Settling a Living Trust

When someone dies, one of the first things that happens is figuring out the will and any trust they may have. If you happen to be the trustee named in a living trust, your job will be to help settle that trust. It is essential for you to know how to settle the living trust properly. There are some methods that are used commonly to help the trustee properly settle the living trust.

A living trust is a common type of trust created for the estate that helps avoid probate filings typically. Though a living trust can help the beneficiaries receive the assets faster, it is still not a way for them to get the assets instantly. After the grantor of the living trust dies, it could take a few months to much longer for the trust to be settled, depending on everything that needs to be done. To settle the trust, the trustee must make their decisions in the correct order and at the correct time. To settle a living trust, as with settling any kind of estate matters, it is best for the trustee to acquire the services of a lawyer who specializes in handling estates.

Living Trust Initial Distributions

With a living trust, when it comes time to settle the estate, the trustee of the trust must decide where the first distributions will go. This is not a simple step. It will, in part, determine if the living trust will have enough assets to pay for everything it is supposed to, such as expenses and listed distributions. Therefore, the initial distribution of the assets is delayed, to ensure that the expenses associated with the estate are paid off first. Some of the fees that are initially paid include legal fees, creditor obligations, capital gains tax, income taxes, estate taxes, costs for administration, and others. If the trustee of the trust set these funds aside while setting up the living trust, this step will be rather simple and quick.

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Paying Creditors and Taxes from the Estate

The first distribution to be done when settling the living trust is to pay the taxes from the estate. There are several taxes that will be owed. One if the estate taxes, a percentage of the value of the estate as decided by the Internal Revenue Service. Income taxes may also be paid if they were not kept up with yearly by the property owner. These taxes may be from income that came from the property, bank accounts, or stock dividends. This step in the process can be a long one. The administrator has to wait for the taxing authorities to give them information needed before they can proceed with distributing to anyone other than the creditors. This alone can take many months, waiting for each one to respond and give the authorization to continue moving forward.

The next step in the process is paying the creditors from the living trust. The creditors are an organization or person which need to be paid by the estate. For this to be done, there must be a public notice, usually in the legal section of the classifieds in the local newspaper, stating that the estate is being settled and that any claims on the estate are to be presented in a certain period of time. Typically, the time limit is three months from the publication date for the creditors to stake their claim. Once this time has passed, the administrator has the duty to verify any claim that is against the accounts with the files that are held by the estate. If the claim is verified and considered to be valid, the claim is paid from the money in the living trust as part of the overall settlement. Most times, many creditors will come out of the woodwork and ask for payment. The creditors are given access to the property before any of the trustees because of current laws. Occasionally, the trustees end up receiving no money because the remaining wealth in the trust is used to pay the grantor’s outstanding debts.

Until the above two steps are completed, the beneficiaries will not be able to receive any portion of the settlement from the living trust. This is because if more money is owed than planned for, some of the assets may need to be liquidated to finish making the payments that are owed from the estate. Some of these assets may have been designated to the beneficiaries in the living trust. Once all the claims from the creditors and the estate taxes have been paid, the rest of the trust assets can be distributed as scheduled.

Time Frame for Settling a Living Trust

With each estate, the time frame to settle the living trust will vary. If there is no specific schedule in place, the estate can take a year or so to distribute all the assets. On occasion, a living trust can take many years. This usually happens when the guidelines in the living trust have stipulations that require a certain amount of time or other requirements to pass before it can be settled. When minor children are the beneficiaries, oftentimes it will be required that they reach adulthood, finish college, or other certain prerequisites before the living trust is completed and they can take control of the assets assigned to them.

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Another factor that will often slow down the process is if there are any disagreements among the beneficiaries. All disputes should be settled before the trustee can give the final disbursements. There are many reasons that the beneficiaries may disagree. Perhaps there is distrust in the abilities of the trustee to carry out the terms of the living trust. In other cases, the beneficiaries may not be clearly defined. Such a case may be if the trust simply states “all offspring” of the grantor. This can, at times, take time to define and possibly prove. On occasion, the family members may fight against the trust when they are denied any funds and, instead, a charitable institution is listed as the beneficiary.

Settling a living trust can be a long, drawn out process for any family. The best way to see that any living trust is carried out efficiently and effectively is to talk with your attorney.