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Understanding
the Duties and Responsibilities of a Successor Trustee
What You Will Need To Do At The Grantor's Incapacity
And/or Death
1. Overview
2. What is a trust?
3. How does a living trust work?
4. Who are the people involved with a
living trust?
5. What do I need to know now?
6. What responsibilities will I have as a
trustee?
7. Do I have to do all of this myself?
8. How will I know if the grantor is
incapacitated?
9. What do I do if the grantor is
incapacitated?
10. What happens if the grantor
recovers?
11. What do I do when the grantor dies?
12. Should I be paid for all this work?
13. What if the responsibilities are too
much for me?
14. What Does The Successor Trustee Do
At Incapacity?
15. What Does The Successor Trustee Do
At Death?
1. Overview
If you have been named as the successor trustee in
someone’s living trust, you may be wondering what you
are supposed to do. You can relax a bit, because you
don’t do anything right now. You will only begin to act
when the person becomes unable to manage his or her
financial affairs due to incapacity, or when he or she
dies.
However, it is important that you know ahead of
time what your duties and responsibilities will be.
These FAQs will help. Let’s start with some
explanations.
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2. What is a
trust?
A trust is a legal entity that can “own” assets. The
document looks much like a will. And, like a will, a
trust includes instructions for whom you want to handle
your final affairs and whom you want to receive your
assets after you die. There are different kinds of
trusts: testamentary (created in your will after you
die); irrevocable (usually cannot be changed); and
revocable living trusts.
Today, many people use a revocable living trust
instead of a will in their estate plan because it avoids
court interference at death (probate) and at incapacity.
It is also flexible. As long as you are alive and
competent, you can change the trust document, add or
remove assets, even cancel it.
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3. How does a
living trust work?
For a living trust to work properly, you must transfer
your assets into it. Titles must be changed from your
“individual” name to the name of your trust. Because
your name is no longer on the titles, there is no reason
for the court to get involved if you become
incapacitated or when you die. This makes it very easy
for someone (a successor trustee) to step in and manage
your financial affairs upon your incapacity or death.
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4. Who are the
people involved with a living trust?
The grantor (also called settlor, trustor, creator or
trustmaker) is the person whose trust it is. Married
couples who set up one trust together are co-grantors of
their trust. Only the grantor can make changes to the
trust.
The trustee manages the assets that are in the
trust. Many people choose to be their own trustee and
continue to manage their affairs for as long as they are
able. Married couples are usually - but not often -
co-trustees, so that when one dies or becomes
incapacitated, the surviving or healthy spouse can
continue to handle their finances with no other actions
or steps required, including court interference.
A successor trustee is named to step in and
manage the trust when the trustee is no longer able to
continue (usually due to incapacity or death).
Typically, several are named in succession in case one
or more cannot act. Sometimes two or more adult children
are named to act together. Sometimes a corporate trustee
(bank or trust company) is named. Sometimes it is a
combination of the two.
The beneficiaries are the persons or
organizations who will receive the trust assets after
the grantor dies.
THE LIVING TRUST TEAM
Grantor--Trustee--Successor Trustee--Beneficiaries
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5. What do I
need to know now?
The grantor should make you familiar with the trust and
its provisions. You need to know where the trust
document, trust assets, insurance policies (medical,
life, disability, long term care) and other important
papers are located. However, don’t be offended if the
grantor does not want to show you values of the trust
assets; some people are very private about their
finances. This would be a good time to make sure
appropriate titles and beneficiary designations have
been changed to the trust. (Some assets, like annuities
and IRAs, will list the trust as contingent
beneficiary.)
You also need to know who the trustees are, who
other successor trustees are, the order in which you are
slated to act, and if you will be acting alone or with
someone else.
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6. What
responsibilities will I have as a trustee?
The most important thing to remember when you step in as
trustee is that these are not your assets. You are
safeguarding them for others: for the grantor (if
living) and for the beneficiaries, who will receive them
after the grantor dies. You are performing the role of a
fiduciary.
As a trustee, you have certain
responsibilities. For example:
• You must follow the instructions in the trust
document.
• You cannot mix trust assets with your own. You must
keep separate checking accounts and investments.
