What is Trust Settlement?

If you’re like most people, you’ve heard the term “estate administration,” but may not be familiar with the term “trust settlement.” Trust settlement is similar to estate administration, but not the same. Both terms refer to wrapping things up after a death. Here is some information to help you understand trust settlement.

Who’s in charge of trust settlement?

The trusted family member, friend, or professional that you named as trustee of your trust is in charge and holds legal title to trust assets. Your trustee is sometimes called a “death trustee” or a “settlement trustee.” Your trustee must follow the instructions of the trust.

What does my trustee do during trust settlement?

In addition to following the instructions of your trust, your trustee must gather and preserve assets, pay all last bills such as medical and funeral bills and wind down the business of your life (canceling subscriptions, leases, and utilities; dealing with social security; and filing your last personal income tax return). The trustee also files the tax returns for the trust (income and inheritance and estate tax returns, as appropriate) and distributes assets to the beneficiaries or to trusts for the beneficiaries.

How is estate administration different from trust settlement?

Estate administration is the winding down of your estate if you die with or without a will. Probate is required in most estate administrations. If you have a will, the instructions of your will are followed. On the other hand, trust settlement is the winding down of your trust assets and personal business. If your trust is fully funded, probate is avoided. The term, “fully funded” means that your assets are transferred from your individual name (or from joint names with a spouse) to the name of your trust.

Trusts for beneficiaries set up during trust settlement

Typically, your trust will include sub-trusts for your surviving spouse and then for your children, at the death of your surviving spouse. Your trustee sets up these sub-trusts, following the instructions in your trust. These sub-trusts offer a myriad of benefits including tax savings, remarriage protection, and asset protection from divorce and lawsuits.

If you have questions about estate administration or trust settlement, consult with a qualified estate planning attorney.