Individual Trust Administration Upon Death of a Trustee
When the Grantor Dies
The New Trustee
Federal Tax Considerations
Asset Distribution
When the Grantor Dies
The trust typically terminates when the grantor dies,
and its assets are then distributed to whomever the grantor
has designated. In nearly all cases this would be the
grantor's child or children, but a single grantor may
have his or her trust go to anyone, including organizations.
Since the trust's founder is usually the trustee when
the trust is created, upon his or her death a new trustee
must be named. This new trustee will be responsible for
operating the trust and, more importantly, carrying out
the distribution of its assets.
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The New Trustee
Upon the death of the original trustee, a new trustee who is
named in the trust agreement takes over administration of the
trust.
This person is designated the "successor trustee,"
and all assets will have to be transferred and placed in this
person's name. Upon the death of Ann B. Smith, her child or
other designated person who becomes the trustee must register
all the trust's assets in his or her name as successor trustee.
An advantage of a living trust is that none of the assets in
the trust are subject to probate.
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Federal Tax Considerations
The assets in the trust are subject to United States
estate or "death" taxes when the single grantor
dies. All of the grantor's assets, both those within
and those outside of the trust, are subject to this
tax since the grantor had the ability to modify the
trust in any way, including revoking it. No taxes are
due if the fair market value of the assets, minus any
liabilities, is under the Federal Estate Tax Exemption
at the time of death. If the assets exceed that amount,
the amount over the exemption amount will be taxed at
46-55%.
It is up to the successor trustee to determine if any
taxes are due and, if so, to file a tax return. The
successor trustee has nine months from the date of the
grantor's death to file the return and to pay any estate
taxes that are due, but a six month extension may be
obtained.
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Asset Distribution
The trust agreement will indicate how its assets will be distributed
when the trust terminates, and the successor trustee has the
responsibility of carrying out those instructions and distributing
the assets to those directed to receive them. The people or
organizations designated in the trust agreement to receive any
of the trust's assets need to have those assets registered in
their name by the successor trustee. Following that, the beneficiary
then owns the proceeds. THE MAMOLA LAW FIRM, APC is conveniently located throughout Orange County. For additional information, please contact us at (949) 333-6543.
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