• You cannot use trust assets for your own benefit
(unless the trust authorizes it).
• You must treat trust beneficiaries the same; you
cannot favor one over another (unless the trust says you
can).
• Trust assets must be invested in a prudent
(conservative) manner, in a way that will result in
reasonable growth with minimum risk.
• You are responsible for keeping accurate records,
filing tax returns and reporting to the beneficiaries as
the trust requires.
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7. Do I have to
do all of this myself?
No, of course not. You can have professionals help you,
especially with the accounting and investing. You will
also probably need to consult with an attorney from time
to time. However, as trustee, you are ultimately
responsible to the beneficiaries for prudent management
of the trust assets.
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8. How will I know if the
grantor is incapacitated?
Usually the trust document contains instructions for
determining the grantor’s incapacity. The trust may
require one or more doctors to certify the grantor is
not physically or mentally able to handle his or her
financial affairs.
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9. What do I do if the
grantor is incapacitated?
If all assets have been transferred to the trust, you
will be able to step in as trustee and manage the
grantor’s financial affairs quickly and easily, with no
court interference.
First, make sure the grantor is receiving
quality care in a supportive environment. Give copies of
health care documents (medical power of attorney, living
will, etc.) to the physician. If someone has been
appointed to make health care decisions, make sure he or
she has been notified. Offer to help notify the
grantor’s employer, friends and relatives.
Next, find and review the trust document.
(Hopefully, you already know where it is.) Notify any
co-trustees as soon as possible. Also, notify the
attorney who prepared the trust document; he or she can
be very helpful if you have questions. You may want to
meet with the attorney to review the trust and your
responsibilities. The attorney can also prepare a
certificate of trust, a shortened version of the trust
that also proves you have legal authority to act.
You will want to become familiar with the
grantor’s insurance (medical and long term care, if any)
and understand the benefits and limitations. Assuming
the insurance will cover a certain procedure or facility
could be a costly mistake.
Have the doctor(s) document the incapacity as
required in the trust document. Banks and others may ask
to see this and a certificate of trust before they let
you transact business.
If there are minors or other dependents, you
will need to look after their care. The trust may have
specific instructions. If the grantor’s incapacity is
expected to be lengthy, a guardian (of the person, not
assets) may need to be appointed by the court. The
attorney can help you with this. Become familiar
with the finances. You need to know what the assets are,
where they are located and their current values. You
also need to know where the income comes from, how much
it is and when it is paid, as well as regular ongoing
expenses. You may need to put together a budget.
If you cannot readily find this information,
others (family members, banker, employer, accountant)
may be able to help you. Last year’s tax returns may be
helpful. Also, if you discover any assets that were left
out of the trust, the attorney can help you determine if
they need to be put into the trust and can then assist
you with this.
Apply
for disability benefits through the grantor’s employer,
social security, private insurance and veteran’s
services. Notify the bank and other professionals that
you are now the trustee for this person. And put
together a team of professionals (attorney, accountant,
banker, insurance and financial advisors) to help you.
Be sure to consult with them before you sell any assets.
Now
you can start to transact any necessary business. You
can receive and deposit funds, pay bills and, in
general, use the person’s assets to take care of him or
her and any dependents until recovery or death.
You’ll
need to keep careful records of medical expenses and
file claims promptly. Keep a ledger of income received
and bills paid. An accountant can show you how to set up
these records properly. The trust may require you to
send accountings to the beneficiaries. Also, don’t
forget income taxes (due April 15) and property taxes.
You should always be ready to seek out and enlist
appropriate professional advice to assist you in
carrying out your duties.
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10.
What happens if the grantor recovers?
You go back to being a successor trustee and the grantor
resumes taking care of his or her own financial affairs.
It’s very easy, and there is no court involvement.
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11.
What do I do when the grantor dies?
You will have essentially the same duties as an executor
named in a will would have. But if all titles and
beneficiary designations have been changed to the
grantor’s trust, the probate court will not be involved.
That means you will be able to act on your schedule
instead of the court’s, with more privacy and
efficiency.
