A Checklist to Help

Ethan R. Okura
Hawai‘i Herald Columnist

A Revocable Living Trust allows you to avoid probate at death. You don’t have to hire an attorney to go to court. However, you still need a trust and estate attorney to help you settle the trust estate. When a loved one dies, you are free to go to any attorney of your choice for trust settlement advice.

Here is a list of some important steps that need to be taken when someone with a trust dies.

  1. If the trust owns real estate, a new deed should be prepared to transfer the property from the trust to the person inheriting the property. An attorney usually prepares that deed for you.
  2. If the trust will be earning any income (such as interest, dividends or rental income) after the death of the owner, the trust will probably need to apply for a federal tax I.D. number (except in rare circumstances). If the income is small and will be received for only a short period of time before distribution of the assets, some accountants feel it is not necessary to get a federal tax I.D. number for the trust. It is best to let the estate-planning attorney and the accountant who are helping you discuss this and decide what’s best for you to do.
    • If the beneficiaries would rather have the trust income included on their own personal tax returns instead of filing a tax return for the trust, there is a legal way to do this without needing to get a federal tax I.D. number for the trust and without forcing the distribution of the trust income to the beneficiaries, if they don’t need the income yet.
  3. If the person died with more than the amount exempt from estate taxes (including life insurance death benefits), then it is very important to have a federal estate tax return prepared and filed within nine months of the person’s passing. The amount exempt from federal estate taxes is $12.9 million in 2023 (which is $10 million adjusted for inflation), but this amount is scheduled to be cut in half after 2025 (back to $5 million adjusted for inflation). The federal estate return is a very complicated document so you will probably need an accountant or an estate-planning attorney to help you prepare it.
    • Even if the person died with less than the federal estate tax limit, the Hawai‘i state estate tax exemption is currently much less at $5.49 million, and the state of Hawai‘i doesn’t have its own comprehensive estate tax form, so the state requires the preparation of a federal estate tax return to use in calculating the Hawai‘i estate tax, even if the IRS doesn’t require one for the federal estate tax.
  4. You should find out the value of every asset owned by the person on the date of his or her death. The IRS allows you to value assets on the “alternate valuation date,” which is generally six months after the date of death, instead of using the date of death. Since stock values or real estate values are usually higher or lower six months after death compared to what they were on the date of death, you should seek expert advice as to which date would be better for you to use for tax purposes before ordering an appraisal.
  5. Debts should be paid – or maybe they shouldn’t be paid! Our law office has handled many cases where debts legally did not have to be paid. Some of these involved situations in which a Medicaid lien was improperly placed on the home property of a person who was in a nursing home and then died. We were able to get the state to remove the Medicaid liens, which were improperly placed so that our clients did not have to pay the huge nursing home expenses. If there is a Medicaid lien on the property of the person who died, get expert advice to decide what to do.
  6. Most married couples have “A-B Trusts.” It’s important for someone knowledgeable to decide which assets should be transferred to the “A” Trust and which assets should be transferred to the “B” Trust after someone dies. This can have an important effect on the amount of estate taxes that will be owed when the surviving spouse dies.
  7. A decision should be made as to whether to publish a notice to creditors in the newspaper. If you don’t, creditors (people who are owed money by the person who died) have 18 months to make a claim for the money they are owed. If you do publish a notice, it will cost some money, but creditors will have only four months to present their claims.
  8. Sometimes the trust is designed to continue on after death and split into separate shares for each of the beneficiaries (or continue for just one beneficiary). The continuing trust or trusts can provide protection for the beneficiaries against their own creditors, divorcing spouses and potential future estate taxes. Once the property is distributed or removed from the trust, these valuable protections could be lost forever. This is another reason that it is important to consult a specialist attorney for advice on the correct way to go about settling the trust.

Many people mistakenly believe that with a trust, nothing has to be done after death. As you can see, a trust still requires legal advice and work after a person dies. If the assets are simple, the estate can be settled quickly and inexpensively. You should at least consult an estate planning attorney to determine how much legal help you need before taking or using any assets owned by your deceased spouse.

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Ethan R. Okura received his doctor of jurisprudence degree from Columbia University in 2002. He specializes in estate-planning to protect assets from nursing home costs, probate, estate taxes, and creditors.

This column is for general information only and is not tax, financial, or legal advice. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate-planning specialist.


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