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.
(Back to Top)
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.
(Back to Top)
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.
(Back to Top)
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(s) can make changes to his or
her 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 often co-trustees, so that when one dies
or becomes incapacitated, the surviving 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
(Back to Top)
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.
(Back to Top)
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.
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.
(Back to Top)
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.
(Back to Top)
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.
(Back to Top)
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.
(Back to Top)
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.
(Back to Top)
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.
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 (order at least 12), 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.
Should I be paid for all this work?
Yes, trustees are entitled to reasonable compensation for their services.
The trust document should give guidelines.
(Back to Top)
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.
(Back to Top)
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
due to 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.
(Back to Top)
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
(Back to Top)
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
(Back to Top)
