How to File Trust Taxes After the Trustee's Death

The most common type of trust is a revocable living trust, a legal entity created by the grantor to hold all his personal assets. In many cases, trusts are administered by the grantor, who will name himself as trustee. Trustee status ends only when he becomes becomes incapacitated and unable to manage his personal affairs. Usually trusts name a successor trustee, or trustees if the first choice is unable or unwilling to carry out the responsibilities of the position If a trustee dies, a successor trustee will discharge the duties assigned to the original trustee. If the deceased trustee had his own trust, the details of burial and distribution of assets will be carried out by his trustee. The details may also be specified in a will.

Instructions

Duties of Successor Trustee

1. Review the trust and will in detail. Locate life insurance policies, annuities, pension plans or other assets that have designated beneficiaries. Obtain a federal tax identification number (FEIN) for the trust using IRS Form SS-4, and submit IRS Form 56 to arrange for all tax correspondence to go to the successor trustee. Also secure the grantor's home and identify any specific instructions regarding the distribution of possessions.

2. Determine what assets are on hand and the nature and location of those assets, such as cash, bank accounts, securities, real estate, vehicles and other tangible items. Evaluate and decide what ongoing bills must be paid and what funds are available.

3. Hire advisers as needed, such as attorneys, CPAs and investment advisers, to review investment portfolios to determine whether any immediate actions are necessary. The rest of your duties as trustee should be spelled out in the terms of the trust.

4. Notify all the trustee's bank accounts, stockbrokers, beneficiaries and any other relevant financial contact of the change in trustee. Include the name of the new trustee and new correspondence address.

5. File tax forms as required by law. Most trusts require a Form 1041. Usually this is performed by a CPA or financial adviser. Taxation of trusts can be found in sub-chapter J dealing with estates, trusts, beneficiaries and decedents, particularly sections 641 through 692 of the Internal Revenue Code. State law generally governs the legal standing of a trust and is significant in some important in some IRS definitions. If the period since the date of the preceding trustee's death has been too short to fully familiarize yourself with the trust, file for a tax extension.

Tips & Warnings

• Hire a CPA to conduct a thorough audit of all the trust's records to certify they are in order. If the preceding trustee made errors or committed fraud, you must document any actions taken by your predecessor so you will not be held responsible.

• Revocable trusts are most frequently created to avoid the necessity of probate and the time it takes before the process works through the courts.

References

• Trusts Etc.: Duties of Successor Trustee
• Money Law Offices: Role of a Successor Trustee
• Dan Brady: Duties and Responsibilities of a Successor Trustee
• IRS: Tax Abuse Information