Many people set up trusts to add an extra level of protection for certain of their assets after they pass away. In the United States, a person setting up a trust will need to appoint a successor trustee. In the American legal system, a successor trustee is a person who takes on the responsibility of managing a trust if the creator of the trust, the grantor, dies or becomes incapacitated.
As you are setting up a living trust, you’re told that you must designate a successor trustee. So, what is a successor trustee, you might ask?
The person who creates a trust is called the grantor. A trustee administers the trust and, often, the initial trustee will be the grantor. But what if the grantor dies or becomes unable to administer the trust for some other reason? That’s when a successor trustee comes in. A successor trustee will manage the trust in the original trustee’s place.
Perhaps someone who’s setting up a trust has appointed you as a successor trustee, or asked your permission to do so. Maybe you are selecting someone to fill this position in a trust you’re setting up. Or, possibly, you’re simply interested in finding out more about this role. Whichever is the case, you’re in the right place. In this article, we’ll identify key terms related to successor trustees, describe what a successor trustee’s duties and responsibilities are, and answer several related questions.
First of all, what is a trust?
A trust is a legal arrangement involving three things: a trustor, a beneficiary, and a trustee. It’s typically laid out in a formal written document called the trust agreement.
These same three elements are found in a deed of trust, a legal document used in some states to secure real estate loans. In such transactions, the beneficiary is the lender, the trustor is the borrower, and the trustee is a third party who will hold legal title while the loan is being paid. If the borrower defaults, the trustee may sell the property on behalf of the lender. Learn more about deeds of trust.For these arrangements, the trustee will most often be a corporation, such as a title insurance company, a trust company, or a bank, though an attorney or other party might act as trustee in some cases. Laws governing who may serve as a trustee for a trust deed vary by state.
Trust documents vary from one person to the next and can be structured in many ways. They’re used to execute estate plans. They fall into two major categories: revocable trusts and irrevocable trusts.
A revocable living trust means the creator of the trust, or the trustor or grantor, can revoke or amend the trust. An irrevocable trust means the grantor cannot revoke or amend the trust document.
Otherwise known as a family trust, a revocable living trust is the more common of the two categories. Find out more about the conditions of a family trust here.
What is a trustee?
Trustees deal with trusts. Responsibilities include managing and distributing trust assets. A trustee can be appointed while the original trustor or grantor is still alive. Under a revocable living trust, the grantor of the trust and the original trustee are often the same person. A trustee can also be another responsible party, such as an organization or institution.
Now, what is a successor trustee?
A successor trustee takes over the administering and managing of a trust after the grantor dies or becomes incapacitated. A grantor who is incapacitated is incapable of managing the trust as trustee. Examples of someone’s incapacitation include an intellectual disability, mental disorder, dementia, or other medical disorders that affect awareness and logical thinking.
The successor trustee is named by the grantor in a document called a declaration of trust. It’s here that the successor trustee’s duties and powers are found. The exact responsibilities of a successor trustee vary depending on the instructions left by the grantor.
What are a successor trustee’s duties and powers?
A successor trustee’s specific duties and powers will vary, depending upon the instructions left by the grantor in the declaration of trust, as well as local law and whether the grantor has died or become incapacitated.
Generally, a successor trustee is obligated to manage the trust and distribute the trust assets for the benefit of the trust’s beneficiaries. Successor trustees cannot act for their own personal benefit unless the declaration of trust specifically authorizes it. The successor trustee must act in the grantor’s best interests.
Duties and powers if the grantor has become incapacitated
In the event that the grantor becomes legally incapacitated, the duties of a successor trustee will change. A successor trustee taking over for an incapacitated grantor will handle all affairs related to the trust in the grantor’s place.
Successor trustee duties: incapacitated grantor
As a successor trustee, you will usually use the property to pay for the grantor’s end-of-life care and other ongoing expenses during the grantor’s remaining years.As a successor trustee, you must also:
- Inform all family and relatives that you’re the successor trustee
- Notify all banks and financial institutions that you’re the successor trustee in order to gain access to these accounts
- Take any necessary steps required to secure the trust and the property within it
- Liaise with relevant organizations to organize any bills and expenses needing to be paid for with the property and trust assets
- Track all expenses that have been incurred and paid for using the trust
- On the grantor’s behalf, apply for any disability benefits to which the grantor may be entitled
- When the grantor ultimately passes, complete all the steps listed in the previous section
A successor trustee’s duties and powers after the grantor’s death
When the grantor of a trust dies, the successor trustee handles distributing trust assets according to the declaration of trust.
