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Living trusts are documents that can prove to be beneficial in estate planning. You might be wondering, what happens to a living trust when your spouse dies?
In the unfortunate event of your spouse's passing with a living trust in place, it is crucial to understand that the impact on the trust will vary. The end result is based on factors such as the specific terms outlined in your trust document, the type of trust established, and the laws governing trusts in your state.
By understanding these important elements, you can navigate through this difficult time with confidence. Crucially, you can also ensure that your spouse's wishes are carried out according to their intentions as well as any legal requirements.
What to Do with a Living Trust After a Spouse Dies
The grantor holds the authority to alter or cancel this trust whenever they see fit. What happens to a living trust when one spouse dies depends on the terms of the trust.
When both spouses have a joint revocable living trust, the surviving spouse usually takes on the role of sole trustee and retains full control over the trust's assets. The terms of the trust unequivocally lay out how assets will be managed and distributed upon the passing of the first spouse.
When both spouses want the surviving spouse to inherit all assets, opting for a joint trust is a simpler and easier option compared to maintaining separate trusts. It saves time and minimizes complications, ensuring a smoother process for the surviving spouse.
Does a Revocable Trust Become Irrevocable When One Spouse Dies?
What happens to a revocable living trust when one spouse dies depends on the type of trust.
There are both single and joint revocable living trusts. Once the grantor passes away, a single revocable trust transforms into an irrevocable trust without any need for further action. This triggers a taxable event and the irrevocable trust must submit an income tax return, as it becomes its own entity.
Married couples often choose to establish a joint revocable trust. What happens to a living trust when one spouse dies is that it remains revocable until both spouses have passed away. A joint living trust will have a sub-trust called a "survivor's trust" where the assets remain accessible and controllable by the surviving spouse.
The joint revocable trust doesn’t turn into an irrevocable trust at this point, however. Once a trust becomes irrevocable, the successor trustee loses the ability to make any modifications or alterations to it.
What Is a Successor Trustee?
Do you wonder what happens to a living trust when the trustee dies? When the initial trustee of a trust is unable to fulfill their duties, whether due to resignation, incapacity, death, or any other reason mentioned in the trust agreement, a successor trustee is appointed. An individual or institution can take on the crucial role of managing and administering the trust.
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The primary responsibility of a successor trustee is to manage the assets of the trust, always prioritizing the best interests of the beneficiaries. This might happen to a living trust when one spouse dies. The successor trustee assumes responsibilities when the current trustee is unable to continue serving or when predetermined conditions in the trust agreement are fulfilled.
Trusts often designate several successors in a specific order, ensuring a backup plan if the initial successor is unable or unwilling to fulfill the role. Additionally, trusts can appoint co-successor trustees who would serve together for added reliability and collaboration.
What Happens If the Sole Trustee of a Trust Dies?
The next steps following the death of the sole trustee of a trust will be determined by the terms of the trust itself, any backup provisions in place, and the applicable state law. For instance, what happens to a living trust when one spouse dies depends on whether it is a joint or separate trust. The management and continuity of the trust will be dependent on these factors. If a successor trustee is named, then they will take over the management of the living trust.
What Happens to a Trust When the Last Person Dies?
This depends on the terms of the trust. The trust document might include a mechanism or procedure for appointing a new trustee, ensuring a smooth transition of responsibilities. If the trust does not have a designated method for appointing a new trustee, beneficiaries or other interested parties will be required to petition the court to appoint one.
Settling a trust in court is a long and expensive process, which is why it is always a good idea to have multiple successors listed in a living trust. Having procedures in place will help you with what to do when a spouse dies for a living trust.
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Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.
