In talking to people who have chosen to use living trusts as an estate planning tool, I’ve learned that many seem to think their trust will act as a “magic book” when there is a disability or death. By that, I mean that they believe that because they have a trust, no action will need to be taken to settle the estate.
Anytime there is a death, there are four main tasks to be completed. First, the assets of the deceased must be inventoried and valued. Second, debts and claims against the estate must be evaluated, and legitimate claims must be paid. Next, tax issues must be dealt with. If a taxable estate, state and federal estate tax returns must be prepared and filed. A personal income tax return must be filed for the partial year of death. Fourth, the assets must be distributed to the beneficiaries in accordance with the trust instructions. Depending upon the size of the estate and the level of pre-death updating and maintenance of the plan, these tasks can be quite complex and time consuming, and often take months if not years to complete.
However, often those with trusts have presumed that somehow having a trust will exempt them from doing these tasks. It is not uncommon for a surviving spouse to do nothing. At the second death, the family learns that the instructions of the trust were never implemented and the tax planning was not done. If a disclaimer trust was used, it is often too late to set up the family trust, and the tax exclusion of the first spouse to die is lost. The failure to properly administer the estate at the first death may cost the family hundreds of thousands of dollars in estate taxes which could have been avoided.
Anytime there is a disability or death, anyone with a trust should seek the appropriate assistance of an attorney who specializes in estate planning and settlement. The attorney can help the successor Trustee to complete all of the actions necessary to settle the estate, and ensure that all requirements are met.
I wholeheartedly agree that contacting an attorney when a disability or death occurs is in everyone’s best interests. Too often the family must deal with an unfortunate mess that could have been avoided with proper assistance from an attorney familiar with the intricacies of trusts.