By: Corry Hunter, Osborne Rincon CPAs
Becoming a trustee for a parent's trust is usually a crash course in tax filings, financial management and fiduciary responsibilities, so you should have a discussion with the attorney that drafted the trust to be sure you have a complete understanding of “fiduciary” responsibilities.
Here is a typical scenario: 30 years ago, mom and dad placed their assets in a revocable living trust and assigned you as their successor trustee.
Ten years later, Dad dies. Two trusts are created – mom’s "Survivors Trust" and a "Marital Trust." A tax return is filed each year for the Martial Trust under a new Tax ID. No tax return is filed for the Survivors Trust, as all income is reported under mom's Tax ID.
Two years later, Mom remarries. Mom updates the Survivors Trust and adds a provision to provide income to her and her new husband during their lifetime. Upon the passing of mom, all the assets will pass on to her children after they are both deceased. As long as mom is still alive, the income from the Survivors Trust is reported under mom's Tax ID and is shown on her tax return.
Then mom passes away. Unfortunately, the discussion of what the trust owns did not happen, or happened so long ago, everything is significantly different when you take over as trustee.
Not only will you be taking over mom's income from the Marital Trust, but you also get her bills. You will need to manage banking for the trusts and obtain a Tax ID for the Survivors Trust after mom dies. Be sure you have certified copies of death certificates as well as copies of the trust.
You will have at least 3 tax returns to file the first year after mom's death – mom's final 1040 (likely filed joint with her new husband), the Marital Trust, and the Survivors Trust.
The Marital Trust can often be dissolved the year of mom's death by distributing all assets to the children and filling a final tax return. Once mom's second husband dies, all assets can be distributed from the Survivors Trust to the children and the trust can be closed.
Trusts from a second marriage are usually specific as to who gets what. If the second husband is the trustee, an annual accounting is strongly recommended to ensure the income and assets are not depleted before they pass on to the children.
Be sure you fully understand your responsibilities as trustee by consulting with your CPA and trust attorney.
For more information call Osborne Rincon CPAs at 760-777-9805