Wrapping Up a Trust

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Wrapping Up a Trust

6/2/14

While some charitable and institutional trusts are ongoing entities, most trusts for individuals are not supposed to go on forever. In fact, most carefully drafted Indiana trusts describe circumstances when the trust must end. Indiana law generally frowns upon property being held by a trust indefinitely.

Many small family trusts are drafted so that when the original "Settlors" or creators of the trust (the person or persons who create and fund the trust) are gone, the trust enters final administration. Final administration of a trust is much like administration of an estate, although in the case of a trust the court is generally not informed about the proceedings. While many trusts are "living" or "revocable" during the Settlors' lifetime, they typically become irrevocable once the Settlors are gone. Once a trust enters final administration and becomes irrevocable, it is best seen a set of rules that must be strictly followed, much as the instructions in a will are to be strictly followed.

Since Settlors or creators of trusts often serve as their own trustees, a successor trustee is typically in charge of a final administration of a trust. The role is not dissimilar to the executor or personal representative on an estate, although the authority of the successor trustee comes directly from the trust document itself. (In contrast, an executor or personal representative of an estate is typically appointed by the court.)

The successor trustee is often a beneficiary of the trust (a child or children of the Settlor of the trust often act as successor trustees), but this is not always the case. Being a successor trustee does NOT mean you own the assets of the trust. While the successor trustee is not court appointed, he or she is a fiduciary. A fiduciary is a person or institution who cares for another party's assets and must always act in the other party's best interest. Fiduciary responsibility one of the highest levels of responsibility under the law.

The successor trustee will need to provide an accounting of all actions he or she takes during the final administration of the trust. Depending on the terms of the trust, beneficiaries of the trust may need to be shown the assets of the trust, the income and expenses of the trust, and the distributions of the trust. For this reason, the successor trustee must keep excellent records.

The duties of a successor trustee during final trust administration are much like those of an executor or personal representative of an estate. They include, but are not limited to:

  1. Track down assets of the trust and prepare an inventory of the trust;
  2. Pay outstanding bills, such as funeral and medical bills;
  3. Collect any insurance or other funds owed to the trust;
  4. Collect mail coming to the trust and protect trust property (including real estate);
  5. Pay any taxes owed by the decedent and/or the decedent's trust;
  6. Prepare a final accounting and make final distributions from the trust.

Since trusts are not usually overseen by a court the way probated estates are overseen, it may seem hard to know what to do when a Settlor dies and final administration of a trust begins. In most cases, final administration of a trust is much like that of an estate. Be sure to work with an experienced attorney who can guide you through the necessary steps.