Choose Wisely: Who Should Be Your Successor Trustee?
When creating a revocable living trust, you likely appointed yourself as the initial trustee to maintain control over your assets and financial affairs. However, there will come a time when someone else must step in to manage your trust if you become incapacitated or after your passing. This person, known as your successor trustee, plays a crucial role in ensuring the smooth transition of your financial matters. Choosing the right successor trustee is a significant decision that can affect how your assets are managed, distributed, and protected.
In this post, we’ll explore the key responsibilities of a successor trustee, who can serve in this role, and what you should consider when making this important decision.
Key Takeaways
Successor trustees hold significant responsibilities and should be chosen with care.
You can name an adult child, family member, trusted friend, financial institution, or professional trustee as your successor.
The primary duty of a successor trustee is to manage your trust's assets efficiently, ensuring your beneficiaries' interests are protected.
Responsibilities of a Successor Trustee
The successor trustee is responsible for managing and distributing the trust’s assets when you are no longer able to do so, either due to incapacity or after your death. The specific duties of a successor trustee are critical to ensuring that your wishes are carried out according to the terms of your trust.
1. When You Become Incapacitated
If you become incapacitated during your lifetime and are unable to manage your affairs, your successor trustee will step in to administer your trust. Their responsibilities may include:
Managing Financial Accounts and Property: The successor trustee will take full control of the trust’s financial accounts and property, including paying bills, managing investments, and making financial decisions. They will also handle any necessary property sales, refinancing, or other tasks required to maintain the trust’s value.
Ensuring Care: The trustee may also be tasked with ensuring that you receive proper care, including coordinating with healthcare providers and paying for any medical or personal care expenses, depending on the provisions outlined in your trust.
Managing Trust Assets: Since your successor trustee can only manage assets held in the trust, it’s vital to ensure that all assets are properly transferred to the trust, including real estate, bank accounts, and other property. This process, known as funding the trust, is crucial for the smooth management of your trust.
Even if you are unable to manage your affairs, you can still benefit from the assets in your trust. As a beneficiary, you retain the right to benefit from your assets until your death, but your successor trustee will manage those assets on your behalf.
2. After Your Death
When you pass away, your successor trustee’s role will be similar to that of an executor in a probate estate. Their duties will include:
Inventorying Trust Assets: The trustee must identify and take inventory of the trust’s accounts, property, and other assets, ensuring everything is accounted for according to the terms of the trust.
Paying Final Bills: The successor trustee will also be responsible for paying any outstanding bills, taxes, and debts owed by the trust. This may involve filing final tax returns and ensuring that all expenses are settled before the distribution of assets.
Distributing Assets: One of the trustee’s most important responsibilities is distributing assets to your beneficiaries according to your wishes, as outlined in the trust agreement. Whether your trust specifies an immediate distribution or a more complex ongoing trust, the trustee will manage the assets and ensure that your beneficiaries receive what they are entitled to.
Avoiding Probate: One of the primary benefits of a living trust is that it allows assets to pass directly to beneficiaries without going through probate. The successor trustee manages the distribution privately and efficiently, without the need for court intervention.
As a successor trustee, the person you appoint has significant authority over the management and distribution of your estate. This is why choosing the right person for the role is crucial to avoid potential conflicts and ensure your wishes are respected.
3. Court Supervision and Fiduciary Duty
Successor trustees generally act without court supervision, which allows for greater privacy and efficiency compared to probate proceedings. However, this also means that the trustee must adhere strictly to the fiduciary duties set forth by state law. These duties include:
Acting in the Best Interests of the Beneficiaries: The trustee must manage the assets responsibly and in accordance with the intent of the trust. They must act impartially, ensuring that all beneficiaries are treated fairly.
Avoiding Conflicts of Interest: The trustee must avoid any actions that could lead to conflicts of interest or benefit themselves at the expense of the beneficiaries. They must manage the trust’s assets in a way that aligns with the instructions in the trust document.
Who Can Be a Successor Trustee?
When choosing your successor trustee, it’s essential to consider several factors to ensure they are well-suited to manage the responsibilities of this critical role. Your options for a successor trustee include:
1. Family Member or Trusted Friend
Many people choose a family member, such as an adult child, or a close, trusted friend to serve as their successor trustee. This option is often preferred because these individuals are familiar with your personal circumstances and may be better equipped to handle your estate in accordance with your wishes. However, you should carefully evaluate whether the person you choose has the necessary skills and capacity to manage the trust effectively.
2. Professional Trustee
A professional trustee can be an attorney, financial advisor, or accountant with experience in managing trusts and estates. Professional trustees are often well-versed in managing complex financial situations, making them an ideal choice if you have a large or complicated estate. They also bring a level of impartiality to the process, which can be particularly beneficial if family dynamics might complicate matters.
3. Corporate Trustee
A corporate trustee, such as a bank or trust company, provides professional management of the trust’s assets. Corporate trustees offer significant benefits, including expertise in managing investments, handling legal and financial matters, and providing continuity if individual trustees are unable to fulfill their duties. However, corporate trustees charge fees for their services, which can be a consideration when deciding on a successor trustee.
4. Backup Successor Trustees
It’s always a good idea to name backup successor trustees in case your first choice is unable or unwilling to serve when the time comes. Multiple backups ensure that someone will be available to step in without delay. Discussing this decision with potential candidates ahead of time is essential to ensure they are willing to take on the responsibility.
What to Look for in a Successor Trustee
When choosing your successor trustee, there are several qualities and qualifications to consider:
1. Trustworthiness and Integrity
Trustworthiness is perhaps the most important characteristic for any trustee. You need someone who is not only reliable but also willing to follow your wishes and uphold your legacy.
2. Organizational Skills
Managing a trust involves a lot of paperwork, financial documents, and complex decisions. Choose a successor trustee who is detail-oriented, organized, and able to keep accurate records.
3. Financial Acumen
While your successor trustee doesn’t need to be an expert in investment management, they should have a basic understanding of financial matters. A trustee with some financial knowledge can make better decisions about how to manage the trust’s assets and can more effectively work with professionals such as accountants or financial advisors.
4. Availability
Being a trustee can be time-consuming, especially if the trust holds multiple assets or requires long-term management. Make sure your successor trustee has the time and availability to fulfill the role, particularly if the trust is designed to last for several years.
5. Willingness to Seek Professional Guidance
Even if your successor trustee doesn’t have extensive experience, they should be willing to consult with attorneys, accountants, and other professionals to help them make informed decisions and avoid mistakes.
What You Need to Know
Before finalizing your decision, take the time to thoroughly discuss the responsibilities with potential successor trustees. Make sure they understand what’s involved and are prepared for the task at hand. It's also important to ensure that your successor trustee is compensated fairly for their work. Your trust document should clearly outline any compensation provisions, whether you’re naming a family member, trusted friend, or professional trustee.
Additionally, if you choose a professional or corporate trustee, understand their fee structure. While their services may come at a higher cost, the expertise and continuity they offer can make them a valuable option, particularly for complex estates.
Choose Wisely
Choosing the right successor trustee is one of the most important decisions you will make in estate planning. Whether you select a family member, trusted friend, professional, or corporate trustee, ensure they have the right skills, qualifications, and willingness to carry out your wishes. By selecting the right person for this role, you can have peace of mind knowing that your assets will be managed efficiently and your beneficiaries will be cared for according to your intentions.
If you need help selecting or educating your successor trustee, don't hesitate to contact us. Our experienced estate planning attorneys can guide you through the process, answer your questions, and help ensure that your estate is in good hands. Reach out today to schedule a consultation.