It is an honor to be named the successor Trustee of a loved one’s Trust. As the name implies, you’ve been given a position of trust and responsibility, and it means that your loved one thinks highly of your skill and ability, not to mention your integrity.
So, what does a successor Trustee do?
Normally, the person who creates a Trust serves as the initial Trustee. Your job as the successor Trustee doesn’t begin until that person dies (or, in some cases, becomes disabled). At this point, you step into the Trustee’s shoes.
As the successor Trustee, you are in charge of administering the Trust. This means that you are obligated to follow the written terms of the Trust along with any applicable provisions of state or federal law in gathering, managing, and distributing the Trust assets.
The terms of each Trust are different, depending on the purposes for which it was established, the property owned by the Trust, and the situations of the various Trust beneficiaries. This means there is no one-size-fits-all set of instructions for administering a Trust. Instead, you will need to closely follow the written terms of the Trust, employ your good judgment, and likely seek the advice of one or more experts.
Some of the questions you’ll encounter as you administer the Trust include:
- What distributions need to be made? Do these distributions need to be made to one or more beneficiaries, to one or more sub-Trusts, or to a combination of these?
- What about taxes? Are estate taxes due? What about income taxes – do they need to be paid on behalf of the Trust grantor or the Trust itself?
- Should you buy or sell assets on behalf of the Trust? How should you invest Trust assets?
Serving as the successor Trustee means you have a fiduciary duty to the beneficiaries. You must manage the Trust assets in the best interests of the beneficiaries, rather than managing the assets as if they are your own. Managing this way can complicate certain decisions that would normally be simple.
For instance, deciding how to invest Trust assets might seem simple. However, you’ll need to consider the written terms of the Trust, the requirements of state law, and a number of external factors in reaching the best choice. One of your duties is to invest Trust assets in a prudent manner. But what exactly does this mean?
As the successor Trustee, it might seem that the safest decision is to continue the investment choices of the initial Trustee. However, this course of action doesn’t factor in changes in the market. A down market can mean losses for the Trust — losses for which you as the successor Trustee could be held responsible.
Each Trust comes with a unique set of circumstances that can make the job of a successor Trustee tricky. In most cases, it is wise to seek professional guidance as you complete the Trust administration process. An experienced estate planning attorney can review the terms of the Trust, brief you on the requirements of state and federal law, and alert you to pitfalls of which you might be unaware. With expert help, you can minimize costly mistakes and fulfill your role as the successor Trustee with confidence.
Much of your job as the successor Trustee may be time sensitive. You’ll need to be aware of deadlines for taxes and other filings. The clock is ticking, but expert help is just a phone call away.
By: The American Academy of Estate Planning Attorneys