After completing distributions, the successor trustee will administer the trust assets. These trust assets should protect the trust property from waste and loss, or minimize depreciation in trust property value. To do this, the successor trustee will liaise with the executor of the will to pay off outstanding debts and close any accounts.
Successor trustee duties: deceased grantor
As the successor trustee following the grantor’s death, you must:
- Inform all family members and relatives of their status (and of your status as successor trustee)
- Notify beneficiaries of the trust and provide all beneficiaries with copies of the declaration of trust
- Inform all financial institutions, life insurance companies, retirement plans, and other organizations that the grantor has died
- Coordinate with the executor of the will to close any open accounts and pay off any outstanding debts, using the trust if necessary
- Distribute all property and trust assets held to the beneficiaries of the trust, as described in the declaration of the trust document
- Once everything above has been completed, close the trust
Planning to protect trust assets with life insurance
Grantors who create trusts to protect their estates so that more value gets into the hands of their heirs, as with revocable living trusts, may also consider acquiring life insurance for added protection.
A life insurance policy could either name the trust or the heirs themselves as beneficiaries, depending on which arrangement best addresses your tax situation and financial concerns. When the trust is a beneficiary, the insurance payout can cover expenses that would otherwise have to be paid using other trust assets. One common arrangement is for a spouse to be made primary beneficiary and for the trust to be made contingent beneficiary.
The best way to determine what sort of life insurance arrangements work best for your situation is to talk to a qualified insurance professional.
What’s the difference between a trustee and a successor trustee?
The roles of a trustee and a successor trustee are similar, so naturally there can be some confusion. People serving in either of these roles are required to look after the property and assets held within the trust, for example. And they make decisions following the terms described in the declaration of trust.
There are different timelines between the roles, however. The trustee handles managing all trust property and assets when the trust is initially created. When it comes to a revocable living trust, the grantor and the trustee are usually the same person.
A successor trustee, however, takes on the role of the initial trustee after the initial trustee’s death, or if the initial trustee becomes incapacitated.
Can you name more than one successor trustee?
To avoid conflicts, it’s usually easier to name only one person as successor trustee. But there are cases where it can be desirable to name more than one person. This is legally possible. And, in fact, it’s common to name two or more of a grantor’s children. This may be done either because the children are not expected to have significant disagreements or to avoid making one child feel hurt and left out by naming the other sole successor trustee. In the latter case, choosing both children is just easier.
However, be wary. More is not always the merrier. Naming more than one successor trustee can increase the potential for conflict. When appointing a cotrustee or cotrustees, you’ll need to decide how much authority each will have in making decisions. You could allow each cotrustee to make certain decisions independently. Or you could require that the cotrustees must always agree before they can act.
What’s an alternate successor trustee?
Naming an alternate successor trustee is another option. Choosing an alternate successor trustee ensures your trust will still have a trustee if your first choice successor trustee is unable to serve. The alternate successor trustee won’t become a trustee unless the successor trustee is (or the successor trustees are) unable to serve.
What to do if you’re unable to serve as successor trustee, or simply don’t want to
The successor trustee is an important role with immense responsibility. If the responsibilities are too much for you, hiring an attorney, bookkeeper, accountant, or corporate trustee is one way to lighten the load.
Or, you can resign and let the next alternate successor trustee take over. If no other successor trustee is named, or none of the successor trustees will serve, a corporate trustee is usually named.
Can a trustee be the successor beneficiary?
It’s entirely legal to name a beneficiary of the trust as successor trustee. Not only that, it’s common, too.
One of the most common types of trust is the revocable living trust, or family trust. The revocable living trust provides the grantor’s instructions for how estate assets should be distributed after the grantor’s death.
