If you have a revocable living trust, you likely designated yourself as the initial trustee to manage your financial matters. However, at some point, someone else will need to take over the administration of your trust when you can no longer do so due to incapacity (the inability to manage your affairs) or after your passing. This individual is referred to as your successor trustee.
Key Points:
- Choosing a successor trustee is crucial, as they hold significant responsibilities.
- Potential successor trustees can include an adult child, a family member, a trusted friend, or a professional entity such as a corporate trustee or financial institution.
Responsibilities of a Successor Trustee
During Incapacity: If you become incapacitated, your successor trustee will assume full control of your trust, making financial decisions, selling or refinancing property, and handling other tasks related to the trust’s assets. They may also manage bill payments and ensure you receive necessary care. It’s essential to fully fund your trust—meaning you should transfer or retitle your accounts and property to the trust—so that the successor trustee can effectively manage these assets. Even if you are no longer the trustee, you will continue to benefit from the trust's assets until your death.
After Death: Upon your passing, your successor trustee will function similarly to an executor of a probate estate. They will inventory the trust’s assets, settle your final bills, sell property if needed, prepare and file your final tax returns, and distribute the trust’s assets according to your instructions. Like during your incapacity, the successor trustee's management is confined to the trust's assets, making it crucial to ensure your trust is fully funded.
Typically, the successor trustee operates without court oversight, allowing for a private and efficient administration of your affairs—one of the primary reasons for establishing a living trust. However, this also means the successor must proactively initiate and manage the trust administration to prevent any court interventions.
A Key Consideration:
The successor trustee’s authority to manage the trust is determined by the trust’s terms. They must act carefully in fulfilling their responsibilities and making investment decisions to avoid breaching their fiduciary duties, which require that any actions taken are in the best interests of the trust beneficiaries and comply with the law.
Who Can Be a Successor Trustee:
A successor trustee can be an adult child, family member, trusted friend, or a professional or corporate trustee (like a bank trust department). It’s wise to name multiple backups in case your first choice is unable or unwilling to serve.
While your successor trustee doesn’t need to be an expert, they can seek advice from an attorney, certified public accountant, or other professionals. It’s important to choose someone responsible, conscientious, and willing to seek professional help when necessary.
What You Should Know: Your successor trustee should be someone you trust and whose judgment you respect. When selecting a successor, consider the type and number of accounts and assets in your trust, as well as the complexity of your trust provisions. For instance, if you plan to maintain a trust for your beneficiaries after your death, your successor will have more responsibilities for a longer period compared to distributing assets immediately upon your passing.
- Evaluate your candidates’ qualifications, including their personalities, financial or business experience, and availability given family or career obligations. Serving as a successor trustee can be time-consuming and requires sound judgment.
- Discuss the role with potential candidates to ensure they are willing to take on the responsibility; do not assume they will accept without being informed of the duties involved.
- Successor trustees should receive fair compensation for their work, and your trust document should outline reasonable payment terms. If you choose a professional or corporate trustee, they will have their own established rates.
Rest assured, we can assist you in selecting, educating, and advising your successor trustees. You are not alone in this important decision. If you have any questions or concerns, please schedule an appointment with us.