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Successor Trustee – Duties and Obligations You Should Know

What is a Successor Trustee?

Successor TrusteeA Successor Trustee administers the trust after the Grantor passes utilizing their powers for the benefit of the beneficiaries of the trust. When the creator of a trust dies or becomes incapacitated, a Successor Trustee steps into the role.  The successor then administers the trust after the Grantor dies or is unable to run the trust for themselves. A Declaration of Trust document contains the Grantor’s instructions on how the trust should be handled. The Successor Trustee’s responsibilities and powers will also be described in the Declaration of Trust.

When establishing a Revocable Living Trust, the concept of Successor Trustee is extremely important. In a Living Trust, the Grantor is often the first Trustee until their death.  At that point, they need to be replaced. Grantors can appoint a close relative, a family acquaintance, or even a financial institution to serve as Successor Trustee. A Grantor will identify their Successor Trustee when establishing the trust in the Declaration of Trust Document.  The Grantor will further define the role and provide instructions.  In some situations, the Successor Trustee will be required to manage the Trust for several years.  For instance, if the beneficiaries are minor children who must reach the age of majority before assets can be distributed. As a result, the function of the Successor Trustee is a significant and frequently time-consuming responsibility.

Trusts and Estate Planning – Common Terms

  • Settlor – The settlor of a trust is the person who creates a trust to be managed by a trustee for the benefit of another party called the beneficiary.  The settlor of a trust is the planner and creator.  Additionally, this individual funds the trust. Without the settlor, the trust would simply not exist.
  • Cestui Que Vie – The person for whom a benefit exists and whose life measures the duration of a trust, gift, estate, or insurance contract.  The term, Cestui que vie is French for “he who lives“. It is a legal term for a person who is the beneficiary of a trust or an insurance policy.
  • A Living Trust – A Living Trust is a legal document that, like a will, contains instructions for what you want to happen to your assets when you die. However, unlike a will, assets can transfer to a beneficiary while avoiding probate.
  • A Dynasty Trust – A Dynasty Trust is a long-term trust established to convey wealth from generation to generation.  It does this while avoiding transfer taxes such as the gift tax, estate tax, or generation-skipping transfer tax (GSTT) during the duration of the trust’s assets. The longevity of the dynasty trust is its distinguishing feature.
  • Asset protection trust (APT) – An Asset Protection Trust is a type of trust that holds an individual’s assets in order to protect them against creditors. Asset protection trusts provide the most robust defense against creditors, lawsuits, and judgments against an estate.
  • QTIP Trust – A QTIP Trust is a qualified terminable interest property trust.  It enables the grantor (or creator) to provide for a surviving spouse.  Additionally, it allows for control of how the trust’s assets are distributed once the surviving spouse dies.

Successor Trustee – Duties & Obligations

The particular obligations of a Successor Trustee are determined by a number of factors.  For example, the wording of the Declaration of Trust, local law, and whether the Grantor has died or is incapacitated but still alive.  If you agree to act as a Successor Trustee, it is always a good idea to consult with an estate planning attorney.  Expert advice will help you determine exactly what will be required in your unique circumstance.

Successor Trustees are entitled to a repayment from the trust for reasonable fees and expenditures incurred performing their obligations.  This often includes the cost of essential legal advice. It is vital to note that Successor Trustees are required to administer the trust and utilize their powers for the benefit of the beneficiaries of the trust. Unless specifically authorized by the Declaration of Trust, successor trustees may not act for their own personal profit.

Choosing a Successor Trustee

The person you designate to be your successor must be capable of carrying out your obligations and duties. Serving as a successor trustee is a significant and time-consuming responsibility. It is critical to choose the right person for the job or to name an organization such as a bank. Consider engaging an estate planning lawyer to help you. It’s also a good idea to name one or more “backup” trustees in case your first choice is unavailable. Your trust creation documentation must include the name of your replacement trustee. Their particular responsibilities will be determined by the parameters you specify for your trust.  These are laid out in the document known as the Trust Agreement.

Qualifications

Obviously, you are giving someone tremendous power and discretion.  Therefore, you should choose someone with sound judgment and whom you absolutely trust. If you don’t know anyone who meets these criteria, you should reconsider creating a living trust. The majority of people choose an adult son or daughter, a relative, or a close friend.

In most cases, the successor trustee will not need substantial financial management experience.  Common sense, dependability, and honesty are generally sufficient. Managerial integrity is paramount if a successor will assume long-term responsibility for a young beneficiary’s trust property.  This is a different skill set as opposed to a trustee whose sole function is to disburse trust property. Moreover, under the terms of the trust instrument, the successor usually has the ability to obtain reasonably necessary expert assistance.  This could be from an accountant, lawyer, or tax preparer – and pay for it using trust assets.