Revocable living trusts allow people to avoid or minimize probate during the inheritance process. With many family trusts, trustees are successor beneficiaries. For example, in a family trust created by two spouses, the surviving spouse will almost always serve as both a trustee and beneficiary. Another common occurrence is for one adult child to serve as the trustee of the trust after the parents pass, even if there are other children.
What is the difference between a successor trustee and an executor?
The roles of a successor trustee and executor are somewhat similar. Of course, both roles include working with the trust, so there is some overlap in responsibility. The executor and successor trustee will usually work together after the grantor’s death. They’ll work to ensure the grantor’s trust is handled appropriately. And they’ll make sure the trust’s beneficiaries are given what they’re entitled to.
But here’s the difference.
|Manages trust and performs related duties.||Handles a person’s affairs immediately after that person’s death|
|Nominated through a trust document.||Named in a will.|
|Role can extend over a significant period of time, particularly if the grantor becomes incapacitated years before death.||Role lasts for a limited time, just long enough to put the deceased’s affairs in order.|
What exactly are an executor’s responsibilities?
Responsible for handling the affairs of a person who has recently died, an executor plays a key role in closing out ongoing affairs in an efficient, timely manner. Ongoing affairs include things like utility payments and rent. The executor will also pay any debts and taxes and distribute items as entailed in the last will.
Executors only have powers over the management of affairs in the event of death and must deal with the probate process immediately.
Moreover, they’re the people in charge of reporting how they’ve handled each of these duties to probate court and closing out estates. Comprehensive estate plans may involve both successor trustees and executors working together during the process. But successor trustees’ responsibilities only relate to the trusts themselves.
- A successor trustee is the person responsible for managing the trust and trust assets on behalf of the grantor. Whether the grantor passes away or becomes incapacitated, this could be a role that lasts for many years.
- Appoint a successor trustee who understands the full responsibilities that the role entails before committing.
- When drafting a trust, be sure to appoint an individual or organization that is both competent and trustworthy enough to take on the successor trustee duties.
- If you need further help with estate planning, speak to an estate planning attorney to guarantee that you’re making the best choices for not only the real property but also the other assets you own.
Planning an estate worth a trust’s protection
One aspect of revocable living trusts that this article hasn’t mentioned is the following: for an estate to be worth protecting with a family trust, it needs to be worth something. You can help ensure that your estate is worth putting into a trust by choosing the right money management tools and investing wisely. Then, when your estate is large enough, consult with a wealth management professional to protect your estate and keep it growing.
View Article Sources
- Can a Trustee Be a Beneficiary? — Keystone Law Group
- Common Trust Problems and Solutions — Attorneys’ Title Guaranty Fund
- Cotrustee — Legal Information Institute
- Duties and Responsibilities of a Trustee — WealthCounsel, LLC
- How to Diligently Fulfill Your Duties as the Trustee of a Trust — Keystone Law Group
- Relevant material by the National Association of Estate Planners & Councils
- Revocable and irrevocable trusts — Fidelity
- Successor Trustee — Legal Information Institute
- Trustor vs Trustee in Living Trust — LawDistrict
- What Are A Successor Trustee’s Responsibilities When The Original Trustor/Settlor/Grantor Dies? — Simon Law
- What are the duties and responsibilities of a Successor Trustee? — Estate & Business Law Group
- What Everyone Should Know About Trusts in Passing it On — University of Wyoming Extension
- What Happens If a Trustee Is Unable to Serve? — Frank & Kraft Attorneys at Law
- What is an excecutor? — Association of the Bar of the City of New York
- What is the Difference Between a Trustee and an Executor? — Albertson & Davidson
- Who Should Serve as Your Successor Trustee? — Nolo
- You were named as Successor Trustee — now what? — Free Will
- Contingent Beneficiary vs. Primary Beneficiary: Definitions and Examples — SuperMoney
- Deed of Trust vs. Mortgage: 5 Important Differences — SuperMoney
Includes some information on the use of trusts in quite a different context than estate planning.
- Family Trusts — SuperMoney
- How To Transfer Ownership of a House With a Mortgage — SuperMoney
This article touches upon some issues relevant to estate planning, so readers interested in trusts may find it worth reading.
- What Are The Different Types of Life Insurance? — SuperMoney