There are three steps to a successful living trust:
1. It has to be drafted, signed and “funded” properly;
2. It must be reviewed every two to five years;
3. It must be administered after the death of the person that created it.
Step 3 is very important and sometimes overlooked. Some attorneys that draft trusts do not administer them at all. This is because they either don’t know how to do it or they don’t want to do it. I handle a lot of trust administration. My philosophy is to let the back-up trustee do most of the work (thereby saving the heirs money). Most trustees do fine in administering the trust. They just need to know what to do in a logical order. The following is a partial checklist of what needs to be done:
1. Meet with trustee and look over assets and determine how all assets were titled;
2. Obtain a tax identification number from IRS (the trust no longer uses the deceased’s social security number);
3. Prepare an “Affidavit of Successor Trustee” for the trust so that the back-up trustee can take over the trust;
4. File the will with the clerk of the court (this is usually done so that the car can be transferred);
5. Begin preparing the Federal and State Inheritance Tax Returns, if needed. Obtain date of death values for all assets.
6. File an Income Tax Return for the Living Trust for the time after the deceased’s death (Form 1041);
7. Decide whether to distribute cash or the assets (stocks, etc.) to the heirs;
8. Decide how to handle the distribution of IRAs (this is very tricky and requires detective work).
9. Do an accounting (balance sheet) and make a first distribution to the heirs, holding back enough to pay bills and taxes.
10. Set up the Family and Marital Trusts and fund them properly.
This is not a complete list of all that needs to be done. Fees for trust administration are either hourly ($250/hour) or a flat fee basis if the client prefers. For a first meeting, the death certificate, original will, original trust and a current list of all account statements is needed to begin.