Example of Successor Trustee Duties & Obligations

When you die, you may decide that all assets and property held in trust be passed to beneficiaries. You could go on to say that the trust should then be closed. Your successor trustee is required to follow these and any other instructions you provide. In some instances, you may want your trust to continue operating after your death. This is frequently done while keeping the property for the benefit of minor children. Minors can’t legally own property, so your trust would continue to hold it for them until they reach an age you specify.  Your successor trustee would pay disbursements to their guardian in accordance with your wishes. They would be in charge of overseeing these payouts.  Moreover, they would manage the assets in your trust to ensure that they continue to generate enough income.

Successor Trustee vs Executor – What’s the Difference?

The roles of a Successor Trustee and an Executor are similar.  Often, the two will frequently collaborate following the Grantor’s death. Generally, trustees perform trust-related services.  For example, managing trust assets and distributing trust assets.  Conversely, executors provide estate-related services.  This means managing estate assets and distributing estate assets. Trustee nominations are made through a trust instrument, whereas executor nominations are made through a will.

  • Successor Trustee – manages the Trust when the Grantor dies. Depending on the Trust, this responsibility could span several years when beneficiaries reach the age of majority.
  • An Executor – is in charge of handling someone’s affairs immediately following death. Their job is critical in the timely completion of ongoing activities such as utility payments, rent, and so on. The Executor must also pay any debts and taxes on time and distribute items according to the will. The Executor is responsible for reporting each of these responsibilities to the probate court and closing the Estate. They can cooperate with a Successor Trustee during this process, but the Successor’s obligations are limited to the Trust.

Successor Trustee Duties When the Grantor Has Passed

When the Grantor dies, the Successor Trustee is usually in charge of winding down the trust.  This includes distributing the property held in accordance with the Grantor’s instructions. The Successor Trustee is also responsible for administering the trust property.  They are obligated to preserve it from waste and loss until all distributions have been made.

Trustees wield considerable power when it comes to making decisions about the trusts they oversee. This amount of power allows them to carry out their jobs efficiently.  However, it may also cause them to consciously or accidentally overstep their boundaries.

Duties When the Grantor is Incapacitated, but Still Living

When the Grantor is incapacitated but still alive, the Declaration of Trust usually directs the Successor to use trust property to provide for the Grantor’s care and comfort while they are still alive. The Declaration of Trust may also direct that trust property be used to benefit the Grantor’s family and loved ones.

In certain circumstances, a successor trustee may be required during your lifetime. If you become incapacitated and cannot continue to act as trustee of your trust, whether temporary or longer term, your successor trustee will step in to manage the assets already titled in the name of your trust. If you hold assets outside the trust, then your financial agent (appointed under your financial power of attorney) will have authority over those assets. In this instance, the trustee and the financial agent, if not the same person, will need to coordinate their efforts, and the trustee may request the financial agent to transfer assets into the trust. Your trustee and agent will work together to pay your bills, file your income tax returns, make investment decisions, and generally do all of those things that you would do with your finances if you were able. (Source: natlawreview.com)

Do I have to serve as Successor Trustee?

In short, No.  Being nominated does not obligate one to serve. When the time comes, you will be able to choose whether or not to embrace this duty. If you decline, the next Alternate Successor Trustee specified in the Declaration of Trust shall take your place. In the absence of an alternative, the Declaration of Trust should state how the next Trustee will be chosen.  If you are already convinced that you will not serve, you should notify the Grantor as soon as possible.  This will provide an opportunity to name a willing Successor in your place.

Even if you accept your nomination as Successor Trustee, you are not required to serve in this capacity indefinitely. The Declaration of Trust will specify the circumstances under which you can resign as a Trustee and select a replacement.

Up Next: What is OkSMS?

OkSMSOkSMS is an online application offering temporary, anonymous, free, and disposable phone numbers for receiving verification codes online.  For individuals, there are two methods to use this technology. First, you can use it to double-check before completing an online or in-person payment. Alternatively, you can utilize it to prevent fraud when completing forms that request your contact details.

OkSMS also allows business users to validate phone numbers without revealing the owner’s identity. Businesses can use the platform to ensure that phone numbers are accurate.  This is before they use them for any purpose, including sending SMS and phone calls. This service is designed to be convenient and efficient. OkSMS can be used to validate phone numbers in bulk and for individual use and can be implemented in various ways. It can detect landline and mobile phone numbers, geo-locate them, and encrypt data with 256-bit SSL encryption. There is a free version for non-commercial use. Several paid tiers are also available, which differ by the number of API calls made per month and per second. The service supports over 190 countries and is available in multiple languages.

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