It is a very common reaction, upon losing a loved one, to be at a loss as to what actions may need to be taken. Finding the will, locating insurance policies, creating an inventory of assets, can all be very overwhelming. Particularly, when there is a living trust between spouses, there are certain initial responsibilities that require attention. Handling a trust when your spouse dies does not have to be stressful.
Locate the trust and review its terms
Once you locate the trust document, read the terms to familiarize yourself with them. Even if you participated in drafting the trust, it has probably been several years since it was prepared. Although most trusts between spouses leave all assets to the surviving spouse, some trusts provide for distributions to other heirs, too. Before you take any action to implement the terms of the trust, make sure you understand all of the provisions. Many provisions are quite technical, so it is always a good idea to consult your estate planning attorney before you take any further steps. It is best not to accept death benefits such as life insurance, retirement accounts or pensions before consulting with your estate planning attorney as you may be missing or jeopardizing your benefits.
Transfer title to the surviving spouse or other beneficiaries
More often than not, living trusts between spouses name each spouse as a co-trustee. In other words, once the first spouse dies, the assets need to be transferred to the surviving spouse as the sole trustee. Until the transfer occurs, banks and other institutions may continue to require two signatures for any transactions. In order to transfer title, you will need the certified death certificate of your deceased spouse and an updated certificate of trust. In terms of real estate, your estate planning attorney will draft an affidavit for you to record with the county recorder's office. Besides keeping the records straight, you may also be avoiding identity fraud.
Determine the type of living trust you have
The type of trust you have can have an effect on the steps you must take. You can always ask your estate planning attorney to help you determine the type of trust you, if you are not sure. One of the most common types of trusts between spouses is known as an A/B trust. This type of trust is one that requires special action, and if those requirements are not met, it could cost your family thousands of dollars in estate taxes, which could have been avoided. Incurring these costs would also defeat the purpose of this type of trust.
How does an A/B trust work?
An A/B trust divides the spouses' assets into two shares when the first spouse dies. However, this division will not occur automatically. Instead, the assets must be physically transferred into two separate trusts. An inventory and appraisal of the assets is created and then the assets are allocated between the two trusts. Specific procedures must be established to keep track of the assets in each separate trust. An income tax return needs to be filed for the decedent’s trust each year after his or her death. If not, the IRS may not recognize that the trust exists and the entire estate could be subject to taxation after the death of the second spouse.
If you have questions regarding living trusts between spouses, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
