How Does the Death of One Trustee Affect the Rest of the Trustees in a Living Trust?
A living trust is a legal entity that holds title to assets. A living trust can either be revocable -- meaning it can be altered once created -- or irrevocable, meaning it cannot be altered once it is created. The revocability or irrevocability of a trust can change depending on a variety of factors.
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Identification
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A trust grantor is a person who sets up a living trust. In the case of a revocable trust, a trust grantor retains control over and has access to trust property during his lifetime. A successor trustee is an individual appointed to manage a trust after a trust grantor's death. If a trust is jointly controlled, co-trustees will manage the trust together.
Considerations
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The biggest consideration surviving trustees must make when another trustee dies is deciding who will take over the deceased trustee's duties. For example, if a trustee skilled in investment management dies, the surviving trustees must hire an investment manager or broker to take control of the trust's securities and assets. Without a skilled trustee or hired professional to assume the deceased trustee's role, the trust could fail to meets its investment goals.
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Revocability of a Living Trust
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The death of a spouse could change the revocability of a living trust. For example, sometimes when a trust is jointly created by a married couple and one spouse dies, the trust becomes irrevocable, or impossible to revoke. The surviving spouse becomes the "successor trustee." Acting as the successor trustee, the surviving spouse must administer trust property, create a plan of action to distribute trust property to the beneficiaries of the trust, pay state and federal taxes on the trust's gross assets and bring a return on the assets held by the trust.
Taxes
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After the death of one or both trustees, a trust must operate under its own separate tax identification number. A new tax identification number is required, so the trust can be taxed at the same rate as a probate estate. An estate attorney can advise trustees about state tax laws. According to the Missouri Bar Association, the current federal law states that any lifetime gift made to a beneficiary of a trustee that exceeds the annual exclusion at the time the gift is made is subject to taxation, provided the trustee dies within three years of making the gift.
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