Thinking about a Will or Trust at the death of a spouse can be a very difficult prospect during a very emotional time. Nonetheless, the death of a spouse can bring about complex financial issues that must be addressed. Although administering the Estate or Trust may appear daunting, there is a process to follow, as well as resources to help you along the way.
The First Steps after the Death of a Spouse
The first step is to call your estate planning attorney. They have helped you create your Will or Trust and can help you understand your duties as you administer that document. If you are no longer in touch with the attorney that planned the Estate, then be sure to find an experienced estate planning attorney to help you. Plan a meeting with this attorney two to three weeks after the death of your spouse.
The next thing you will need to do is find the original Will or Trust documents. This can result in a frustrating search, especially if your spouse was not organized or did not let you know where he/she kept important papers. This is where pre-planning comes in handy. Knowing beforehand where such important papers are kept will help things run more smoothly.
Once you have located the Will or Trust papers, you will need to gather all the financial information about the assets. This includes:
- Bank Statements
- Brokerage Statements
- Tax Returns for the last three years
- Other records of ownership
While gathering this information, be sure that you do not change the title of any assets. This will create undue problems for you.
Finally, you will need to attend the meeting with your estate planning lawyer. During this meeting, the attorney will help you understand the legal and tax requirements and let you know the terms of the Will or Trust that you will need to follow.
If you, as the Executor or Trustee, are slow in acting, others may take advantage of the situation. For instance, someone may take possession of items in the deceased’s home or take other actions that make it difficult to carry out the terms of the estate plan. Although the death of a loved one is sad, it would be sadder still to know that your loved one’s last requests could not be honored. As an Executor or Trustee, it is imperative that you act swiftly.
Stages of Estate/Trust Administration
Once you have met with the attorney, you must then begin your Estate/Trust Administration duties.
- Taking an inventory of assets
- Determining Estate Tax
- Dividing Trust Assets
- Filing Tax Forms
- Distributing assets to beneficiaries
Taking an Inventory of Assets
The very first task as Executor or Trustee is to take inventory of the assets of the Estate. This is more than just making a list. It also includes listing the ownership of each asset as well as the date-of-death valuation. Knowing the ownership of each asset will ensure that all assets that are supposed to be in the Trust are indeed owned by the Trust or that assets that are supposed to be controlled by the Will are indeed controlled by the Will. Knowing the valuation of the assets will have important tax implications. Your estate planning attorney can recommend the right professionals to help you obtain the correct asset valuations.
Determining Estate Tax
There typically will be no estate tax due after the death of the first spouse due to the unlimited marital deduction. However, after the death of a surviving spouse or a single individual, estate taxes become very important.
Any assets over $5.49 million in 2017 will be taxed at 40 percent and must be paid within nine months of the date of death using IRS Form 706. Once again, a qualified estate planning attorney will help you determine which assets will be subject to the estate tax.
Dividing Trust Assets
It is the job of the Executor or Trustee to split the assets from the deceased or the Joint Trust, as the case may be, into two or three different Trusts. These Trusts include the Survivor’s Trust, the Family Trust, and potentially the Marital Trust.
The Survivor’s Trust is exactly what it sounds like – a Trust that holds the surviving spouse’s assets. These are assets that were once held jointly in the Joint Trust.
The deceased spouse’s assets are either put completely into a Family Trust, or split between a Family Trust and a Marital Trust. The Family Trust will no longer be considered part of the surviving spouse’s estate upon death. The purpose of this Trust is to keep assets out of the surviving spouse’s estate while still providing income to the surviving spouse.
It is very important that the Executor or Trustee properly fund these Trusts. If assets are not transferred correctly, they may be considered part of the estate and subject to unnecessary tax or administration.
Filing Tax Forms
In addition to income tax returns for the deceased for the year of his or death, it is also necessary to file IRS Form 706 to declare any estate taxes due. Additionally, Form 1041 is due annually for the Family Trust or Marital Trust in every year after the death of the original Trustor. Not filing these forms on time can result in penalties and interest due.
Distributing Assets to Beneficiaries
As an Executor or Trustee, you do not determine how the Trust’s assets will be distributed. Instead, you merely carry out the terms of the Trust. Once bills and taxes are paid and all assets have been accounted for, the Executor or Trustee will then pay out any assets due to beneficiaries. This process usually takes less time when dealing with a fully funded Revocable Living Trust or with a properly drafted Will.
Frequently Asked Questions Concerning the Estate/Trust Administration Process
Should I expect a cost when one spouse dies?
Whenever someone dies and circumstances change, there will typically be a fee involved. The fee will vary from situation to situation depending upon the type of assets and the complexity of the Estate or Trust Administration. Typically, this fee will be significantly less than dealing with an improperly planned estate or incomplete estate plan.
What happens if I am single when I die?
Your Executor or Successor Trustee will follow the same steps that would be followed if you had a living spouse at the time of your death.
The death of a loved one is a trying and emotional time. Yet, it is necessary as the Executor or Successor Trustee to administer the Will or Trust they have left behind. By following the steps laid out in this chapter and working with an experienced estate planning attorney, you will be able to carry out the wishes of the deceased.