What
is trust administration?
After the death of
the trustor (who is the person who created the trust), certain steps must be taken to comply
with state law, to preserve the federal estate tax exclusion amount, and to change title to assets. This is called
"trust administration," and the complexity of the administration
depends on the number and type of assets, their total value,
and whether the trust includes tax planning provisions.
What
has to be done?
Major assets must be appraised and an inventory
must be prepared to determine the net worth of the decedent for federal estate
tax purposes. If the estate of the decedent is valued at more than $5.25 million, a
federal estate tax return must
be filed.
Income tax returns also must be filed for the estate and for the decedent. If
the trust became all or partially irrevocable as a result of the death, the
decedent's heirs and trust beneficiaries must be notified of that fact and
given an opportunity to request copies of the trust. State law also
requires that the decedent's will be filed with the Superior Court in the
county in which the decedent was living. A notice that the death has
occurred also must be sent to the County Assessor of each county where the
decedent owned real property.
What
should be done if the trustor has an exemption trust?
The
purpose of an exemption trust (also called by many
other names, such as bypass trust or credit shelter trust) is to reduce or eliminate the federal
estate tax. To create the exemption trust, the surviving spouse
must take all of the steps described above, and also transfer
certain assets to the exemption trust. This is an irrevocable
trust and the surviving spouse will also have to file additional
income tax returns and accountings to ensure that the exemption
trust will meet state and federal requirements.
What happens if the trust is not administered?
If
the surviving spouse does nothing to administer the trust after
the death of the first spouse, the exemption trust will not exist
and will therefore provide no tax reduction benefit to the estate. As a result,
the couple's estate may pay higher estate taxes. The exemption
trust must be properly funded, and other procedures must be followed,
such as filing income tax returns, or the trust will be included
in the surviving spouse's estate for federal estate tax purposes,
increasing the federal estate taxes for the estate.
