If you’re looking to protect your assets and support your children financially, you’re probably considering creating a living trust. Due to their privacy and customization options, living trusts are popular estate planning tools. So what happens to a living trust after death?

Looking Into What Happens to a Living Trust After Death

Here’s how a living trust works after death: Once the grantor of a living trust passes away, the living trust immediately goes into effect. Unlike a will, the living trust does not need to be validated by a court. The successor trustee, who was named by the grantor, can therefore immediately take over management of the trust and the deceased grantor’s financial affairs. Since the living trust bypasses probate, the beneficiaries can receive the assets right away. 

The Role of the Successor Trustee

After the grantor’s death, the successor trustee steps in to administer the trust and distribute the assets according to the terms outlined in the trust. The successor trustee also must notify all beneficiaries of the grantor’s passing. 

The successor trustee must ensure that all outstanding debts, taxes and expenses are paid before distributing any assets to the beneficiaries. The trustee must also file the necessary tax returns, including the deceased's final personal income tax return and any applicable estate tax returns.

Avoiding Probate With a Living Trust

Probate can be a lengthy and expensive legal procedure in which a court oversees the distribution of a deceased person’s estate. In many cases, probate can take months or even years, resulting in a delayed distribution of assets to beneficiaries. 

One of the advantages of a living trust is that it eliminates the need for probate. Because the assets legally belong to the trust rather than the individual, probate is not required. Not only does this save time, but it also keeps the details of the estate private, since probate records are public, while trust records are not.

Managing Assets for Minors and Incapacitated Beneficiaries

In some cases, the grantor may have beneficiaries who are minors or incapacitated individuals. A living trust can include provisions that ensure these beneficiaries receive the level of support that the grantor wishes to provide. For example, the grantor may specify that funds should remain in the trust until a minor reaches a certain age or until an incapacitated beneficiary requires them for medical care or other needs.

Tax Implications of a Living Trust

While a living trust can avoid probate, it does not necessarily eliminate estate taxes. The grantor’s estate may still be subject to federal and state estate taxes, depending on its value. The successor trustee is responsible for managing these obligations. To avoid errors, the successor trustee should consider seeking advice from a tax professional. 

What Happens to Non-Trust Assets?

If the grantor did not transfer certain assets into the trust during their lifetime, those assets may still be subject to probate. For example, if the grantor owned real estate or bank accounts and did not retitle these assets in the name of the trust, these assets may have to go through probate upon the grantor’s death.

An exception to this would be if any of the grantor’s assets already had their own beneficiary designations or rules establishing rights of survivorship. Assets such as life insurance policies, 401(k) accounts, and jointly-owned property may fall under this category. 

In cases where assets are not covered by the trust and have no designated beneficiary, the grantor’s will can dictate how to distribute these assets. If the grantor did not create a will, then the state’s intestacy laws will dictate the asset distribution. 

Termination of the Trust

The trust ceases to exist once all the assets have been distributed and the trust’s obligations have been fulfilled. When the trust is terminated, the successor trustee’s responsibilities come to an end. While some trusts may end fairly quickly after the grantor’s death, others may remain active for an extended period of time. For example, some trusts may be designed to provide ongoing support for educational expenses or medical care over the course of several years.

We Can Help You Understand What Happens to a Living Trust After Death

A living trust offers a clear and efficient way to manage your assets and provide for your loved ones after your death. If you’re considering this estate planning strategy and you’re wondering what happens to a living trust after death, contact us at AmeriEstate. Since 1998, we’ve provided estate planning and asset protection services to over 45,000 clients. Our team is dedicated to making the estate planning process as easy and affordable as possible.