A close family member or friend has chosen you to be his or her successor trustee upon their death. It’s an honor; based on love, trust and their belief you are the best person for the job. But do you really want the job? To be honest, most of our clients are related to the original trustee who died. Usually a child or sibling. If you are having challenges managing your time, or if there is significant geographic distance between you and the trust property and/or beneficiaries, or you don’t get along with one or more of the beneficiaries, you might think twice about accepting the position. No one will be happy if you take on the job but fail to provide what is legally required by the trust. If there are beneficiaries with whom you don’t get along, that is a wild card best approached with caution.
Of course you can always resign after you have accepted the position. However, it’s harder to do so once the mechanisms have been set in place for your trust administration. And, during your administration duties, you may have opened yourself up to potential liability from a disgruntled beneficiary.
What does a trustee do? A settlor who creates a trust, agrees to transfer the property to a trustee who will manage that property to another, called the beneficiary. The trust, in the person of the trustee, becomes the new legal owner, and the trustee becomes the new manager. Usually, while living, the settlor is the first trustee and beneficiary. When the settlor dies (or becomes incapacitated), the next trustee, called the successor trustee, steps up to manage and distribute the trust assets. That’s you, if you accept the job.
Once you accept the job as successor trustee, it is your job to manage and if required, distribute them as well. By using you as the successor trustee, the settlor’s assets can be distributed to the people who inherit them directly without involving the probate court. That saves time and money. If the trust is designed to stay in existence a while, it can also provide a way to manage assets for young beneficiaries. In other words, if the successor trustee distributes the assets shortly after the settlor dies, you have a simple trust to administer. If however, the trust says you are to hold on to the trust assets for the intended beneficiaries, manage those assets and make periodic distributions, you have a more complicated trust.
For example, if the trust may have been created to provide for young children until they grow up, or in trust for other family members indefinitely. This might entail you, as the successor trustee, to file tax returns, perhaps invest the trust assets, or choose how to distribute the trust funds to the beneficiaries. You may in fact be wearing your successor trustee hat for a long time.
Another factor you might consider: is there a cotrustee. I would suspect that the settlor named you and someone else as successor cotrustees in the hope that your skills would complement each other and that working together you two together would make a perfect trustee. Or perhaps the settlor didn’t want to hurt anyone’s feelings. The truth is that when you work with someone else, you may have more obstacles that when working alone. One common problem that we face at East Bay Probate & Trust Administration, is when one successor cotrustee does the vast majority of work while the other successor cotrustee does far less. Not only does this place a heavy burden on the one successor cotrustee, but more importantly, the successor trustee who is working far less, may not realize or accept that you are doing most of the work. When it comes to payment, they may want to split the trustee fee in half equally. Also, you might legally be liable for your successor cotrustee’s negligence. For example, if your successor cotrustee promises to file the trust tax return but doesn’t, both of you will be on the hook.
Before you sign on for the job, take a moment to consider whether you’ll be working with the legacy of an organized person or someone who has left piles of papers and records stacked throughout their house, with no apparent rhyme or reason to their filing process. One of your threshold jobs as successor trustee will be to identify and collect assets. It can be easy if the settlor left good records. Or it can be a nightmare, if the settlor left you with a house of seemingly random piles of paper. At a minimum, you’ll be searching through account statements, looking at the settlor’s mail and going over old tax returns.
You may be dealing with beneficiaries for a few months or for several decades, depending on the trust terms. A long term trust can be fraught with problems. And even a short term trust can be challenging if the beneficiaries don’t like what you are doing. If the beneficiaries are unhappy, they can demand frequent accountings, ask a court to remove you as successor trustee or sue you for violation of your legal duties to them. If the beneficiaries are not happy with their share of the trust (they never think they received too much), you’ll be the one they complain to, perhaps over and over again. But remember, you must put the interests of the trust beneficiaries before your own. The trustee serves the trust.
What about getting paid? The trust document oftentimes will state if the successor trustee gets paid for their work and if so, how much. But if you are both the successor trustee and the intended beneficiary, you may not want to get paid. Why? Because if you take part of the trust assets as a fee for your services, you will have to pay income tax on those fees. If however, you decline the payment and receive all the trust monies through your inheritance, you pay no income taxes on inherited money. Lastly, if you seek a fee for your work, and you have siblings, they may feel your work is part of your obligation to the family and its unfair for you to take a fee while working on the “family” trust.
Remember, you won’t be on your own. As the successor trustee, you can hire professionals, advisors and accountants. This is exactly what we do at East Bay Probate & Trust Administration. We help guide successor trustees in the oftentimes turbulent waters of family dynamics and wealth distribution. You will not have to pay for professional support yourself, rather, the trust assets can be used to pay for those services.
As you can see, the duties of a successor trustee can be relatively simple or unpleasantly complex. Either way, if you take one step at a time in the right direction as you are administering the trust, coupled with the guidance of a seasoned professional providing advice, your journey as successor trustee will fulfill the wishes of the original settlor and provide for an orderly distribution of the trust assets.