Who Should I Name as Successor Trustee?

For most revocable living trusts, the trust maker is also the trustee. If it’s a joint marital living trust, both spouses are frequently co- trustees; when the first spouse dies or becomes unable to act, the survivor becomes sole trustee. It’s also possible and important for the trust maker to name one or more successor trustees.

What is a successor trustee?

When you create the trust, you have the ability to designate a successor trustee. The successor trustee takes over management of the trust if you aren’t able to do so. Depending on the trust, the successor trustee distributes the trust assets to your beneficiaries after you die or continues to administer the trust for one or more generations. He or she could also take over management of the trust if you become incapacitated.

Choosing the successor trustee of your trust likely is one of the most important estate planning decisions you face. The successor trustee must follow the terms of your trust about how to distribute the trust property to your beneficiaries.

The successor trustee may be the primary beneficiary of the trust. However, the successor trustee can be anyone you trust. For example, the successor trustee can be a close friend, an adult child, your spouse, your lawyer, an accountant, or a corporate trustee.

Must the Successor Trustee Live in the Same State?

A successor doesn’t have to live in the same state that you do. It’s usually more convenient if he or she does. When you consider whom to choose as your successor trustee, you should consider the amount of time and effort the successor will have to spend. You should also consider his or her ability to perform the duties of the trustee, and his or her ability to deal with the beneficiaries.

What is required for the Successor Trustee to Transfer Property out of the Trust?

If the successor trustee is required to transfer property to the beneficiaries, a copy of the original trust agreement and death certificate of the original trustee should be sufficient for banks, stock brokers, government agencies, and other entities that control the assets to enable them to be transferred to the successor or beneficiaries entitled to receive them. Sometimes, especially when real estate is involved, the successor trustee will have to sign deeds transferring property from the living trust to the beneficiaries.

Should you name a family member as your successor trustee?

Many people choose family members to serve as trustees. They don’t charge a fee, and they generally have a personal stake in the trust’s success. Using a family member as successor trustee can be a good more for a small or medium sized trust if the family member:

  • is competent to handle the financial matters involved
  • has the time and interest to do so
  • can handle family conflicts.

If you decide to make a relative a trustee, be sure to consider who the successor will be in the event of the person you choose as successor trustee dies, becomes incapacitated, gets divorced, or if family strife develops.

Many trust makers name co-trustees. Usually the spouse will be a co-trustee, so that when one spouse dies, the other takes over, with a successor co-trustee who’s a lawyer or has some specialized legal or financial knowledge. But corporate trustees, while expert, may be too expensive for moderate estates. Before selecting a trust company, it is advisable to discuss this with a trust officer of the institution.

Often, of course, the beneficiary himself is named as trustee, if the beneficiary is an adult. This is sometimes done when the main reason for the trust is to save taxes. If the trustee’s powers are restricted to comply with federal estate tax law limitations, this arrangement may give the trustee/beneficiary control over the trust assets and avoid estate taxes after his death. However, it also subjects him or her to taxes on the income from the trust. Depending on the trust and the powers of the trustee, it might open the trust assets to attack from creditors. And the beneficiary probably won’t have the professional familiarity with investments that a trust officer would – through, again, he or she can hire such help.

What are the downsides to choosing a family member as successor trustee?

Here are the downside to choosing family members as successor trustees:

  • Lack of expertise. Relatives often lack the financial acumen of a professional trust officer, and so must often hire professional
  • Mortality. Trusts can last for many Human trustees die. Banks don’t. If the bank merges with another bank, the new company automatically will succeed to its trust operations.
  • Family conflicts. Depending on their relationship with the beneficiary, family trustees may have problems with what the beneficiaries want or demand, and what the trust documents says and requires of the successor trustee. Sibling rivalries may also complicate arrangements in which one brother or sister serves as trustee for A professional manager doesn’t face such pressures.

There is an increasingly popular middle course between naming an institutional trustee and naming a family member as trustee. You can choose a relative as trustee and hire a bank or investment company as an independent investment advisor. This is instead of naming the bank or investment company as a co-trustee. The bank or investment company is familiar with the nuances of law and investment financing. If you hire them outright, its fee for investment advice may be smaller than the one it charges to serve as a co-trustee.

