In our May 2010 newsletter, we wrote about the new Michigan Trust Code (MTC) and the important changes it made to the existing trust law. Although the MTC provides a single, comprehensive source of law for trusts in Michigan, it does not eliminate the need for administrating a trust after the death of the person who established the trust (i.e. the grantor). In fact, by properly notifying the trust beneficiaries, a challenge to the validity of a trust can be reduced from 2 years to 6 months. Far too often however, clients mistakenly believe that because a trust avoids probate, there is no need for any work to be done after the death of a grantor. While a properly funded revocable trust will avoid probate, it does NOT allow the survivors to avoid the administration of the trust following the grantor’s death. Here are several (but not all) important steps that must be taken by the successor trustee:
- Notify all beneficiaries of the existance of the trust, the trustee’s name and address, the time allowed for bringing challenge to the trust and the terms of the trust that describe the person’s interest.
- Publish a Notice to Creditors in the legal newspaper to limit any claims of unknown creditors to 4 months.
- Obtain from the IRS a Tax Identification Number for the trust.
- Pay all taxes, debts and expenses of the decedent.
- File the decedent’s final income tax return and a fiduciary tax return for the trust if necessary.
- Diligently identify all trust assets and expenses and provide an accounting to each beneficiary.
- Distribute the remaining trust assets to the beneficiaries according to the terms of the trust.
Often the primary motivation in having a trust is to avoid probate. While the trust administration process is often cheaper and easier than the probate process, it doesn’t relieve the successor trustee of their responsibility to administer the trust after the grantor’s death. In fact, the failure to administer the trust can have serious consequences. While trusts remain an important estate planning tool, it is crucial that administration of the trust not be overlooked. As always, be sure to consult with an experienced elder law attorney to ensure the process is handled in an efficient manner.