A trustee passing away can have different outcomes for the estate. If the trust is revocable and the trustee is also the grantor (i.e., the person who created it), it becomes irrevocable. If the trust is irrevocable, then a successor trustee will be appointed. On top of understanding what happens to a trust when a trustee dies, know that a trust accounting almost always follows.
Still, with so many possible situations and trust varieties, it can be challenging to know how to find the answer for your unique circumstances. Maybe you are trying to understand what happens to a living trust when the grantor dies, or perhaps you are dealing with a situation involving the death of one of the co-trustees. We are here to help walk you through it all.
What Happens to a Trust When the Trustee Dies?
The death of a trustee poses a continuity risk because, without active management, it cannot function effectively. Co-trustees or a successor trustee designated in the trust could assume control, or beneficiaries may have to seek legal intervention to appoint a new trustee.
If a trustee dies without a succession plan, its operations cease immediately until the beneficiaries seek court guidance on appointing a new trustee. In all situations, the primary objective is ensuring the trust does not lapse and fulfills its purpose. Here is what you need to know.
Related Article: Who Should You Name as a Trustee? Why to Hire a Professional Fiduciary!
What Happens to an Irrevocable Trust When the Trustee Dies?
When an irrevocable trust trustee dies, the trust document will typically designate a successor trustee, who could be an individual or organization. The successor trustee will then continue the trust’s administration.
It could also be helpful to determine whether or not the trustee is also the grantor in these situations, as you may actually be trying to figure out what happens to an irrevocable grantor trust when the grantor dies. However, the process will likely be the same.
Understand that in situations that involve a new trustee taking over administration, a trust accounting will be required for an irrevocable trust. So, having a specialist trust accountant on your side is crucial when understanding what happens to a trust when the trustee dies.
Related Article: What is Trust Accounting for a Trust?
Can a Surviving Spouse Change an Irrevocable Trust?
No, a surviving spouse cannot change an irrevocable trust. When a revocable trust becomes an irrevocable trust after the death of the grantor, it is critical to understand a few key things about this unique type of trust.
The person who created the revocable trust can change it at any time, providing more control and flexibility. However, once a trust becomes irrevocable, it cannot be changed. This limits flexibility but provides tax benefits.
Understanding the difference between these two types of trusts is essential to knowing what happens to a trust when the trustee dies in your unique situation.
Related Article: What’s the Difference Between a Revocable Trust and Irrevocable Trust?
What Happens to a Living Trust When the Trustee Dies?
After the trustee of a living trust, also called a revocable trust, dies, their successor trustee administers it and ensures all assets and instructions outlined are administered per the trust document, honoring the trustor’s intentions while closing out the trust.
This is one of the most common circumstances people face when trying to understand what happens to a trust when the trustee dies. It’s crucial to understand what happens when the trustee of a living trust is also the trust creator because they are usually the same.
In these situations, the trust becomes irrevocable, which requires settling the living trust. Here is a general outline of what happens when you die with a living trust and what your successor trustee must do:
- Locate and review relevant documents.
- Provide a notice to beneficiaries and heirs about trust administration.
- Gather and value trust assets.
- Satisfy the grantor’s debts.
- Prudently manage and invest assets.
- Track down titles to trust assets.
- Provide an accounting to beneficiaries and heirs.
- Make distribution to beneficiaries per trust terms.
Regardless of your situation, asset inventory and trust accounting will also be required at this juncture, and working with a premier trust accountant is crucial. A professional fiduciary can even help manage the trust because this can be a significant and complex undertaking alone.
Related Article: How to Do Trust Accounting in California
How to Close a Revocable Trust After Death
Closing a trust is also referred to as “settling a trust,” and this can have vastly different meanings for different trusts. As we mentioned above, a new trustee taking over is what happens to a living trust when the owner dies.
To settle a revocable trust, a trustee must take several actions. Here is a general overview of how to close a revocable trust after death:
- Take inventory (e.g., account statements, copies of bills, stocks and bonds, life insurance policies, contracts, deeds, titles, business documents, tax returns, estate planning documents, beneficiary designations, a death certificate, etc.)
- Pay outstanding bills, expenses, and taxes for the deceased using trust funds/assets.
- File tax returns for the trust.
- Prepare and provide an accounting to beneficiaries.
- Distribute assets.
Essentially, a trust only exists for as long as it takes to distribute assets to beneficiaries. Once beneficiaries receive their inheritance, the trust is complete and closed. Distributing the trust and fulfilling its terms is the only solution when determining how to close a trust after death.
Related Article: What is the Penalty for an Inaccurate Trust Accounting?
What Happens When One of Two Trustees Dies?
If there is more than one trustee overseeing a trust, they are called co-trustees, and this could create different outcomes when wondering what happens to a trust when the trustee dies. In a situation where there are co-trustees, and one dies, this often triggers the provisions for succession detailed in the trust document.
The trust document will likely outline the process for the remaining trustee or the appointment of a new successor trustee to continue trust administration. In some situations, the remaining trustee may become the sole trustee.
“A trustee is not only responsible for managing the trust; a trustee is the guardian of your future and family legacy. When a trustee passes away, this can naturally cause some anxiety, but understand that there are laws and processes in place to ensure that the trust fulfills its purpose. Still, expert guidance is necessary to navigate this process. You need trusted results when it comes to administering and settling a trust. And that’s where we can help.”
– Marcia L. Campbell, CPA, Trust Accountant, & Professional Trustee
Worried About What Happens to a Trust When the Trustee Dies? With Professional Help, this Will Be Merely an Afterthought!
The answer to what happens to a trust when the trustee dies depends entirely on your situation. Are you dealing with a living trust or an irrevocable trust? Are you dealing with co-trustees or a single trustee? These all play a role, as does sound estate planning. It is crucial to work with a professional trust attorney and trust accountant because they will help protect you from liabilities and prevent you from violating your fiduciary duty, both of which can result in hefty surcharges you have to pay out of your own pockets. They can also help you create a solid estate plan.
If you are a beneficiary interested in appointing an independent professional trustee after the original trustee has passed away, this could also be a huge asset in streamlining this process, avoiding conflict, and helping you and your loved ones reach a place of healing and closure faster.
