A trust is a legal instrument that enables a grantor, the person who creates a trust, to transfer assets to trust beneficiaries without going through the probate process. The grantor typically names themselves as the trustee, along with a successor trustee, to manage the trust in the event that they become incapacitated and after their death. A trustee has the fiduciary responsibility to manage the trust according to its terms.
A revocable living trust separates the grantors’ ownership of their property from their control over it. Once a grantor funds the trust with a house, accounts, and other assets, the trust owns them, but the grantor continues to control their use as long as they are alive and capable of managing the trust.
What happens to a house in trust after a grantor’s death? A revocable living trust becomes irrevocable if the grantor dies or becomes incapacitated. The successor trustee takes over managing the trust and must follow the terms of the trust document.
Contact an Asset Protection Attorney Near You
Online Appointment Request
Call Our Office
What is the difference between a revocable and an irrevocable trust?
An estate plan can include many different types of trusts, each serving its own purpose. These trusts can be broadly divided into revocable and irrevocable trusts.
When a grantor places assets in a revocable living trust, the assets are owned by the trust and managed by the trustee. The grantor can serve as the trustee of the trust and, therefore, make changes to provisions in the trust document as long as they are capable of doing so. They may also be beneficiaries of the trust. The grantor has complete control over the trust, but revocable living trusts do not typically come with many tax savings and asset protections.
When creating irrevocable trusts, the grantor transfers assets into the trust and appoints a trustee to oversee its management; however, the grantor cannot alter, change, modify, or revoke the trust after its execution. Because the grantor does not control how the assets in the trust are used and the assets are not part of their estate, irrevocable trusts are commonly used when grantors desire higher levels of asset protection and tax savings.
What happens to living trusts after death?
A revocable living trust automatically becomes an irrevocable trust once the grantor dies, preventing anyone from making changes to the trust documents. The successor trustee named in the trust documents assumes management of the trust.
Once the successor trustee assumes management of the trust, they take the following steps to manage it:
- Contact the investment firm that owns the living trust or the lawyer who represents the grantor.
- Apply for a federal tax ID number, or EIN, for the trust. Throughout the grantor’s lifetime, the grantor will pay taxes on the assets in the trust under the grantor’s Social Security number. Once the grantor dies, the irrevocable trust requires a federal tax ID number to pay taxes.
- The successor trustee will begin transferring ownership of trust property, obtain a death certificate, notify the Social Security Administration of the death, inventory the assets, and pay taxes.
- According to the trust provisions, the trustee will notify the beneficiaries and distribute the trust assets. For example, ownership and title to a house held in trust will be transferred to its new owners. The successor trustee works with the executor of the estate to ensure that the grantor’s wishes are followed.
How does a trust end?
Once the trustee has distributed all of the trust’s assets, they will file state and federal tax returns for the trust. They will also send a Schedule K-1 to every beneficiary who receives any income distributions from the trust. Once done, the successor trustee can dissolve the trust.
Sometimes, a trust remains open for years. For instance, if a trust provides for minor children, it will continue to exist until its terms and purposes are satisfied.
What are the benefits of a revocable living trust?
Using a revocable living trust, a grantor can transfer ownership of their assets to the trust while continuing to enjoy and manage them. A grantor can amend the trust documents as their circumstances evolve and change with births, deaths, and marriages. They can add and remove property or dissolve the trust altogether. Updated trust documents can reduce conflicts after the grantor dies.
Trusts are not subject to probate, and the court does not appoint trustees. Many people choose to put their assets into a revocable living trust because they do not want their loved ones to have to go through the expensive and public probate process.
If you have questions about your estate plan, choosing a successor trustee, or want to learn how to protect your assets and property with a comprehensive set of estate planning tools, contact us.
You can schedule a call with us or contact us directly at 855.631.3457 to learn more about how to best plan today to protect those who are most important to you.