We receive a lot of questions about what, if any administration is needed for a Living Trust after one spouse has died.  A lot of the older trusts will have been created with credit shelter, or A-B provisions.   An A-B Trust REQUIRES the administrative division of the trust assets upon the death of the first spouse.

As a simplified statement, an A-B or A-B-C Trust is designed, in part, to maximize the total amount of the estate that will ultimately pass to the intended beneficiaries, by minimizing the impact of estate taxes, and secondly to protect the wishes of both spouses as it relates to the ultimate beneficiaries, regardless of which spouse dies first.

When the first spouse dies when this type of trust is in place, then the decedents share (usually one-half) of the trust estate may still be available for the needs of the surviving spouse, but only within certain specific limits and purposes.  Beyond that the decedents share (TRUST B)  is irrevocable in terms of the ability to change any of its terms.  The survivors share is still amendable and revocable by the surviving spouse.

If the surviving spouse does not undertake the administrative A-B Division after the first death, then for all intents and purposes, the entire trust will be rendered irrevocable.  The reason being, if you haven’t divided the trust assets (allocating specific assets to trust A and Trust B, respectively, then there is no way to know to which set of assets a surviving spouse amendment would apply.

There is no statutory deadline on how long you have to complete the division, but it should be done within 6 to 9 months after the first death.   The longer you wait, the harder it is to create an accurate snapshot of the estate at the first death and some form of detailed forensic accounting may be required to analyze how assets were used, invested and spent since the date of the first death. Also if the surviving spouse received actual benefit in excess of the specified limits associated with the B Trust, then there may be other problems to overcome and you may lose some of your otherwise available tax benefits.

If you happen to come across a situation where a spouse has died and the trust is an A-Marital or disclaimer style, then there is a hard limit of 9 months for the surviving spouse to decide whether to exercise a qualified disclaimer, if warranted for tax reasons, to create and fund the Decedents B Trust.  An A-Marital Trust, aka Disclaimer Trust is a marital trust whereby at the death of the first spouse, the entire decedent’s share will pass entirely in trust to the surviving spouse, (effectively all trust assets being part of the Survivors A-Trust), UNLESS, the surviving spouse shall disclaim, in writing any or all of the decedents share of trust assets.  Then upon disclaimer, the surviving spouse would establish and fund the credit shelter, or “B” Trust.

The new Estate and Gift Tax law passed at the end of 2010, created a new dynamic related to the A-Marital/ Disclaimer type trust.  Under the new law, if one spouse dies after 2010, then to the extent that the deceased spouse does not use his or her newly updated $5 million (in effect for 2011 and 2012), then the remainder of the decedent’s exemption can be added to the surviving spouses exemption (even if the trust is not formally divided into an A and B Trust).  This new feature is known as “Portability”.   In order to “claim” the portability of the deceased spouses unused exemption, the surviving spouse would have to file an estate tax return and portability election for the deceased spouse.  Of course we don’t know if this provision will be maintained in the law beyond 2012.

Tags: Living Trusts, Trust Management & Settlement by Greg Reese
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A fairly frequent comment from our AmeriEstate Legal Plan members planning their estates using a Living Trust is: “How can I be more assured that my wishes will be properly carried out vis a vi my Living Trust, even long after I am gone?”

Actually that is a very good question.  In answering it, there are a couple extra things you may want to consider:

1)      Adding a Trust Protector

2)      Appointing a Corporate Trustee to act as your Successor Trustee, or

3)      Both

Keep in mind that your beneficiaries have certain rights regarding the fulfillment of your wishes as it relates to them, and usually have the ability to legally compel the Trustee or other responsible party(ies) to disclose information or fulfill their legal obligations, etc..  Sometimes, however you may have a situation where you feel your beneficiaries cannot or will not stick up for themselves if their interests become abused, or you feel your trust requires specialized administration, or you anticipate your trust will remain in existence for many years (10, 20 + yrs) after your death and you want a Trustee who will be properly engaged for the long term.

The Trust Protector’s role is created by the Trust Agreement to add an additional layer of protection and is usually a person most familiar with the Grantor’s long-term financial and personal goals. A Trust Protector usually is the balance of power between the Trust Agreement, the Trustee, The Grantor, and the Beneficiaries.

Neither the Trustee or the Trust Protector should be a family member, nor anyone related to the family by blood or marriage. Both positions should be independent of each other acting in the long-term interest of the beneficiaries.

If you had a trust created to protect your beneficiaries, you might consider naming a corporate trustee as opposed to a family member to provide objective and professional management of your trust. Your selection of a corporate trustee is an important one, so follow these steps to learn how you can benefit from a corporate trustee and make an informed decision.

Step1

Investigate the services offered by financial institutions. Most house entire departments of corporate trustees who are experienced and highly knowledgeable in the management of trusts. They offer professional and confidential services that are paramount to the well-being of your current and future beneficiaries.

