Every estate plan should include provisions granting another person the legal authority to act on your behalf if you become incapacitated or have died. Those powers are granted under a living trust, a last will and testament, a financial power of attorney, or a healthcare power of attorney.
One of the most important decisions you will make is your selection of these individuals. While you can name different individuals or entities (such as attorneys, trust companies, financial institutions or other professional fiduciaries) to serve under each of those documents, for simplicity, we’ll refer to them in this article as the “trustee.”
We believe that this decision is best treated as a “business” decision, not an emotional one. Rather than selecting the oldest child, for no other reason than that he or she was born first, we encourage clients to think of this decision in terms of: “If I was going on vacation for a year and was going to hire someone to manage my affairs for me, who would I hire?”
Often, when approached this way, you might find that the individual you were thinking of choosing does not actually have the skill set, time, professionalism or integrity to carry out the required responsibilities.
Common Successor Trustee Problems
Over the years, we have watched the aftermath of choosing ill-equipped family members or friends for this role. Here are some of the problems we have witnessed:
– The trustee doesn’t know what he or she is doing and ends up being sued for mistakes
– The trustee is already busy with his or her own life and can’t handle these additional duties
– The trustee is power hungry and treats beneficiaries unequally
– The trustee mismanages assets and loses your hard-earned money
– The trustee “borrows” trust funds and can never repay them
– The trustee refuses to do the job
– The trustee steals trust funds
– The trustee doesn’t uphold his or her fiduciary duties or follow the law
– The trustee is unfairly placed in the role of his or her sibling’s keeper
– The trustee is doing an adequate job but still faces suspicion and opposition from family members, eventually destroying family bonds
All of these examples are very real…and very detrimental to your estate plan! The business of choosing a trustee is not something to be taken lightly.
Duties of Your Successor Trustee
Have you considered the actual duties of your Successor Trustee? A successor trustee is a “fiduciary.” That means he or she must always act in good faith and serve in a manner that is impartial, fair, and in the best interest of the beneficiaries. A trustee has a responsibility to manage trust assets as required by law (which generally includes the requirement to diversify the investments and sign a fiduciary investment policy) and to follow the terms of the trust. A breach of fiduciary responsibility would make the trustee liable to the beneficiaries for any damage caused.
Upon incapacity, your successor trustee is required to step in and make sure all of your bills are paid; your investments are managed appropriately; and your needs for care, medical treatment, or alternate living arrangements are met. A successor trustee may also be tasked with providing for those dependent on you, such as minor children. Your healthcare agent would also make healthcare decisions for you, including end of life decisions.
Upon death, your successor trustee is generally required to do the following:
- Review the terms of your trust to determine your intent on distribution
- Pay all outstanding debts
- Fill out and submit claim forms for life insurance proceeds
- Pay all bills as they come in
- Notify the beneficiaries of your death and the existence of the trust
- Order Death Certificates
- Pay expenses of your last illness, funeral and memorial service
- Review mail and make notifications of death, as necessary
- Meet with your CPA regarding outstanding and upcoming tax issues
- Change the homeowner insurance on the home
- Have the home and any other real estate appraised
- Change the automobile insurance policy
- Obtain written date of death valuations for assets
- If necessary, work with family members to attempt to mediate disputes
- Change title on all assets
- If the home is to be sold, interview and hire an appropriate realtor
- Cancel subscriptions
- Determine if assets will be liquidated and distributed to beneficiaries or if assets will continue to be invested for the benefit of the beneficiaries
- Notify the Department of Health Services of your death and determine if they have a Medicaid claim
- Meet with your financial advisor to determine appropriate investment and/or liquidation of assets
- If you own a home, secure the home (i.e., change the locks and videotape the contents of the home)
- If “sub-trusts” need to be created for your beneficiaries, obtain the tax identification number for those trusts and determine appropriate funding
- Determine how retirement account proceeds should be distributed to cause the least tax consequences to your estate and your heirs
- Determine how personal possessions are to be distributed and facilitate that process, after appraisals are done, if necessary
- Meet/communicate with beneficiaries about how the administration will work and what to expect
- File an Affidavit of Death and applicable parent/child exemption forms with the County Assessor to avoid reassessment of property taxes
- If the home is to be sold, determine appropriate repairs to the home in contemplation of sale and hire the appropriate contractors for the work
- Coordinate filing of final income tax returns with family CPA/Accountant. When necessary, file IRS Form 706 (estate tax return).
In other words, it can be a lot of work!
Sometimes, a trusted family member or friend may be able to adequately complete all of these tasks. In other cases, you may want to consider naming a professional trustee or trust company to administer your estate. After all, you hired a professional to prepare your estate plan and make sure your wishes are properly documented; it may be prudent to hire a professional to make sure your wishes are carried out.
The decision of who to name as a successor trustee, executor, or agent can be complex and difficult. There are many considerations that should be fully evaluated with the help of a professional. The attorneys at eLegacy have seen the best and worst of successor trustees and can help guide you through the decision of selecting a trustee that will see your carefully designed plan is faithfully carried out.