How to Maintain a Trust: During Life, During Incapacity and After Death

A trust is not a document you sign and put in a drawer. It’s like a car: once you have it, it needs regular maintenance. This article covers what to do after a trust is set up, in three stages.

Stage One: While You Are Alive and Well

Do I Need Special Steps to Use the Money and House in My Trust?

With a revocable living trust where you are the trustee, generally no. You use the property as usual. You simply sign “as Trustee” on documents involving trust property.

What Annual “Maintenance” Should I Do?

We recommend spending a little time each year on these checks:

1. Have new assets gone into the trust? A new home or a new bank or brokerage account should be titled in the trust’s name or name the trust as beneficiary;
2. Is the asset list up to date? A trust usually has an asset schedule (Schedule A). Update it when you sell or add assets;
3. Do your beneficiary forms match? Retirement accounts, life insurance, annuities and POD/TOD accounts;
4. Are your choices still right? Has anything changed for your successor trustees or beneficiaries?

Does a Revocable Trust File Its Own Tax Return?

Generally no. During your lifetime, a revocable trust typically uses your Social Security number, and income is reported on your personal return as usual.

What Should I Watch for When Refinancing?

Some lenders require the home to be deeded out of the trust before closing and deeded back afterward. The most common mistake is forgetting to deed it back. Have your attorney or title company handle both steps.

Where Should I Keep the Originals?

• Somewhere safe, fireproof and findable by your family;
• Tell your successor trustee where the originals are and who your attorney is;
• If they are in a safe deposit box, make sure the successor trustee can open it.

How Often Should an Attorney Review My Trust?

Generally, every three to five years. Review it right away if:
- You marry, divorce or remarry;
- A child or grandchild is born;
- A beneficiary or trustee dies, becomes ill or your relationship changes;
- You buy or sell real estate, especially a co-op or out-of-state property;
- You start or sell a business;
- You move to another state or country;
- Your assets grow significantly or approach the New York estate tax threshold;
- Tax law or Medicaid rules change significantly.

How Is Maintaining an Irrevocable Trust Different?

An irrevocable trust (such as a Medicaid asset protection trust or a life insurance trust) is a separate legal arrangement with stricter requirements:
- It usually needs its own tax ID (EIN) and files returns as your accountant advises;
- It should have its own bank account, never mixed with personal funds;
- Life insurance trust: After each annual premium gift, the trustee usually sends beneficiaries a withdrawal-right notice (Crummey notice) and keeps records;
- Medicaid asset protection trust: The grantor must not access principal, or the whole plan may be undermined. Proceeds from selling the home should stay in the trust;
- Children serving as trustees must not treat trust property as their own.

Stage Two: If You Lose Capacity

How Does the Successor Trustee Know It’s Time to Step In?

The trust usually defines incapacity, for example by written certification from one or two physicians. We recommend including a HIPAA authorization so doctors can share necessary medical information with the successor trustee.

What Does the Successor Trustee Do After Stepping In?

• Use trust property to care for you: medical, caregiving and living expenses;
• Keep paying the mortgage, property taxes and insurance;
• Keep complete records, because a report to you or other beneficiaries may be required later;
• Property outside the trust is handled by your agent under a power of attorney. That’s why a power of attorney matters too.

Stage Three: After Your Death — The Successor Trustee’s Checklist

What Does the Successor Trustee Need to Do?

1. Obtain multiple death certificates and locate the original trust and will;
2. Obtain a tax ID (EIN) for the trust: At your death a revocable trust becomes irrevocable and a separate taxpayer;
3. Notify the beneficiaries about the trust and its basic terms;
4. Inventory the assets and determine date-of-death values: Real estate and valuables need appraisals, which affect estate tax and the beneficiaries’ step-up in basis;
5. Protect the property: insurance and upkeep for the house, security for accounts;
6. Pay debts and expenses: credit cards, medical bills, funeral costs, legal and accounting fees;
7. Handle taxes:
   - Your final personal income tax returns;
   - Income tax returns for the trust;
   - If the estate (plus taxable gifts made within three years before death) exceeds the New York exclusion, a New York estate tax return (Form ET-706) is due within nine months of death;
   - When a married person dies, filing a federal estate tax return may be worthwhile even if no federal tax is due, to preserve the deceased spouse’s unused federal exemption for the surviving spouse;
8. Deal with property left outside the trust: If needed, probate the pour-over will;
9. Account to the beneficiaries: income, expenses and distributions, clearly documented. Beneficiaries commonly sign a receipt and release. If there is a dispute, a formal accounting may have to be filed in court;
10. Distribute as the trust directs: outright, or continue managing the property for children or a spouse.

What Are a Trustee’s Legal Duties?

New York holds trustees to high standards, including:
- Loyalty: no using trust property for personal benefit and no self-dealing;
- Prudent investing under the Prudent Investor Act (EPTL §11-2.3);
- No commingling: trust property must be kept separate from personal property (EPTL §11-1.6);
- Impartiality among beneficiaries;
- Record-keeping, with accountings when required.

Can a Trustee Be Paid?

Yes. New York law entitles trustees to statutory commissions, unless the trust provides otherwise or the trustee waives them. Family members serving as trustees often waive. A trustee may also use trust funds to hire attorneys and accountants.

The Bottom Line

Maintaining a trust is not complicated. The key is building habits: put new assets in, check beneficiaries every year, and see your attorney when life changes. A little time from you today saves your family a great deal of time later.

Attorney’s perspective

After a trust is signed, I recommend a review every three to five years, and a call whenever life changes significantly. For family members serving as successor trustee, we can also guide the whole administration after a death: obtaining a tax ID, inventorying assets, filing estate tax returns and accounting to beneficiaries.

For advice about your own family’s situation, call +1 718-218-5805 or schedule a consultation. We meet clients in Flushing and Manhattan, in English or Chinese.

Related: Part 19: Can a Trust Be Changed? What Does It Take? | Part 17: The 15 Most Common Trust Mistakes

Series overview

This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. For advice about your situation, please contact us.

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