What Is the 120-Day Waiting Period for a Trust?

When the creator of a trust passes away, their assets do not immediately transfer to the beneficiaries. Instead, a 120-day waiting period begins when the trust becomes irrevocable upon the creator’s death. This period functions as a statute of limitations, providing a specific timeframe for interested parties to raise legal objections to the trust’s validity. This process ensures that any potential disputes are resolved before assets are distributed.

The Trustee Notification Requirement

The 120-day clock begins when the successor trustee sends a formal “Trustee Notification” to all required parties. In many states, the trustee has 60 days from the date the trust becomes irrevocable to send this notice. This legally required document informs recipients that their window to challenge the trust has begun.

The notice must state that the trust is now irrevocable due to the death of the settlor (creator) and provide the trustee’s full name and contact information. It must also include a warning that any action to contest the trust must be filed within 120 days from the date the notification is served.

The trustee must send this notification to all beneficiaries named in the trust and to the legal heirs of the deceased creator, even if they were disinherited. This process ensures that anyone who might have a legal claim under state inheritance laws is formally notified and given the opportunity to act. Failing to properly notify all required individuals can have legal consequences for the trustee.

The notification is served by mail to the recipient’s last known address, and trustees often include a copy of the trust document. Some state laws specify that if a copy of the trust is included, the deadline to file a contest is shortened to 60 days from the date of delivery. This is intended to give recipients adequate time to have the document reviewed by legal counsel.

Trustee Responsibilities During the Waiting Period

During the 120-day waiting period, the trustee’s primary role is to manage and preserve the trust’s assets, acting as a prudent person would in managing their own property. This involves several administrative and financial tasks while refraining from making final distributions in case a legal challenge arises.

The trustee’s first step is to take control of and inventory all trust assets, from bank and brokerage accounts to real estate and personal property. This may require retitling accounts into the trustee’s name and securing physical items. A detailed inventory with date-of-death values is prepared, which serves as the baseline for all future accounting.

The trustee is responsible for managing the assets, which includes making prudent investment decisions. For example, if the trust holds volatile stocks, the trustee may need to decide whether to sell them to avoid potential losses. The trustee must also handle the creator’s final financial affairs by paying outstanding debts, medical bills, and ongoing trust expenses like property taxes and insurance premiums.

The trustee must also address tax obligations. This includes filing the deceased’s final personal income tax return (Form 1040). The trust is a separate taxable entity and may need to file its own income tax return (Form 1041) for income it generates. If the estate’s value exceeds the federal estate tax exemption of $13.99 million, a federal estate tax return (Form 706) must also be filed.

The primary restriction during this period is the prohibition on making most distributions to beneficiaries. While the trust’s terms may permit minor payments for a beneficiary’s health or education, the trustee cannot make final distributions of the principal. This ensures assets can be recovered if the trust is invalidated by a court, so the trustee must wait until the contest period has closed.

Actions After the Waiting Period Expires

Once the 120-day period ends without a legal challenge, the trustee can begin the final phase of administration: distributing the assets. This process involves preparing a final accounting and transferring the remaining property to the beneficiaries as directed by the trust.

The trustee first prepares a final accounting for the beneficiaries. This report details all financial activity since the trust became irrevocable, including the initial asset inventory, all income received, and all expenses paid. Beneficiaries are asked to approve this accounting and sign a release form, which absolves the trustee of liability for their actions.

After the accounting is approved, the trustee prepares the assets for distribution according to the trust’s instructions. For cash bequests, the process is straightforward. For other assets, this may involve preparing new deeds to transfer real estate titles or working with financial institutions to transfer securities to beneficiaries’ accounts.

The trustee then makes the final distributions as specified in the trust, fulfilling the creator’s wishes. Once all assets are distributed and all final expenses are paid, the trust is empty. The trustee’s final steps are to terminate the trust by filing a final tax return and closing any remaining accounts.