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
12501 Bellevue-Redmond Road, Suite 215 ....Bellevue,
Washington 98005
Phone: 425.451.3583.. Fax: 425.452.0153 ..E-mail: contact@pricefarrington.com
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