If you have a revocable living trust, you probably named yourself as the initial trustee so that you can continue to manage your financial affairs. However, someone else will eventually need to step in to administer your trust when you are no longer able to act due to incapacity (the inability to manage your affairs) or after your death. This person is known as your successor trustee.
Key Takeaways
- Because successor trustees hold great responsibility, you should choose them carefully.
- Successor trustees can be an adult child, afamily member, atrusted friend, a corporate or professional trustee, or a financial institution.
Responsibilities of a Successor Trustee
At incapacity. If you become incapacitated during your lifetime, your successor trustee will take full control over the administration of your trust for you, making financial decisions, selling or refinancing property, and completing other tasks related to your trust’s accounts and property. Your successor may also be involved in paying bills and ensuring you get any care you need. Since your successor trustee can only manage accounts and property that the trust owns, it is important that you fully fund your trust (in other words, transfer or retitle your accounts and property to your trust). When you are no longer serving as the trustee of your revocable living trust, it does not mean you will no longer benefit from the assets held within your trust. You will remain a beneficiary of the trust until you pass away.
After death. After you die, your successor trustee will act similarly to an executor of a probate estate. The successor trustee will inventory the trust’s accounts and property, pay your final bills, sell trust property if necessary, have your final tax returns prepared and filed, and distribute the trust’s accounts and property according to the trust’s instructions. As in the case of your incapacity, the successor trustee is limited to managing accounts and property owned by the trust, so fully funding your trust is crucial.
Your successor trustee will typically act without court supervision, which allows your affairs to be handled privately and efficiently. This is probably one of the reasons you established a living trust in the first place. However, this also means it will be up to your successor trustee to initiate the administration of your trust and keep the process moving fairly so that no one brings an action in court that will cause court supervision.
An Important Consideration
Your successor trustee’s ability to control and manage the trust’s accounts and property is dictated by the trust’s instructions. In carrying out their duties and making investment and management decisions, the successor trustee must act carefully to avoid breaching their fiduciary duties. Fiduciary duties are a set of rules under state law that ensure any action taken by a fiduciary (here, the successor trustee) is in the best interest of the trust beneficiaries and complies with the law.
Who Can Be a Successor Trustee
A successor trustee can be an adult child, a family member, a trusted friend, or a professional or corporate trustee (for example, a bank trust department or trust company). You should name multiple backups in case your first choice is unable or unwilling to act.
The successor trustee does not need to know exactly what to do and when because they can seek counsel from an attorney, certified public accountant, or other advisor to assist them in their responsibilities. Nevertheless, you must name someone responsible, conscientious, and willing to seek professional guidance when warranted.
What You Need to Know
Your successor trustee should be someone you know and trust, whose judgment you respect, and who will also respect your wishes.
When choosing a successor, keep in mind the type and number of accounts and property in your trust and the complexity of the provisions within your trust document. For example, if you plan to hold accounts and property in a continuing trust for your beneficiaries following your death, your successor trustee will have more responsibilities for a longer period than if your accounts and property were given to your beneficiaries immediately upon your death.
- Consider your candidates’ qualifications, including personalities, financial or business experience, and availability due to family or career demands. Being a successor trustee can take a substantial amount of time and requires a certain business sense.
- Discuss this nomination with the people you are considering to ensure they would be willing to take on this responsibility. Do not assume they would accept this role without having been educated on what is involved.
- Trustees should be paid for their work; your trust document should provide fair and reasonable compensation for successor trustees. If you nominate a professional or corporate trustee, they will have their established rate for trust work.
Rest assured, we can help you select, educate, and advise your successor trustees. You are not alone in making this important decision. If you have any questions or concerns, please schedule an appointment with us.