estate in their 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 that is only needed if the trust was not fully funded prior to the 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 their duties. The beneficiaries of the trust are entitled to a copy of the trust agreement upon request.

Trust management

The 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, the successor trustee should regularly communicate with the trust's beneficiaries regarding the status of the settlement process. It's a good idea for the 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 to be 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 the grantor's death. The successor trustee is required to follow the trust agreement's distribution provisions.

Terminating the trust

Once the trust has achieved its purpose(s), it will terminate. Generally, the trust will terminate after the successor trustee has paid all debts and expenses and distributed all assets. Unlike a probate estate, the successor trustee does not require a court's permission to distribute the trust's remaining assets to the beneficiaries. The successor trustee should send the beneficiaries a written notice of the trust's termination and include an accounting of how the trust's assets were managed and distributed.

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