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You've been named a successor trustee. Now what?

by Alyssa Cotler | Contributor
November 24, 2019

When creating a revocable living trust, the trustee will name someone to step into his or her shoes and manage the trust when they pass. What if that person is you?

For many people, a revocable living trust is an optimal estate-planning tool. Unlike other types of trusts, a revocable trust allows the person funding the trust to act as trustee and retain control of the assets held in the trust until he or she is incapacitated or passes away. However, you do need to name a successor trustee to step into your shoes when the time comes for one or the other of these events to pass. And sometimes, since you aren't handing over control right away, you forget to mention this fact to the relative or friend who you've chosen.

So what happens if you're that relative or friend, the one who was named successor trustee? Well, if the original trustee has become incapacitated or passed away, you're now in control of the trust and all of the responsibility is in your hands.

Duties of a successor trustee

blocks with arrows illustrating the duties of a successor trustee

Your specific responsibilities as a successor trustee will depend on what the trust founder laid out in the trust agreement. As the new trustee, you are obliged to carry out whatever is outlined in that agreement.

For example, the original trustee may have decided that upon his or her death, all money in the trust was to be distributed to the trust beneficiaries, and specified the percentages or amounts due to each one. As successor trustee, your job is to ensure the money is distributed in this manner, and then to close the trust.

Alternatively, the trust may have been set up to benefit the original trustee's minor children, with distributions to be made either at specified intervals or whenever the guardian of the minor children requests money for their maintenance. If this is the case, as successor trustee you will continue to be responsible for overseeing the trust and making these distributions, until the money has been fully distributed.

Trustee for minor children

If you are responsible for overseeing a trust for minor children, there are many tasks beyond simply making distributions. Most importantly, the original trustee would expect you to make prudent investment decisions to maintain or grow the principal of the trust, and maximize what is left to distribute when the children attain the age at which they can access the balance of the trust.

someone doing calculations on a calculator

At the beginning, you will have to obtain a valuation of all trust assets and set aside some assets in a fund to cover any operating expenses the trust may incur. You will also have to check on the deceased's life insurance policies to see if they named the trust as the beneficiary; if so, the money from the policy will go into the principal of the trust.

In addition to acting as an investment manager, a successor trustee is also responsible for determining any estate tax or income tax liability, filing an annual tax return on behalf of the trust, and fulfilling any tax obligation that arises when the principal is finally distributed. These duties may be required for decades, depending on when the original trustee decided the principal should be distributed. Often, it is not when children reach the age of majority at 18, but rather at 21, 25, or even 30 years old.

Incapacitation vs. death

If you are called to act as successor trustee due to incapacitation rather than death, your role will be a little different. If the original trustee is incapacitated but there is an expectation that he or she will make a recovery, your job is to make prudent investment decisions for the trust assets and ensure that all tax obligations are fulfilled. But if the original trustee decided that distributions would be made upon incapacitation and not just upon their death, you will need to carry on with those distributions in the same manner as if the original trustee had passed.

If you succeed to the trusteeship due to death of the original trustee, then you will need to work in tandem with the deceased trustee's executor to ensure all obligations of the estate are carried out, creditors satisfied, taxes filed, and beneficiaries given their due.

A practical reason for creating a revocable trust rather than a testamentary trust, and naming a successor trustee for the revocable trust, is that this trust will not have to go through probate. However, other parts of the deceased's estate may need to go through probate, and the successor trustee will often assist the executor in this process.

Afterward, the executor's job will be complete. But the successor trustee will continue in their role until the trust principal is fully distributed. As we discussed above, this could take years or decades, so it's important to understand that you're in for a commitment when you take on this responsibility.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at legacyassuranceplan.com.

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