What Do You Do When the Owner of a Living Trust Dies?

by Charlie Gaston ; Updated July 27, 2017
You can shelter assets such as a house in a living trust.

Frequently, a person sets up a living trust to ensure that heirlooms and high-values assets are payable to children, relatives and charitable organizations after death. When the owner of a living trust dies, the parties involved in the trust must settle the trust’s assets according to the instructions provided by the person who owns the trust.

Identification

A trust grantor is a person who sets up a trust and funds it with assets. The funding process can be completed using an assignment form, which reassigns property to a living trust. For a trust to be effective, a trust grantor must appoint a successor trustee to manage and distribute the trust’s assets according to the instructions specified in a trust agreement. A trust agreement is an important instrument because it offers a successor trustee specific instructions regarding the distribution of assets and the powers a successor trustee can take on behalf of the trust. It also identifies the beneficiaries of the trust.

Trustee Duties

After a trust grantor dies or becomes incapacitated, a successor trustee must assist the beneficiaries of the trust in taking over ownership of their assets. For example, a successor trustee may have to assist a beneficiary in taking over ownership of real estate property or a Totten account, a financial account established by a trust grantor and payable on death to a beneficiary.

Distribution Process

A successor trustee often needs only to present a beneficiary of a trust with a property deed for the beneficiary to take ownership of property. A successor trust needs only to visit the bank or investment company where an account is held to sign over ownership of the account to the beneficiary. When signing over a financial or investment account to a beneficiary, the successor trustee must present the grantor’s original death certificate to the bank. The beneficiary must sign the original contract deposit to complete the transaction. He can close the account or allow it to remain active.

Federal Taxes

A trust must report income after the owner of the trust dies. If the person, for example, earns interest on a financial account after her death, then that income is considered income for her trust. The successor trustee must document the income on Form 1041, U.S. Income Tax Return for Estates and Trusts. A trust may also have to pay tax on the sum value of assets if the trust’s assets equal more than $1,500,000. Report the value of the assets using Form 706, U.S. Estate Tax Return.

About the Author

Charlie Gaston has written numerous instructional articles on topics ranging from business to communications and estate planning. Gaston holds a bachelor's degree in international business and a master's degree in communications. She is fluent in Spanish and has extensive travel experience.

Photo Credits

  • small house, big house image by Nino Pavisic from Fotolia.com