Closing Procedures and Timeline. Following is an explanation of the recommended administrative and termination procedures.
Affidavit of Successor Trustee (“AST”) – The signing of an AST by the successor trustee formally installs them as the trustee of the Trust and is evidence of the same. If real property is owned by the Trust, the AST will add the Successor Trustee to the title of the property upon recording in the proper county recorder’s office.
Notice to creditors – In Nevada known creditors have thirty (30) days from mailing date to file a written claim with the Trustee and ninety (90) days from the first date of publication. See NRS 164.025. Many Nevada practitioners publish notice to creditors once a week for three (3) consecutive weeks in the Nevada Legal News. Pursuant to statute, the notice must be in substantially the following form:
NOTICE TO CREDITORS
Notice is hereby given that the undersigned is the duly appointed and qualified trustee of the ……………. trust. ……………., the settlor of that trust died on …………….. A creditor having a claim against the trust estate must file a claim with the undersigned at the address given below within 90 days after the first publication of this notice.
Lodging of Last Will & Testament. Nevada law requires that the original Last Will and Testament of a Decedent be filled with the county clerk within thirty (30) days of the Decedent’s date of death. See NRS 136.050.
Employer Identification Number. A federal tax identification number should be obtained for certain trusts and estates. This number can be obtained by filing an on-line SS-4 with the IRS.
Notice to beneficiaries and interested parties. Notice should be mailed to all of at Trust’s beneficiaries and other interested parties within ninety (90) days of the Decedent’s date of death. Such beneficiaries and other interested parties then have only one hundred twenty (120) days for such mailing to bring an action to contest the validity of the Trust. See NRS 164.021. Some of the details regarding notice are as follows: (a) Service of notice. The trustee shall serve the notice pursuant to the provisions of NRS 155.010, which require mailing by “certified, registered or ordinary first-class mail addressed to the person being notified at the post office address given in the person’s demand for notice, if any, or at his or her office or place of residence, if known, or by personally delivering a copy thereof to the person being notified at least 10 days before the time set for the hearing;” (b) Cannot bring an action thereafter. No person upon whom notice is served pursuant to this section may bring an action to contest the validity of the trust more than 120 days from the date the notice is served upon the person, unless the person proves that he or she did not receive actual notice; and (c) Requirements of notice. Pursuant to the statute, the notice provided by the trustee must contain the following:
- The identity of the settlor of the trust and the date of execution of the trust instrument;
- The name, mailing address and telephone number of any trustee of the trust;
- Any provision of the trust instrument which pertains to the beneficiary or notice that the heir or interested person is not a beneficiary under the trust;
- Any information required to be included in the notice expressly provided by the trust instrument; and
- A statement set forth in a separate paragraph, in 12-point boldface type or an equivalent type which states: “You may not bring an action to contest the trust more than 120 days from the date this notice is served upon you.”
Copy of trust to beneficiaries. Nevada is one of only a few states not having laws requiring the mandatory disclosure of the entire trust instrument to all beneficiaries. With that said, our probate commissioner in Clark County will require that a trust beneficiary receive a copy of the exact portion of the trust document relating to the particular jurisdiction. Question: How can the rule listed above in Section (C)(e)(iii)(3) of this outline ever be satisfied if the entire document is not provided? Shouldn’t the trust agreement be taken in its complete integrated form? I guess it depends on if you are representing the beneficiary or the trustee as to which interpretation a person prefers.
Accounting to beneficiaries. The Nevada statute requiring trustees to provide an accounting to beneficiaries (NRS 165.135) requires trustees, “not less often than annually,” to furnish and accounting to each beneficiary of the trust. Such accountings must show the following:
- The period which the account covers;
- In a separate schedule:
- Additions to trust principal during the accounting period with the dates and sources of acquisition;
- Investments collected, sold or charged off during the accounting period;
- Investments made during the accounting period, with the date, source and cost of each;
- Deductions from principal during the accounting period, with the date and purpose of each; and
- The trust principal, invested or uninvested, on hand at the end of the accounting period, reflecting the approximate market value thereof;
- In a separate schedule:
- Trust income on hand at the beginning of the accounting period, and in what form held;
- Trust income received during the accounting period, when and from what source;
- Trust income paid out during the accounting period, when, to whom and for what purpose; and
- Trust income on hand at the end of the accounting period and how invested;
- A statement of any unpaid claims with the reason for failure to pay them; and
- A brief summary of the account.
Questions of interpretation: What does “not less often than annually” actually mean?
Prior probate commissioners in Clark County required an up-front, immediate accounting, to be provided to the beneficiaries within a reasonable time after the settlor’s death by the trustee. Thereafter an accounting would generally be required on the anniversary of the first accounting for as long as the trust continued, with a final accounting be provided at the time the trust was ultimately terminated.
