When a person who has established a trust (known as a settlor or grantor) dies, the role of the trustee becomes critically important. The trustee is responsible for administering the trust according to the terms outlined in the trust document, ensuring that the decedent’s wishes are followed, and managing the assets for the benefit of the beneficiaries.
The following are tasks typically handled by the trustee after the death of a settlor:
1. Obtain a Death Certificate
- The trustee should obtain a copy of the settlor’s death certificate, which may be required by financial institutions and companies throughout the administrative process.
2. Locate the Trust Document
- The trustee needs to locate the trust document and any amendments to the trust to confirm their role and understand the terms of the trust.
3. Locate Trust Beneficiaries
- The trustee should gather the addresses and contact information for the beneficiaries. Unless limited by language in the trust document, trustees have a duty to inform and report. This means the trustee has an obligation to keep certain beneficiaries reasonably informed about the administration of the trust.
4. Secure and Inventory the Trust Assets
- The trustee is responsible for locating and securing trust assets. This could include bank accounts, real estate, company membership interests, brokerage or stock accounts, annuities, personal property, and any other assets owned by the trust.
- The trustee may need to have the assets appraised, especially real estate, valuable collections, or other significant items.
5. Pay Debts and Expenses
- The trustee should wait to pay expenses until after consulting with an estate planning attorney. The trust may contain provisions for payment of funeral expenses, taxes, and any other valid claims against the estate. In Wisconsin, this can include claims against the trust, which may need to be settled before distributing the assets to the beneficiaries.
- While the trustee doesn’t pay debts from the decedent’s personal estate (unless there are insufficient assets in the trust), the trustee must be mindful of any outstanding debts that are owed by the trust.
6. File Tax Returns
- The trustee may need to file a tax return for the trust. If the trust generates income, the trustee may be required to file an annual tax return for the trust itself (Form 1041 for federal tax purposes).
7. Distribute Assets to Beneficiaries
- After all debts, taxes, and expenses are paid, the trustee distributes the remaining assets to the beneficiaries in accordance with the trust provisions.
- The trustee should ensure that distributions are made in the correct amounts and to the correct individuals or entities. In some cases, this could involve setting up trusts for minors or individuals with special needs, or making outright distributions.
- The personal property of the settlor of the trust can often serve as a point of disagreement among some families. Follow the terms of the trust for any specific distributions to certain people and if the trust says all beneficiaries get an equal share of the personal property, take care to create a fair process where everyone can select certain items. If there is a disagreement over an item, look to what the trust says about any disagreements.
8. Close the Trust
- Once all debts, taxes, and distributions are completed, the trustee can close the trust.
The trustee’s job is to ensure the trust is administered according to the decedent’s wishes, to pay any debts and taxes, and to properly distribute the assets to beneficiaries. Throughout the process, the trustee has a fiduciary duty to act in the best interest of the beneficiaries, with loyalty, impartiality, diligence, and prudence. Any breach of this duty can expose the trustee to personal liability. If you’re serving as a trustee in Wisconsin, it’s often helpful to work with an attorney to ensure all legal requirements are met and the trust is managed properly.
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