Trust termination is the complex process of transferring assets left in the trust upon a triggering event. Often times the triggering event is the death of the grantor of a revocable trust. Due to the myriad of situations that are present with trusts, the termination of a trust will be different with each situation. I have outlined a typical list of what will happen when a trust is terminated.
- Initial correspondence with trustee, letter to file will with probate court, letter requesting death certificates, letter to post office notifying them of death, letter to social security notifying them of death, and letter to beneficiary.
- Creditor correspondence and notification.
- Asset organization and inventory.
- Asset valuation.
- Real Estate Valuation and Correspondence.
- Inventory to determine new tax basis of assets.
- Trust Accounting.
- Tax Correspondence.
- Disclaimer – if beneficiary chooses to disclaim some or all of assets.
- Testamentary Trust – Documents required to fund any trusts which are to be funded from the revocable trust. Includes SS-4, Application for Employer Identification Number, Form 56, and Notice Concerning Fiduciary Relationship.
- Transfer of Assets.
Often times the benefits of estate planning are trumpeted because of the cost savings of avoiding probate. Unfortunately, the costs of terminating a trust are often ignored. Depending on the size of the estate, the costs of creating an estate plan AND terminating the trust should be weighed against the costs of probating an estate in determining how complex the estate plan should be.
It must thereafter be determined if a will is necessary. Often times the deceased person has titled all of his assets as Joint Tenants with Right of Survivorship. This means there is a co-owner to the assets and the co-owner will automatically assume 100% ownership of the assets at the death of the decedent. If this is the case, the surviving co-owner generally must provide only a death certificate to the custodian of the asset(s) to retitle them in the name of the surviving co-owner.
If there was no will and the assets were not titled as JTWROS, it must thereafter be determined if the assets were titled in the name of a trust where the deceased person was the grantor of the trust. If they were, termination of the trust is necessary.
If there was no will, assets were not titled as JTWROS, and there was no trust, a few factors come into play next that determine the status of the assets left by the deceased person. Was the deceased married? Has anyone survived the deceased? Does the deceased have siblings or parents still alive? Thereafter, the state of Pennsylvania has enacted statutes which direct the distribution of assets of the decedent according to who is surviving the decedent (often referred to as per stripes).
Probate is the process of proving the will has been executed correctly and the person creating the will was of sound mind and undue influence. Thus, the will must be produced to the register of wills along with any other related papers in the county where the decedent had his last family or principal residence. Other related papers may include papers incorporated by reference in the will, old wills or codicils, etc.
Typically the process begins by determining IF someone had a will. Hopefully this question will be easily answered. Assuming there is one, I have laid out a typical scenario. Please keep in mind that events aren’t always typical and there will always be deviations from the course.
- A funeral will generally be held for the deceased person. The person who expects to be named as a personal representative (usually named in the will) might pay for the funeral and expect to be reimbursed for costs associated with the funeral as long as they are reasonable in light of the decedent’s assets and his station in life.
- Probate of Will begins.
- Obtain Letters of Administration. The Letters of Administration is where the personal representative named in the will obtains letters of administration. The Letters of Administration are necessary so parties involved (banks, financial institutions, title companies, etc) are informed of who has legal status to act on behalf of the decedents estate.
- Advertising of Letters of Administration.
- Gathering of assets and information to include contents of safe deposit boxes, investments, homes, tax returns, debts. etc. Hopefully these were outlined in the will.
- Administration of Estate – paying creditors, paying administrator of estate, notifying utility companies, social security, etc.
- Filing of inventory of estate with register of wills.
- Pennsylvania Inheritance Tax – if filed within 3 months of death, a 5% discount will be applied to the tax return. Otherwise, the tax return must be filed within 9 months. A 6 month extension may be requested.
- Pennsylvania Estate Tax – generally must be filed within 9 months of decedent’s death.
- Pennsylvania Income Tax – return is due on the same date that it would have been due had the decedent lived to the end of his taxable year.
- Federal Inheritance Tax – generally must be filed with 9 months of the date of death. This is a tax on the transfer of assets and two different dates may apply for when assessing the valuation of the assets for income tax purposes.
- Federal Individual Tax Return – the return is due on the same date that it would have been due had the decedent lived to the end of his taxable year.
- Accounting of Administration of Estate. May be filed at least four months after letters of administration have been granted.
- Distribution of Estate.
