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.