Upon the death of its maker, the successor trustee named by the grantor will step in and handle the assets as directed in the trust. At that point, the trust becomes a separate taxable entity as far as the IRS is concerned, and will continue after the death of its maker until directed or until it is terminated through an agreement between the beneficiaries or by a probate court.
Trust administration is very similar to the probate process with the exception that there is no probate court oversight or involvement. Generally speaking, within a certain amount of time after the death of the grantor or settlor, the trustee must send a written notice to every beneficiary informing them that they are a beneficiary. The trustee should also provide them with a copy of the trust provisions as they affect that beneficiary’s interests. Such notices will usually be followed by the trustee sending all of the beneficiaries a list of all of the assets that are being administered by the trust.
If there is no probate process going on, the trustee also will need to publish a notice to any known or unknown creditor of the decedent. Creditors have a certain period of time within which they can make claims against the trust. Depending on how quickly the trustee acts and on the provisions in the trust, it could be closed out within six months of the death of the grantor or settlor or continue for years. If it continues for years, the trustee must annually account for any income or expenses that occurred during the preceding year.
The length of time that an initial trust administration will take will depend upon the trust itself, and the amount and type of assets in the trust. Some trusts can be set up to last for a number of years, to enable long-term distributions for beneficiaries. Assuming that the trust only provides for outright distributions after the death of the settlor or maker, the trust administration will take at least six months if started soon after the death of the settlor. In part, it will also depend upon how the income tax and estate tax liability falls and the time of year that the settlor died.
It can be very difficult to handle a trust administration without an attorney, especially if a person is unfamiliar with the laws and statutes in Michigan that deal with trusts. Having an attorney will put someone at a great advantage, make things much simpler, and allow for them to ensure that all potential errors have been avoided. When people attempt to administer trusts on their own, they often forget to publish a notice to creditors, which is an important step that should be taken as soon as possible after the administration has started. Making such a mistake could cause real problems later on and make the administration cost more than it should. Some mistakes could also cause the trustee to be personally liable to the trust.
We are very sensitive to maintaining communication with clients about the nature of their duties and responsibilities as trustees. We outline the entire trust administration process for them in the beginning and ensure that they are complying with all of the necessary steps.
We set ourselves apart in our ability and desire to be closely connected to the trust and trustee, and in making sure that the administration is completed as quickly and as effectively as possible.
When establishing a trust, it is important to ensure that there is a maintenance program in place, which means a plan to review and update the trust on a regular basis. Trusts are not designed to be set up once and left alone forever; the provisions in a trust can, and often do, change as family and financial situations change. I recommend that clients sit down with their attorney at least every three to five years to review their trust. Changes in the law, births, deaths, remarriages, and divorces can all necessitate changes to a trust.
For more information on Effects Of A Grantor’s Death On a Trust, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (248) 869-0030 today.