An estate plan that includes a revocable living trust is an excellent way to protect yourself and your loved ones upon your passing or in the event you are unable to manage your own affairs. As opposed to other estate planning options, a revocable living trust gives you the ability to keep control of and enjoy your accounts and property during your lifetime and to maintain privacy in how the accounts and property are managed, and may save your loved ones the time and financial burden of going through probate. To ensure that your estate plan works as it should when you are no longer capable of managing your own affairs, it is important that your backup trustee (otherwise known as your successor trustee) understands the successor trustee’s role, duties, and responsibilities, and where to go if help is needed.
When does a successor trustee take over?
If you have a revocable living trust, you are most likely familiar with the idea of a trustee. A trustee is an individual or entity in charge of managing, investing, and handing out money and property to the appropriate people. You (and possibly your spouse, if you are married) will most likely act as the initial trustee of your revocable trust while you are able. However, there will likely come a time when you are no longer able to act as trustee, in which case, the person you have named as your successor trustee will need to step in.
When you are unable to make your own decisions. Before your passing, there may come a time when you are no longer able to make decisions or handle the day-to-day tasks associated with managing, investing, or handing out the trust’s accounts and property. This is sometimes referred to as incapacity. When incapacity occurs, the loss of control can be scary. If you have named a reliable successor trustee, however, this individual or entity will be able to step in and make sure that the trust’s accounts and property continue to be managed, invested, and used for your wellbeing during your life, without court involvement. Just because you are not serving as trustee does not mean that you stop being a beneficiary.
At your death. When you pass away, you obviously will no longer be the person managing, investing, and handing out the trust’s money and property. When this happens, your named successor trustee will step in to manage, invest, and use the trust’s money and property for the benefit of those you have chosen (your beneficiaries). Although you will no longer be the trustee, if you have properly documented your wishes in your trust, they will be carried out by the trustee, without court involvement.
Whenever you choose. There could come a time when you no longer want to be the one managing the trust’s accounts and property. In this instance, you could choose to resign as the initial trustee, allowing your successor to step in and pick up where you left off. Or you could allow your successor trustee to act with you as a co-trustee. Because you are still alive, the successor trustee will be managing, investing, and using the trust’s accounts and property for your benefit and anyone you have named in your trust to benefit from the trust accounts or property. Even if you have named a professional company as your successor trustee, allowing them to act while you are still alive and mentally aware can be a great way for you to see how the successor trustee handles the responsibility. So long as you are still mentally able to, and the trust allows for it, you can fire your successor trustee if they do not perform their duties well and appoint someone else.
What are a successor trustee’s duties and responsibilities?
Although your successor trustee will have control over the trust’s accounts and property, the successor trustee also has legal duties and responsibilities that must be adhered to. In general, your successor trustee has a fiduciary duty to administer the trust solely in the interest of the beneficiaries and to deal with them impartially. As a “fiduciary” they are held to a higher standard of care. Additionally, the successor trustee cannot use any of the trust’s accounts or property for the trustee’s own benefit or for any purpose not expressly listed in the trust. Also, unless specifically authorized by the trust document, the successor trustee cannot enter into any transaction that would create a conflict of interest between the successor trustee and the trust or trust beneficiaries.
How can you prepare your successor trustee?
Make sure estate planning documents are up-to-date. Creating an estate plan is a great first step in making sure your wishes are carried out. However, it is crucial that you keep your estate plan up-to-date. Because your successor trustee will have to rely on the trust’s written terms, you do not want to give your successor trustee faulty or outdated instructions.
Revocable Living Trust. When reviewing your trust, make sure that the individual or entity you have selected as your successor trustee is still the one you want and that the individual or entity can still act on your behalf. It is also a good idea to make sure that a backup trustee is named for your successor trustee in case something happens. Lastly, review the beneficiaries of your trust and what they are to receive. Are the amounts and timing of property distributions still what you want? A beneficiary’s circumstances can change quickly and it is important that your wishes be carried out as intended.
Financial Power of Attorney. It is important to review your financial power of attorney to make sure that the person named to handle accounts and property owned by you individually is still able to act. In some instances your successor trustee and agent under a financial power of attorney may be the same person, but if not, you will want to make sure that these two individuals can work well together should something unexpected happen in the future.
Healthcare Documents. Although healthcare documents (such as a medical power of attorney, advance directive or living will, and Health Insurance Portability and Accountability Act (HIPAA) authorization form) primarily focus on medical matters, they may impact the financial matters handled by the successor trustee. If you are expecting medical bills to be paid from accounts owned by the trust, it is important that your successor trustee have access under a HIPAA authorization form to receive your medical information and talk to the professionals if any questions arise during the payment process. Additionally, you should review the other healthcare documents to make sure that they accurately reflect your wishes and to ensure that you have done a thorough review of all your estate planning documents.
Discuss your estate plan with your successor trustee. The next step in preparing your successor trustee is to discuss your estate plan with your successor trustee. Whether your successor trustee is a family member, close friend, or professional trustee, open and honest communication is necessary. You can tailor this conversation to meet your needs and your comfort level.
If you want to keep a majority of the details private until your death, you can start the conversation by letting your loved one or corporate trustee know that you have chosen him or her to serve as the successor trustee of your trust, where to find the necessary documents, and which advisors (estate planning attorney, certified public accountant, financial advisor, or insurance agent) to contact upon assuming the role. This will avoid having your named successor trustee be surprised by the new role and will help guide them with some steps to take.
If you would like to disclose a little more information, you could give your successor trustee a general overview of your estate plan and discuss who will receive the accounts and property without disclosing the exact amounts. The focus of this discussion is to communicate the goals of your estate plan and alert your successor trustee to any special circumstances that may need to be addressed.
Lastly, if you have decided that you want your successor trustee to have full access to all information and to be ready to step in at a moment’s notice, you could sit down with your successor trustee and go through each of your documents. Depending on your comfort level, this may be a great time to get the rest of your loved ones involved. We are happy to sit in on these meetings to facilitate and answer any questions that may arise.
We Are Here to Help
You have already taken the first step by including a revocable living trust in your estate plan. Because we never know what the future holds, now is the best time to start having discussions with your successor trustee about your wishes and intentions. We are available for in-person or virtual meetings to help facilitate these discussions. Give us a call today so we can help you and your loved ones prepare for the next phase of the estate planning process.
Kent W. Meyer, M.B.A., Ph.D.,J.D., LL.M.
Traditions Law, PC