When the trustor (the trust’s creator) dies, the trustee (the person named in the trust) performs certain tasks to wind up the trust. This is called “trust administration.” The complexity of the administration depends on the number and type of assets and their total value. The trustee should be trustworthy, dependable and reliable.
First, the trustee lodges the decedent’s will with the court for safekeeping. Then, if the decedent owned real property, the trustee files a statement with the county assessor. Subsequently, the trustee marshals the assets and prepares an accounting. Also, if the estate is more than $11.5 million, the trustee files a federal estate tax return. Additionally, the trustee files income tax returns. Finally, if the trust became all or partially irrevocable as a result of the death, the trustee notifies the beneficiaries and allocates the assets to various sub-trusts.
An exemption trust serves several purposes. First, it reduced or eliminates federal estate taxes. Also, it protects a decedent’s assets from their surviving spouse’s subsequent re-marriage. To create the exemption trust, the surviving spouse allocates and then transfers certain assets to the exemption trust. Finally, the surviving spouse files income tax returns and accountings to ensure the exemption trust meets state and federal requirements. Therefore, properly funding an exemption trust is a key component of trust administration.
If the surviving spouse does nothing to administer the trust after the death of the first spouse, the exemption trust will not exist. As a result, the exception trust provides no tax relief or other protection to the estate. Consequently, the beneficiaries will pay higher taxes or may be disinherited. Therefore, the surviving spouse must fund the exemption trust and follow other procedures to ensure proper trust administration.