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You Don’t Need to Hire an Attorney to Settle an Estate When There’s a Trust – Do You?

By Howard C. Stross
May 04, 2016

Many people believe if there is a living trust, settling an estate will be easy and will not require help from an attorney experienced in the settlement of deceased persons’ estates. So, is that true? It depends. Instead of attempting to answer that question, this post proposes that the reader can answer the question above after reading and responding to the questions below.

  1. Is the trust funded?

The key to having a trust that will work as intended is to make sure it is funded with the deceased person’s assets before they die. If any asset is not owned in the name of the trust and remains in the deceased person’s name at the time of the person’s death, a court probate will be required to transfer the asset to the trust so the trust may deal with it according to the instructions in the trust. The only way to make sure a probate of the deceased person’s estate will be avoided is for the deceased person to have funded the trust and correctly stated all beneficiary designations before the deceased person dies. Specifically, property that is owned as a tenant in common (meaning the property is not owned with rights of survivorship between joint owners) should be owned by the trust to avoid probate.

  1. Was the deceased person married?

If the trust contains what attorneys call “AB” or “ABC” trust planning, when the first spouse dies the successor trustee and surviving spouse should meet with an experienced trust attorney to insure the A, B, and C trusts are properly funded. The same is true if any state or federal estate tax or inheritance tax returns must be prepared and filed with the IRS. Even if no tax is due, a tax return may need to be prepared and filed to make important tax elections for the surviving spouse. When the surviving spouse subsequently dies, the successor trustee should meet with a trust attorney to unravel the separate A and B trusts (and C trust as needed) and settle the surviving spouse’s estate, including the termination of the surviving spouse’s separate trust or joint trust.

  1. Will the beneficiaries receive their inheritances outright or in trust?

If beneficiaries receive their inheritances outright and no other specific issues must be addressed by an experienced trust attorney, such as seeing that tax returns are timely prepared and filed, making sure income and estate taxes are paid, obtaining releases from the IRS, giving timely notices to the IRS, responding to inquiries from the IRS, dealing with the deceased person’s creditors, dealing with problems the deceased person was experiencing before he or she died, dealing with the deceased person’s business, determining how to deal with retirement accounts and their distributions, determining when and how to make distributions, and when to not make distributions even when the trust appears to require that the distribution be made, then the successor trustee and beneficiaries might work together to settle the trust without the assistance of an attorney. If, however, the issues above are not those the successor trustee wants or should deal with on their own, or if one or more beneficiaries will receive their inheritance in trust, the successor trustee should work with an experienced trust attorney to make sure each beneficiary’s separate trust is properly established and funded according to the provisions of the trust agreement. If the deceased had certain qualified retirement accounts, the successor trustee must inform the beneficiaries about their distributions from the retirement accounts, that their distributions are income to them in the year they receive the distributions, and that income must be shown on the beneficiary’s individual income tax returns because they are required to pay the income tax in the year or years they receive retirement account distributions.

  1. Will the deceased person’s estate owe state or federal estate or inheritance taxes?

If the deceased person’s primary residence was in Florida, a Florida estate or inheritance tax is not an issue. If the deceased lived in Florida but owned real estate or tangible personal property in another state (or country) that imposes an estate tax or in one of the seven states that collect state inheritance tax, before trust assets are distributed to a beneficiary the successor trustee should work with an experienced trust attorney to make sure necessary estate and/or inheritance tax returns are filed and taxes are paid. If the successor trustee makes distributions to the beneficiaries before taxes are paid, the successor trustee will probably be personally liable for the payment of the tax. Getting beneficiaries to return distributions is frequently impossible.

  1. Did the deceased own a business?

If the deceased person owned a business and has a written exit plan for what happens to the business after they die, the successor trustee should work with an experienced attorney to implement the deceased person’s exit plan. If the deceased person owned a business but made no exit plan, the successor trustee should meet with an experienced attorney to deal with the legal elements of continuing, selling, or closing the business including the sale of its assets.

  1. Are the beneficiaries going to fight?

Even a carefully planned and funded trust may not stop family arguments about money and assets. If the beneficiaries of a trust do not agree with how the successor trustee is handling the distribution of assets, the successor trustee should engage an experienced trust attorney to assist with settling the beneficiaries’ concerns. The trust beneficiaries may need to retain separate counsel to make sure their interests in the trust assets are being protected.

  1. Is a trust named as a beneficiary of a retirement account?

If one or more trusts for the benefit of the deceased person’s surviving spouse or other beneficiaries are named as the primary beneficiary(ies) of a retirement account, such as the deceased person’s IRA or 401(k), the successor trustee will need the assistance of an experienced trust attorney to make sure the retirement assets are properly funded to the correct trust and to timely distribute the required minimum distributions and minimize any estate and income tax. Even if a trust is not named as the primary beneficiary of an IRA or 401(k), the assistance of an experienced estate settlement attorney should be used to make sure the retirement assets are properly handled in terms of required minimum distributions and estate and income tax.

What is the bottom line answer? Do not think your loved one’s trust will only take a few days or weeks to settle. Why? It is not easy or routine if you do not regularly settle estates that include a trust. It is rare when a loved one or friend, who is the successor trustee of a deceased person’s trust, will properly administer the deceased person’s trust. Even if your loved one or friend has done everything to make sure their trust will properly perform after their death so their estate can be settled with relative ease and outside of a probate court, engage the service of an attorney who is experienced in the settlement of a trust estate to be sure.

Contact Stross Law Firm, P. A. at 813-852-6500 to arrange an initial courtesy discussion to see how we may help you in your job as a successor trustee to properly administer your loved one or friend’s estate. 

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