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Question:

My father passed away last year. (My mother passed away several years ago.) He had a revocable trust that says that upon his death the trust holdings, his home and some investment accounts, be distributed to me and my two siblings. I’m the successor trustee. What should I do now with respect to the trust?

Response:

The trust will end when all of the property it holds is distributed. Assuming you and your siblings want to sell the house, it’s easiest to wait to dissolve the trust until the sale goes through. That way, there’s just one seller — the trust — rather than three — you and your siblings.

You will need to obtain a tax identification number for the trust. Even though it’s still called a “revocable” trust, it became irrevocable upon your father’s death so that you can no longer use his Social Security number as the tax ID number for the trust. The closing attorney on the house sale will need the tax ID number for their reporting requirements.

In terms of the investment accounts, the easiest approach is usually to sell the investments. There’s almost always little or no capital gain realized as a result because the investments received a step-up in basis at the time of your father’s death to their value on that date. As a result, the only gain would be any increase in value from the date of his death and the sale of the stock.

Once you sell the investments, you can distribute the proceeds to your siblings and yourself. You should probably keep some funds in cash to cover any expenses that may occur before the trust is completely dissolved, especially with respect to maintaining the house until its sale is complete. But you don’t have to wait until everything is done before distributing the bulk of the trust property.

There will also be no tax on the sale of the house because it also received a step-up in basis upon your father’s death. In fact, unless a long period of time has passed between his death and the sale the basis will be the sales price. This is because there’s no better way to determine the value of the property than to put it on the market and see what a willing buyer will pay.

After the house is sold, you can distribute the bulk of the proceeds. However, keep a small closing reserve to cover final expenses. These may include legal fees and are likely to include accounting fees for the final trust income tax return. When that is complete, you can distribute the remaining funds.

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