Estate PlanninG

Choosing a Successor Trustee: What You Should Know About Their Role and Responsibilities

Choosing who will serve as successor trustee for your revocable trust can be a difficult decision. However, it’s important to carefully consider who will fill this role, as they’ll be responsible for managing your trust and its assets.

As a reminder, your revocable (living) trust is a flexible type of trust that allows you to change its terms at any time. It gives you the ability to keep control of and enjoy your accounts and property during your lifetime. It may also spare your loved ones the time and financial burden of going through probate (a lengthy legal process where the court publicly manages your assets and liabilities after you die).

As your backup trustee (otherwise known as your successor trustee) will be managing your trust when you’re no longer able to, it’s important that this person or entity understands their role, duties, and responsibilities.

What is a successor trustee?

Simply put, a successor trustee is the person or entity who is responsible for managing your trust and its assets. Similar to the executor of a will, they'll manage your trust until the assets can be distributed to your beneficiaries.

One of the benefits of a revocable living trust is that your successor trustee will be able to manage your trust without having to obtain permission from the court.

When does a successor trustee take over my trust?

You (and possibly your spouse, if you’re married) will most likely act as the initial trustee of your revocable living trust while you’re able. However, there are some situations in which the person you've named as your successor trustee will need to step in.

  • When you can no longer make your own decisions. A trustee doesn’t only take over when you pass away. Before that, there may come a time when you become incapacitated - or unable to make decisions or handle the day-to-day tasks associated with managing, investing, or handing out the trust’s accounts and property. When incapacity occurs, the loss of control can be scary. However, if you have a successor trustee, this person will be able to step in to continue managing the trust’s accounts and property without court involvement. Just because you’re not serving as trustee doesn’t mean that you stop being a beneficiary.
  • When you die. When you pass away, you obviously will no longer be the person managing the trust. This is when you successor trustee will step in to manage, invest, and use the trust’s money and property for the benefit of your beneficiaries that you’ve chosen. Although you’ll no longer be the trustee, if you’ve properly documented your wishes in your trust, they’ll be carried out by the trustee without court involvement.
  • Whenever you choose. No longer want to manage the trust? In that case, you can choose to resign as the initial trustee, allowing your successor to step in. You could also allow your successor trustee to act with you as co-trustee. Because you’re still alive, the successor trustee will be managing, investing, and using the trust’s accounts and property for your benefit as well as anyone you’ve named in your trust to benefit from the trust’s accounts or property. This is an especially great option if you’ve chosen a professional company to be your successor trustee, as you can see how they handle the responsibility. If you find they don’t perform their duties well, you’ll still have a chance to appoint someone else.

The Duties and Responsibilities of a Successor Trustee

Successor trustee duties include:

  • Appraise the value of all the assets in the trust
  • Determine and pay any tax liabilities
  • Pay any expenses that the administration of the trust may incur
  • Collect any life insurance policies, annuities, or retirement accounts if you named your trust as the beneficiary
  • Coordinate with the executor of your estate if probate is necessary
  • Identify your creditors and pay off any debts
  • Prepare and fill all required income tax and estate tax returns
  • Invest and manage your trust assets until they can be distributed to your beneficiaries

While your successor trustee is responsible for managing the assets in your trust as they see fit, they still have legal duties and responsibilities that they must adhere to, which are:

  • 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. Simply put, they’re held to a high standard of care.
  • A successor trustee can’t use any of the trust’s accounts or property for their own benefit or for any purpose not expressly listed in the trust.
  • They also cannot enter into any transaction that might create a conflict of interest between the successor trustee and the trust or trust beneficiaries (unless specifically authorized by the trust document).

How To Set Your Successor Trustee Up For Success

  1. Make sure your estate planning documents are up-to-date. Creating an estate plan and keeping it up-to-date is crucial in setting your successor trustee up for success. Because they will have to rely on the trust’s written terms, you don’t want to give them faulty or outdated instructions.
  • Revocable Living Trust. When reviewing your trust, make sure that the individual or entity you’ve selected as your successor trustee is still the one you want, and that they can act on your behalf. It’s a good idea to also 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’re going to receive. Are the amounts and timing of property distributions still what you want? It’s not uncommon for a beneficiary’s circumstances to change quickly, so it’s important that your wishes be carried out as intended.
  • Financial Power of Attorney. Review your financial power of attorney to make sure 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’ll want to make sure these two individuals can work well together should something unexpected happen in the future.
  • Healthcare Documents. Healthcare documents (such as a medical power of attorney, advance directive or living will, and HIPAA authorization form) primarily focus on medical matters, but they may also impact the financial matters handled by the successor trustee. If you’re expecting medical bills to be paid from accounts owned by the trust, it’s important that your successor trustee have access under a HIPAA authorization form to receive your medical information. You should also review the other healthcare documents to make sure they accurately reflect your wishes and to ensure that you’ve done a thorough review of all your estate planning documents.
  1. Discuss your estate plan with your successor trustee. Whether your successor trustee is a family member, close friend, or professional trustee, it’s important to get comfortable having open and honest communication.

If you’d like to keep some details private until your death - that’s ok. You can start the conversation by letting your trustee know you’ve chosen them for the role, 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. That way, your successor trustee won’t be surprised by their new responsibility and they’ll at least have some guidance on next steps.

You can also give your successor trustee a little more information, such as a general overview of your estate plan and who will be receiving the accounts and property without disclosing exact amounts. The focus of this discussion would be to communicate the goals of your estate plan and alert your trustee to any special circumstances that may need to be addressed.

Lastly, you can of course choose to give your successor trustee full access to all the information. That way, they can be ready to step in at a moment’s notice. Depending on your comfort level, this could be a great time to involve the rest of your loved ones. As trained collaborative practice attorneys, we’re happy to sit in on these meetings to facilitate and answer any questions that may arise.

You don’t have to do it alone. We’re here to help.

Serving as a successor trustee is a major responsibility. Choosing who will fill this role isn’t a decision to take lightly. It might be a good idea to work with an estate planning attorney to make sure you feel confident in your choice.

You’ve already taken a great first step by including a revocable living trust in your estate plan. But if 2020 has taught us anything, it’s that you never know what the future holds. Now is a better time than ever to make sure your estate plan is up-to-date, and your wishes will be carried out how you intend.

We’re available for in-person or virtual meetings to discuss choosing a successor trustee, or help facilitate discussion with whom you’ve chosen. Give us a call today so we can help you and your loved ones prepare for the next phase of the estate planning process.