Successor Trustees
This blog post addresses 5 topics:
Definition of Successor Trustee;
Role of a Successor Trustee;
Importance of a Successor Trustee;
Possible choices of Successor Trustees;
Examples.
Definition of Successor Trustee
A Trustee is the person who manages the assets in a Trust and who owes the Trust beneficiaries a fiduciary duty to act in the beneficiaries’ best interest.
A Successor Trustee is the person (or persons) who serve as Trustee after the initial Trustee. In many cases, the creator of the Trust (Settlor) names themself as the initial Trustee so that they can continue to manage the Trust assets on their own. It is not required that the Settlor name themselves as the initial Trustee---this is just what most people do.
The Successor Trustee takes the role of Trustee when the initial Trustee is no longer able to be the Trustee. This can happen when the initial Trustee dies, becomes incapable of acting as Trustee or chooses to have someone else manage the Trust assets.
Role of a Successor Trustee
Just like the initial Trustee, the Successor Trustee manages the Trust assets. This includes keeping track of the assets, logging the income and expenses of the Trust, paying taxes due on Trust assets, maintaining the Trust assets and keeping beneficiaries informed of the Trustee’s actions.
While the Successor Trustee serves as Trustee, they are also responsible to make any distributions called for by the Trust document. This could mean that the Successor Trustee would sell Trust assets, instruct a financial institution to make distributions or simply write a check to a beneficiary.
Importance of a Successor Trustee
Because a Trust operates both during lifetime and after death, most people create a Trust in order to pass along their assets to their loved ones after their death. Many people also create a Trust to give someone else the authority to manage their assets if they lose capacity to manage their own finances.
Assuming that your intent is either pass along your assets after your death and/or to plan for your possible incapacity, you need to nominate someone as your Successor Trustee. For example, someone may need to sell your house and distribute the proceeds of sale to your loved ones; someone may need to inform your financial institution of your incapacity or death and instruct the financial institution to distribute the funds; or someone may need to hire a tax advisor to file your income tax returns and to pay your taxes.
These things do not happen automatically. Someone needs to oversee the process and to take responsibility to make sure that they happen according to the terms of your Trust. Just like you can be a Settlor and a Trustee, your loved ones can be both a beneficiary and a Successor Trustee, but being a beneficiary alone does not give your loved ones the authority to sell your home or to deal with your financial institutions or the IRS.
Only a Trustee has the authority to make these things happen. And only a Successor Trustee has the authority to make them happen after your death or during your incapacity.
Possible Choices of Successor Trustees
Choosing someone to manage your assets when you can no longer do it can be hard. Here are some categories of people you may choose:
INDIVIDUALS
Family members (children, siblings, parents, cousins, etc.);
Friends (neighbors, church members, social friends, fellow club members);
Co-workers;
Professionals you already have a relationship with (your tax professional, financial advisor, spiritual counselor or attorney);
A certified professional fiduciary.
INSTITUTIONS
Many banks and other financial institutions have trust departments that will act as a Trustee. You should make sure that you meet their requirements before listing them as your Successor Trustee.
When choosing your Successor Trustee consider their qualifications, integrity, and relationship with your beneficiaries. Keep in mind that institutions and professional fiduciaries will take compensation for their efforts; family members, friends and co-workers may or may not choose to take compensation.
Examples
1) If the Trust creator names themself as the initial Trustee and their children as the Successor Trustees (Javier Smith, Matthew Smith and Robert Smith in that order), the California Trust Online Trust will say this:
SUCCESSOR TRUSTEES. When Settlor is no longer serving as a Trustee of this Trust either because of death, resignation or incapacity, the following individuals will be the Trustee in the order and priority listed:
FIRST: Javier Smith;
SECOND: Matthew Smith;
THIRD: Robert Smith.
2) If two registered domestic partners create a Trust together and name themselves as the initial Trustees with their friends and bank as Successor Trustees, the California Trust Online Trust will say this:
SUCCESSOR TRUSTEES. When one Settlor is no longer serving as a Trustee of this Trust either because of death, resignation or incapacity, the other Settlor shall be the Trustee. When neither Settlor is serving as Trustee of this Trust either because of death, resignation or incapacity, the following individuals will be the Trustee in the order and priority listed:
FIRST: Kimberly Smith;
SECOND: Fern Smith;
THIRD: Carson Bank Trust Department.
3) If a married couple create a Trust together and name themselves as the initial Trustees with their children as Co-Trustees, the California Trust Online Trust will say this:
SUCCESSOR TRUSTEES. When one Settlor is no longer serving as a Trustee of this Trust either because of death, resignation or incapacity, the other Settlor shall be the Trustee. When neither Settlor is serving as Trustee of this Trust either because of death, resignation or incapacity, the following individuals will be the Trustee in the order and priority listed:
FIRST: John Smith and Jason Smith;
SECOND: Caitlyn Smith and Davis Smith;
THIRD: Logan Smith and Cooper Smith.
If any Co-Trustee is unwilling or unable to serve as Trustee, the remaining Co-Trustee shall be the sole Trustee.