They do not fund their trust, they do not do anything when their spouse dies, and their families do nothing after they die. Unfortunately, life is not that simple. When the creator of a trust, or one of the spouses in the case of a married trust, passes away, the trust must be settled or administered. This process is less cumbersome than probate, but it needs to be done.
If it is the spouse that passed away, trust administration consists of a number of steps. These include inventorying and appraising the assets owned by the both the deceased and surviving spouse as of the date of death, paying any debts of the deceased spouse, distributing assets according to the trust documents, and, in most cases, dividing the trust assets up between the survivor’s trust and the decedent’s trust. This is done to preserve the deceased spouse’s estate tax exemption (currently $5,000,000 and scheduled to drop to $1,000,000 in 2013).
The deceased spouse’s assets are placed into the decedent’s trust where they are used for the benefit of the surviving spouse. Any amount over the estate tax exemption is either given to the survivor’s trust or placed into a third trust, again used for the benefit of the surviving spouse. This third trust, called a QTIP trust, as well as the decedent’s trust, is irrevocable and cannot be changed by the surviving spouse. The surviving spouse can do whatever they want with the survivor’s trust as it represents their share of the trust assets.
When the surviving spouse passes away, or in the case of the death of a single person, the decedent’s assets need to be inventoried, appraised, debts paid, and assets distributed according to the terms of the trust.
Trust administration will typically take less time than a probate and, in the majority of cases, will be less expensive than probate. Without administration, your beneficiaries will not be able to access and sell your assets.