Should you choose a professional trustee as successor trustee?

There are circumstances in which you will want the successor trustee to have more expertise, or at least the ability to hire professional help. For example, if any of your beneficiaries are minors or disabled, the successor will have to manage the trust property until such beneficiaries reach the ages at which you specified the property would be distributed to them. This may involve preparing tax returns, investing funds, and so on.

Banks, trust companies, CPA firms, and similar financial institutions are permanent institutions that can manage your trust for decades. They also have professional knowledge of and experience with investment options. They’re objective and regulated by law. If you question the honesty or reliability of friends or family members, a professional trustee is the usual preference; and it can handle the investments, tax preparation, management, and accounting.

What are disadvantages of a professional trustee?

Some people see the following as disadvantages of naming a professional as a successor trustee:

  • Cost. If you do use a bank or trust company to manage the assets, expect to pay a fee for those These institutions sometimes have a minimum fee that makes them costly for a small trust. Ask your trust company for its schedule of fees or discuss it with a trust officer. Find out what services are included and those for which additional fees are charged, including a termination fee. Fees are deductible for income tax purposes, to the extent the income is taxable to the trust or beneficiaries.
  • Bank investments are generally conservative, with all the advantages and disadvantages that implies. While you, the trust maker, can program the kind of investment strategy you want the professional trustee to follow, that can cause problems because of changed circumstances after your death. For example, an investment in the company that pioneered the brush-and-fluid system for cleaning LP records would have looked like a great investment twenty years ago; the advent of the compact disk changed all that.
  • Impersonality. While a bank probably won’t die, that doesn’t mean your beneficiaries will always be dealing with the same person; personnel move around or move on. As depositors in many banks have learned, the bank itself can change hands. And your beneficiaries will want someone who’s willing and able to listen to and discuss their needs and questions. Many families may view banks and professional trustees as impersonal institutions. On the other hand, when squabbling relatives are involved, impersonality can be a boon.

If you do choose an institutional trustee, make sure you and your beneficiaries are comfortable with the people they’ll be dealing with.

Can you name more than one person as successor trustee? Can you have co-successor trustees?

You also can have more than one trustee. You might have a professional trustee and a non-professional trustee. Or, you might have two family members as co-successor trustees. You might pick someone who’s good with investments, another who knows taxes, and a third who can talk to the beneficiaries. Usually, the attorney for the trustees can handle the tax problems without being a co-trustee.

You (the trust maker) can decide how the multiple trustees will make decisions; be sure to establish some mechanism for resolving disputes. Obviously, too many cooks can spoil the broth. You shouldn’t make someone a trustee just to keep him or her from feeling left out. Make sure he or she can be useful.

The co-trustee should be familiar with the nuances of your trust. Also, the co-trustee should be sensitive to potential conflicts between family members you’ve named as co-trustees.

If you designate family as the co-trustee, be sure to designate someone else to take over if the original family member co-trustee dies or becomes incapacitated.

Naming A Successor Trustee Conclusion

When children are beneficiaries, parents often choose to make them all equal co- beneficiaries. In such a case, it may make sense to name them co-successor trustees as well. However, if you fear the children may fail to agree, this can be a bad idea. You may have to choose one child as trustee.

You may also have to include a mechanism in your trust for resolving conflicts between co-trustees, such as arbitration. In any case, be sure to have a lawyer advise you if you fear such conflicts.

Conflicts between beneficiaries may make an independent trustee necessary. The size or complexity of the trust may also make an independent trustee necessary.

You have to specify the successor’s powers. Those powers will normally be broadly phrased. The successor trustee may have the ability to:

  • transfer assets to people or institutions.
  • pay debts and taxes.
  • spend trust principal for maintenance, education, support, and health.

Be sure to get a lawyer’s advice about the successor trustee’s powers, if you have questions. Your lawyer can help write into the agreement special rules that will carry out your wishes.

Don’t forget to name an alternate successor trustee in case your first choice dies before you or otherwise is unable to serve.

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