The trustee is responsible for seeing that
everything is done properly and in a timely manner. You
may be able to do much of this yourself, but an
attorney, corporate trustee and/or accountant can give
you valuable guidance and assistance. Here’s an overview
of what needs to be done.
Inform the family of your position and offer to
assist with the funeral. Read the trust document and
look for specific instructions. Notify a co-trustee as
soon as possible. Make an appointment with an attorney
to go over the trust document, trust assets and your
responsibilities as soon as possible. Do not sell or
distribute any assets before you meet with the attorney.
Before the meeting, make a preliminary list of
the assets and their estimated values. You’ll need exact
values later, but this will help the attorney know if an
estate tax return will need to be filed (due no later
than nine months after the grantor’s death). If there is
a surviving spouse or if the trust has a tax planning
provision, the attorney may need to do some tax planning
right away. The trust may also need its own tax
identification number.
Collect all death benefits (social security,
life insurance, retirement plans, associations) and put
them in an interest bearing account until assets are
distributed. If the surviving spouse or other
beneficiary needs money to live on, you can probably
make some partial distributions. But do not make any
distributions until after you have determined there is
enough money to pay all expenses, including taxes.
Notify the bank, brokerage firm and others of the
grantor’s death and that you are now trustee. They will
probably want to see a certified death certificate, a
certificate of trust and your personal identification.
To finalize the list of assets, you will need
exact values as of the date of the grantor’s death. Some
assets will need to be appraised. An estate
sale may need to be held to dispose of household goods
and personal effects.
Keep careful records of final medical and
funeral expenses, and file medical claims promptly. Keep
a ledger of bills and income received. Contact an
accountant and attorney to prepare final income and
estate tax returns, if required. Verify and pay all
bills and taxes. Make a final accounting of assets and
bills paid, and give it to the beneficiaries.If the
assets are to be fully distributed, you will divide the
cash and transfer titles according to the instructions
in the trust. That’s it...you’re finished and the trust
is dissolved.
If the assets are to stay in a trust (for
minors, for a surviving spouse, for tax purposes or if
the beneficiaries will receive their inheritances in
installments), each trust will need a new tax
identification number, and proper bookkeeping and
reporting procedures will need to be established.
12.
Should I be paid for all this work?
Yes, trustees are entitled to reasonable compensation
for their services. The trust document should give
guidelines.
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13.
What if the responsibilities are too much for me?
Consider hiring an attorney, bookkeeper, accountant or
corporate trustee to help you. (A corporate trustee can
manage the investments and do the record keeping.) If
you feel you cannot handle any of the responsibilities
because of work, family demands or any other reason, you
can resign and let the next successor trustee step in.
If no other successor trustee has been named, or none is
willing or able to serve, a corporate trustee can
usually be named.
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14.
What Does The Successor Trustee Do At Incapacity?
• Oversees care of ill person
• Understands insurance benefits and limitations
• Looks after care of any minors and dependents
• Applies for disability benefits
• Puts together team of advisors
• Notifies bank and others
• Transacts necessary business
• Keeps accurate records and accounting
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15. What Does The Successor
Trustee Do At Death?
• Contacts attorney to review trust and process
• Keeps beneficiaries informed
• Puts together team of advisors
• Inventories assets, determines current values
• Makes partial distributions if needed
• Collects benefits, keeps records, files tax returns
• Pays bills, does final accounting
• Distributes assets to beneficiaries as trust directs
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NOTE: This information is designed to
provide a general overview with regard to the
subject matter covered and is not state-specific.
The authors, publisher and host are not providing
legal, accounting or any other advice which
purports to be specific to your situation. The
contents of this website are believed to be
completely reliable. Nevertheless, some material
may be affected by changes in the laws or
interpretations of such changes since the material
was entered on the website. If legal advice or
other expert guidance is required, the services of
a competent professional in the field of law,
accounting, insurance or investments should be
sought.
Price
& Farrington, PLLC - Attorneys and Counselors at
Law
Parkwood Office Center - 2370 130th Ave. N.E., Suite
103 - Bellevue, WA 98005
Phone: 425.451.3583.. Fax:
425.452.0153 ..E-mail: contact@pricefarrington.com
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