Step 2

Hire a corporate trustee who is able to provide expert record keeping services, which may include complex accountings of the distributions made from your investments, disbursements from your income and principal amounts from the assets set forth in your trust. Your corporate trustee would also file your income tax returns, saving you or your beneficiaries from that tedious legality.

Step 3

Involve a corporate trustee who keeps abreast of current trust administration laws. Your corporate trustee will be able to make informed and complex decisions regarding investment strategies and appropriate distributions to your beneficiaries as the terms of your trust are executed to the letter of the law. Your beneficiaries will feel secure and benefit highly from continuity and exceptional financial services.

Step 4

Choose a corporate trustee that is outside the realm of your family bonds. He or she will be able to make decisions and apply the terms of your trust with professionalism and objectivity without the emotional baggage that comes with having a close family member doing the job.

Step5

Select a corporate trustee who is able to undertake legal responsibility and offer continuity of services over a period of years to your current and future beneficiaries. Another benefit of a corporate trustee is that he or she will investigate claims made against the trust and will defend any false claims and appear in court, if necessary.

Tags: Living Trusts, Trust Management & Settlement by Greg Reese
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Guidelines for Successor Trustees

These Guidelines are designed as an aid to those of you who have been entrusted to serve as successor trustee(s).  It is not possible to answer all of your potential questions.  However, we hope to answer those which will come up with some regularity.

You may have assumed the duties as successor trustee either because of the incapacity or death of the primary trustee(s).  Therefore, these Guidelines are divided into two groups.  The following discusses what to do upon the death of the Settlor(s) of a Trust.

Succession Because of Death

If you have assumed the duties of successor trustee because of the death of one or more of the original trustees, your task is as follows:

1.  Locate all of the assets of the Trust.  If the Settlors have been maintaining the Asset Inventory section of their Family Trust Portfolio, this should be a simple matter.

2.  Determine whether a Credit Shelter Trust is to be created and, if so, obtain from the IRS (Form SS-4) a tax ID number for the Credit Shelter Trust upon the death of the first spouse, and retitle the appropriate assets into the Credit Shelter Trust under that trust’s tax ID number.   Assistance from an attorney and/or accountant is recommended to make sure this aspect of settlement is done properly.

3.  File the annual form 1041  (trust tax return) with the Internal Revenue Service.  This form requires you to show the income of the trust, its expenses, and the manner in which the income was distributed.  If the income has all been distributed, the trust will pay no tax, and this return is merely an information return. This form has a number of lines, but you will not be using most of the lines. With some guidance from your CPA or attorney, you should be able to complete the form.

4.  Verify the date of death value of all assets.  This value will become the new tax basis for the assets, and therefore, it is very important.

5.  Determine whether or not all of the real estate owned by the Settlor(s) has been transferred to the Trust.  Check for copies of recorded Deeds in the Family Trust Portfolio or check with the County Recorder’ office.

6.  Determine the expenses of last illness, taxes due and owing, funeral expenses and debts of the Settlor(s).  The funds of the Trust must first be used to pay these items.

7.  Once you are sure that all of the expenses have been paid, distribute the trust assets.  Make sure you have allowed for any income tax due and payable on the last year’s income of the Settlor(s).  You may be responsible for any shortage of these funds.  It is not uncommon to make a partial distribution of funds initially, with a final distribution once all expenses have been paid.

8.  Depending on the size of the estate, a Federal Estate Tax Return must be filed.  Because of the complexity of this return, we suggest you employ an attorney or accountant to assist you.

Tags: Trust Management & Settlement by Greg Reese
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These Guidelines are designed as an aid to those of you who have been entrusted to serve as successor trustee(s).  It is not possible to answer all of your potential questions.  However, we hope to answer those which will come up with some regularity.

You may have assumed the duties as successor trustee either because of the incapacity or death of the primary trustee(s).  Therefore, these Guidelines are divided into two groups.  Following is a discussion of the steps you should take if assuming responsibilities as a result of incapacity of the Trust’s Settlor or Original Trustee.

Succession Due to Incapacity

If you have taken on the primary trustee responsibilities because of the incapacity of the primary trustee(s), you should take care of the following items:

1.  Locate all of the trust assets and make certain that title to the assets have been transferred into the name of the trust.  If there are assets which have yet to be transferred into the trust, the person or persons holding a Durable Power of Attorney can complete the transfers.  Since a Power of Attorney is no longer effective after the death of the Principal, it is important not to delay this step.

2.  Determine the needs of the Settlor or Settlors.  It will be your responsibility to manage their funds, and to take care of their financial needs to the extent the funds of the trust permit.

3.  If long term nursing home placement is a possibility, consider whether or not it may be advisable to “gift” trust assets to someone other than the Settlor.

4.  Provide an annual account to the beneficiaries of the Trust which tells them what funds were in the trust, how much income the trust had, and how that income was spent.

5.  File the annual form 1040 of the Settlor(s) with the Internal Revenue Service.

Tags: Trust Management & Settlement by Greg Reese
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