The current probate commissioner in Clark County interprets the terms “not less often than annually” to mean that the first accounting need not be presented until the settlor has been deceased for one year, with subsequent accountings being provided each year thereafter until termination.
Which is better? One puts a higher burden on the trustee and the other may create a situation where the horse is long-gone out of the barn before the accounting is actually required. Drafting point: The settlor need not leave this question open to court interpretation. It is much better for the instrument drafter to be clear on when distributions should be required. Following is a sample accounting provision: “Upon the written request delivered or mailed to the Trustee by an income beneficiary hereunder, the Trustee shall render a written statement of the financial status of the Trust. Such statement shall include the receipts and disbursements of the Trust for the period requested or for the period transpired since the last statement and the principal of the Trust at the end of such period. Statements need not be rendered more frequently than annually.”
Managing Final Distributions: in Cash vs. in Kind
All assets must be distributed. Before a trust is terminated, all cash must be disbursed and all other in kind asset transfers must be completed by moving such assets “out of the trust” or re-titled in accordance with provisions of the trust (i.e., into the name of a beneficiary). In other words, if assets remain in trust, the trust still exists.
Seeking court direction. Even though a trust instrument may not require court direction to complete distributions, if there are unsettled questions because of which the trustee is not comfortable making distributions, in Nevada the trustee can always seek court direction. See NRS 164.015 and 164.030.
Wait until statues toll. The trustee should wait for the statutory mailing and notice periods to toll, as discussed above in Section C of this outline, as well as for taxes to be determined and paid.
Beneficiary notice. Notice should be mailed to all of at Trust’s beneficiaries and other interested parties within ninety (90) days of the Decedent’s date of death. Such beneficiaries and other interested parties then have only one hundred twenty (120) days for such mailing to bring an action to contest the validity of the Trust. See NRS 164.021.
Notices to creditors. In Nevada known creditors have thirty (30) days from mailing date to file a written claim with the trustee and ninety (90) days from the first date of publication. See NRS 164.025.
Tax timetable. Where an estate tax return, Form 706, is filed, distributions should not be made until a closing letter is received from the IRS. In addition, it is generally advisable to file Form 4810, Request for Prompt Assessment, along with the Form 706, so as to advance the limitations period from 3 years to 18 months. See also, Internal Revenue Code Section 6501(d). Some trustees may even wait to make final distributions until the 18 month period expires.
Receipt and release. A trustee should first obtain a signed receipt and release from all beneficiaries before making any distributions.
- Receipt. In the receipt the beneficiary should acknowledge receipt of the cash or in kind distribution.
- Release. The beneficiary should release the trustee from liability associated with the administration and distribution of the trust assets.
- Additional tax payments. The beneficiary should agree to refund assets to the trustee in the event additional tax assessments are made or costs are incurred in relation to a tax audit.
- All beneficiaries required to sign. Before any distributions are made it is recommended that all beneficiaries return their signed receipts and releases. This can help put peer pressure on unwilling beneficiaries since no one gets anything until all have cooperated.
- Provide copy of check. To invoke greed to its fullest power, a trustee might provide a copy of the check, along with the receipt and release document, to the beneficiary. Note: be careful not to provide bank routing numbers in copy.
Valuation issues. Wherever in kind distributions are to be made, potential conflicts of interest may arise as to the value of such in kind distributions. If values are uncertain, a qualified appraisal may be desirable.
Taxes. Where distributions are to bare their fair share of estate or income taxes, the trustee should be certain that values are fairly reflected in tax apportionment.
In kind distributions. If the trustee is exercising his or her discretion in making an in kind distribution, she should be sure not to show favor to one beneficiary over another, with special care being shown that the trustee does not favor himself or herself.
Filing Final Tax Returns
Personal liability for taxes. The Personal Representative will be personally liable for all taxes due by the estate.
Required tax returns.
- Prior year Form 1040. Any unfiled prior year 1040 tax returns must be filed.
- Final Form 1040. The Final Form 1040 for decedent, covering stub year of death, must be filed.
- Form 1041. Form 1041 for the trust and estate covering all items of income and deduction from the date of death until the trust termination must be filed. Surviving spouse exception: The trustee or personal representative may not have to file a 1041 where all property is effectively distributed to a surviving spouse. In that case, the spouse becomes a sort of alter ego of the estate in picking up items of income and deduction.
- Form 706. Where the decedent’s estate is taxable, the personal representative is responsible for the filing of Form 706 and the payment of any estate taxes.
- State specific estate and/or inheritance taxes. Whether state taxes are payable generally depends on what the residence of the decedent was, not the beneficiary, except as it may apply to real property located in a state where state estate and/or inheritance tax applies. In Nevada we do not have a state estate or inheritance tax.