Many married couples with revocable living trusts believe that no actions need to be taken when the first spouse dies if all assets are titled in the name of the trust. While there may be no succession or probate required, there is what we call a "trust administration" that must be done.
Let's say, for example, that a married couple has a revocable living trust with $1.5 million in assets. Let's assume the husband dies first. The husband's one-half interest in these assets should be retitled into what we might call the "Decedent's Trust," which becomes irrevocable, and the wife's portion is retitled into the name of her "Survivor's Trust," which remains revocable by the surviving wife.
There are two primary reasons this must be done. First, if the trust administration is done properly, none of the Decedent's Trust assets will be included in the wife's estate for federal estate tax purposes when she dies. Second, the beneficiaries of the Decedent's Trust assets are fixed upon the death of the first spouse, while the wife can change the beneficiaries of her Survivor's Trust.
Proper trust administration after the death of the first spouse makes things easier both for the surviving spouse and for the trustee who will handle the affairs after the death of the surviving spouse - and it may help save a pile of estate tax too!
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