When establishing a revocable living trust, you likely named yourself as the initial trustee to manage your own financial affairs. However, a successor trustee will eventually need to take over when you can no longer manage your trust due to incapacity or after your death. Choosing the right successor trustee is a critical decision in ensuring your trust is properly administered.
Key Takeaways:
- Successor trustees carry significant responsibilities, so careful selection is essential.
- Potential successor trustees can include an adult child, family member, trusted friend, or a professional trustee such as a corporate trustee or financial institution.
Responsibilities of a Successor Trustee
At Incapacity:
If you become incapacitated, your successor trustee will take over the full administration of your trust. Their duties may include managing your trust's accounts, selling or refinancing property, making financial decisions, paying bills, and ensuring your care needs are met. Importantly, your successor trustee can only manage assets owned by the trust, so it's vital to fully fund your trust by transferring or retitling assets into it. Even when you're no longer serving as trustee, you will remain a beneficiary of the trust during your lifetime.
After Death:
Upon your death, your successor trustee will take on duties similar to those of an executor in a probate estate. They will inventory the trust's assets, pay your final bills, sell trust property if needed, file your final tax returns, and distribute assets according to the trust's instructions. As with incapacity, the successor trustee can only manage assets within the trust, so fully funding your trust is essential.
One advantage of using a living trust is that the successor trustee typically acts without court supervision, ensuring a private and efficient process. However, it's important that the trustee keeps the administration moving smoothly to avoid any legal challenges that could involve the court.
An Important Consideration: Fiduciary Duties
Your successor trustee must follow the instructions in the trust and act according to fiduciary duties, which are legal obligations under state law. This means they must act in the best interests of the beneficiaries and comply with legal requirements when making financial decisions.
Who Can Be a Successor Trustee?
You can name an adult child, family member, trusted friend, or a professional trustee (such as a corporate trustee or trust company) to serve as your successor trustee. It's important to name multiple backups in case your first choice is unable or unwilling to serve.
Your successor trustee doesn't need to be an expert; they can seek advice from attorneys, certified public accountants, or other professionals. However, they should be responsible, conscientious, and willing to seek professional help when needed.
Key Factors to Consider When Choosing a Successor Trustee
- Trust and Reliability: Choose someone you trust and who will respect your wishes.
- Experience and Judgment: Consider your candidate's financial experience, judgment, and ability to handle complex trust provisions, especially if your trust holds assets for beneficiaries over time.
- Availability: Ensure your trustee candidate has the time and availability to manage the responsibilities, which may be substantial.
- Willingness to Serve: Have a discussion with your chosen candidate to ensure they are willing to take on the responsibility.
- Compensation: Successor trustees should be compensated for their work. If you select a professional or corporate trustee, they will have an established fee structure for managing the trust.
Get Professional Help
Choosing the right successor trustee is a significant decision that impacts the administration of your trust. We can help you select and educate your successor trustee to ensure they understand their role and are prepared to fulfill your wishes. If you have any questions or need guidance, please contact us to schedule an appointment.
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