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Successor Trustee Guide
IMPORTANT - this guide is not legal advice nor should it be considered complete. Refer to the instructions provided with the living trust and it is recommended you contact the attorney who prepared the living trust. Instructions can become dated over time.
If you cannot locate the attorney, contact another estate planning attorney.
The information provided below is only to give potential creators of a living trust an idea of steps successor trustees might undertake, which may help the grantors pick better successor trustees.
Successor trustees act more like bookkeepers than financial wizards.
Successor trustees can continue working with the grantor's financial advisors and other professionals. The estate will pick up the costs.
Successor trustees should keep accurate records of ALL activities related to the living trust and to limit liability should always add the word "Trustee" when signing for trust transactions.
If a successor trustee is overwhelmed or unable to act, the successor trustee can resign by writing a letter to the other trustees and beneficiaries.
During incapacitation or resignation
What to Understand
- Successor trustees act like financial powers of attorneys. They have control of all trust assets and must act only in the trustor's interest, not beneficiaries who may inherit the estate when the trustor passes
- Once the initial Trustee is healthy again, you become inactive.
Initial Things To Do
- Ensure the trustor is receiving quality care.
- Contact family members, employers and friends.
- Get copies of health care power of attorneys and directives to the primary physician.
- Get a note of incapacitation from the doctor(s) or note of resignation from the initial trustee(s).
What To Do Next
- Review the trustor's insurance coverage and limits for health, disability and long-term care policies.
- Search for a list of assets and liabilities. Gather all financial statements, insurance information and property deeds.
- Apply for disability benefits through the trustor's employer, social security, private insurance and veteran's services.
- If there are dependents, you will need to look after their care. A court may appoint a guardian if the incapacitation will be lengthy.
- Contact the preparer of the trust or similar advisor for additional advice.
Ongoing
- Pay the bills. Identify bills / payments payment due dates.
- Keep track of all medical expenses during the Trustor's incapacitation
- Keep accurate records of all your activities.
Don't Forget:
- Prepare and file tax returns by April 15th.
- Pay property taxes.
After the trustors pass
What to Understand
- Successor trustees act like an executor of a last will and testament. However, if all assets are in a trust or list beneficiaries, the court process of probate is avoided allowing you to work at your own pace.
- Repay all estate debts prior to distribution. Otherwise creditors can reclaim money from beneficiaries, which causes more problems if money is already spent.
- Once the trust has been distributed and accounting is wrapped up, your job is finished. Some trusts hold inheritances for young beneficiaries or maintain residences for a surviving spouse/children, in which case you remain the Successor Trustee until all the trust's tasks are completed.
Initial Things To Do
- Order at least 10 death certificates. These can take over a week to receive and will be needed for many steps. Death certificates are available in the state the death occurred.
- Contact the family, beneficiaries and other successor trustees asking if they have any questions as you begin handling the estate.
- Keep accurate records of final medical and funeral expenses.
- Search for a list of assets and liabilities. Gather all financial statements, insurance information and property deeds, including values at time of death.
- Make sure anything of value is insured otherwise you may be personally liable. Start by contacting the Trustor's insurance agent.
- Estimate the estate size. Estate taxes are due on estates valued past a state or federal limit. These limits change over time. Research current estate tax limits and contact a professional if this threshold may be passed.
- Read the trust and other related documents. Power of Attorney documents are only useful during the Trustor's lifetime so ignore these documents.
- If probate is needed for assets outside the trust, contact the executor / personal representative (you are likely serving this role as well - read the will).
Once you have death certificates
- Be ready with your ID, death certificates and a copy of the trust.
- Collect payouts from life insurance, IRAs, 401k's and other assets listing beneficiaries. If beneficiaries are named on policies, this money may be immediately distributed. If the trust is the beneficiary, deposit the payout into a trust bank account - this money may not be distributed until all debts, liabilities and taxes are paid.
- Pay all debts & liabilities. Contact credit card companies, lenders for updated balances. Debts are typically not in the trust's name. Debts are found in the deceased's name.
No need to pay off a mortgage balance if a property is being solid but continue cutting checks for monthly mortgage payments, real estate taxes and insurance on the property.
- Prepare and file final tax returns
Things Not to Do
- Prior to distribution, do not combine trust assets with your own.
- Prior to distribution, do not use trust assets for your benefit unless explicitly directed by the trust.
- If you are managing financial assets, do not make risky investments.
- Do not undertake any step you are unsure about doing. Get professional advice or assistance.
Finishing Steps
- Gather all information including assets inventories, accounting and taxes and prepare copies for the beneficiaries.
- Ask the beneficiaries to sign a document approving your accounting, waiving any claims against you and promising to pay any trust expenses that arise after the beneficiaries have received the trust's assets.
Distribution Notes
- To settle disputes have beneficiaries prioritize items they would like to inherit.
- Some assets may need appraisal for settling disputes, an estate sale/auction or estate tax calculations.
- Making distributions to young beneficiaries could be one of your biggest responsibilities. Most trusts restrict access to beneficiaries until they meet certain requirements, such as age.
Distributions can be made prior to this age by the Successor Trustee for reasonable health, education, maintenance or support needs.
Some requests, such as doctor's visits and school supplies, are easy decisions to make. Other requests can be more difficult so ask the Trustor before they pass for examples, such as requests for:
A couple hundred dollars for a trip to Disneyland for a child or backpacking across Europe for a recent grad qualifies as mental "health".
Money for a used car to get to and from a new job or money for a down payment on a house qualifies under maintenance or support.
Out-of-state / out-of-country tuition under "education".
Successor trustee accounting recap
- Consult an accountant or CPA for advice. This guide may not be comprehensive depending on the year the trustors pass.
- Prepare an annual accounting report for the other successor trustees and beneficiaries. Allow them to ask questions.
- Inventory all trust assets, including approximate values, insurance information and relevant information
- Gather statements for all trust bank accounts and investments;
- List debts of the trust
- List claims to the trust and what actions the trustee has taken
- List disbursements from the trust including whether the disbursement came from principal or income
- Gather all receipts
- Gather all tax statements
- Provide details of the trustee's compensation and the method used to calculate the compensation.
- Successor trustee should have the beneficiaries sign receipts of a) distributions and b) accounting reports.
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