The Role of the Successor Trustee: What Am I Supposed to Do Now?
By
Ethan R. Okura
We have often seen this scenario: A parent, sibling, or dear friend has finally gotten around to doing their initial estate planning. You are so happy for them. And then you find out you’ve been named as their “successor trustee.” What does that even mean? What are your responsibilities? How will you know what to do when the time comes? When exactly does that time come? What exactly is a trust in the first place? Relax. There’s an orderly process you can follow to understand your responsibilities as a successor trustee and how you can play your part to make that loved one’s transitions in and through life go smoothly.
Let’s start with, “What is a trust?” A trust is a legal agreement between the person setting up the trust, usually called the “Settlor” and the person assuming responsibility for managing the trust assets, called the “Trustee.” In the vast majority of estate plans, which involve a revocable trust—which can be cancelled or amended at any time—the person creating the trust also names herself as the initial trustee. The final group of people involved with each trust is the beneficiaries. Usually, the Settlor is also the only initial beneficiary of the trust. Then after the Settlor passes away, her spouse, children, other family members, and/or other friends and loved ones become the beneficiaries.
When the Trustee can no longer act as Trustee for himself or herself because of disability, incapacity, or death, then the Successor Trustee (or more than one “Co-Trustees”) named in the Trust document is called upon to take over. Unfortunately, even though the Successor Trustee may be an individual in whom the Settlor had great trust and faith in being able to handle the affairs of the Trust, most Trustees have never done this before and really have no idea what to do or how to do it. Many Settlors, as well as Trustees, may even think that the Revocable Trust will automatically take care of everything by itself, without any work involved by anyone!
The main objectives of a revocable trust based plan are:
- Distribute the Settlor’s assets to the right people, in the right amounts, at the right times and in the right manner appropriate for each of them, without the delays and expenses of Probate Court involvement.
- Manage the Settlor’s assets for him or her in the event of his or her disability or incapacity, and to manage those assets for the people who will later inherit them (until such time as they are distributed after the Settlor’s death), again, without the need for court involvement.
- Maintain the privacy of the Settlor’s assets and business, as well as his or her last wishes.
- Possibly reduce estate taxes for a married couple.
- If the trust was designed for this, to protect beneficiaries’ inheritance from the claims of spouses, creditors, and lawsuits; from the loss of needs-based government benefits; and from potential estate taxes when the original inheritor dies and passes the assets down to the next generation.
As Successor Trustee, you have certain legal obligations to carry out and administer the Trust properly on behalf of the Settlor and the beneficiaries. Your basic duties or actions will fall into three major categories: 1) Collection, management and investment of assets; 2) Payment of debts, expenses and taxes; and 3) Distributions to the beneficiaries.
It all sounds so simple, right? And, in concept, it is. However, the practical application of those concepts can get quite complicated, and there is a lot to learn to do the job correctly. An important point to keep in mind is that you are not required to accept the appointment as successor trustee. It’s your choice whether or not to step in to that role—even if you told the Settlor that you would be willing to do it when she set up her trust. But if you do step in as successor trustee, you are accepting legally binding responsibilities, and will be held accountable for fulfilling them properly.
One thing that can help is to hire an estate planning attorney to guide you through the process. Another option for those who want an overview of what to expect (or who like to attempt to do-it-yourself first) is to purchase our Successor Trustee Manual from Okura & Associates, which walks you through what to expect, what you’re supposed to do, and how to go about getting started, including: a list of Dos and Don’ts, checklists of what to do upon the incapacity or death of the Settlor, and useful tips in dealing with the beneficiaries and various professionals (such as accountant, appraiser, estate attorney, and others). I’ll be sharing tidbits from the Successor Trustee Manual in this column from time to time so stay tuned!
© OKURA & ASSOCIATES, 2018