Carl Dimeff

So you have been named a Successor Trustee of a trust, what now?

It can be quite a scary task to assume the role of a successor trustee especially if you don’t have any idea as to how it is done. No amount of trustworthiness and credibility can prepare yourself to what’s coming in administering a trust. Thus, it is always best to be prepared and ready to act as one.

The following steps will help you to better strategize your responsibility and effectively take on the role of a trustee:

Check pertinent trust documents

The first thing that you need to do is to secure all the relative trust documents. These may include the Trust Agreement, Power of Attorney, Pour-Over Will and the like. Once you have secured the trust documents, take time to read and understand all the terms and conditions stipulated.

By then, you should be able to identify the beneficiaries of the trust, how the asset is to be distributed, and other basic personal and financial information of the grantor.

File several Notices for compliance

Under California’s Probate Code, the trustee should sign an Acceptance of Trusteeship and should subsequently sign a Certificate of Trust. He may also file a Notice to Beneficiaries and Heirs within 60 days after becoming a trustee. If the trust assets include real estate properties subject to taxation in California, the trustee must also file a written notice to the Assessor’s Office within 150 days of the grantor’s death.

Taking Inventory and Custody of the Trust Assets

The first step in taking inventory and custody is to search for the trust assets. As a trustee, it is your duty to locate them in order to gain possession of such assets. Once they have been located, the next step is to gain legal documents signifying grantor’s proof of ownership of such assets.

This step also involves changing of the trustee on the grantor’s existing accounts from his name to the trustee’s name as it is the trustee who will now have the authority to manage such accounts. Social security benefits and insurance claims must also be filed in this stage.

Determine the decedent’s liabilities

These liabilities include the decedent’s hospital and funeral expenses to other debts owed to various external creditors. The trustee must exert diligent efforts in determining the existence of decedent’s other debts.

Administering the estate of the trust

This step includes the collection of all receivables, dues, and income owed to the decedent or his estate. It is also the duty of the trustee to protect, preserve, and make reasonable investment on the assets of the trust estate. This may include insuring the property and keeping a detailed bookkeeping of all income, expenses, and other transactions related to the estate.

 

Filing tax returns and payment of tax dues

The trustee should file the following forms and necessarily pay the taxes thereto:

• Decedent’s Form 1040
• Trust Income Tax Return Form 1041
• Estate Tax Return Form 706

Distribution of the Estate

This is the ultimate and final step in a trust administration. After paying all the creditors and tax liabilities, the distribution of the net estate to the beneficiaries may begin. Of course, it is important to adhere to the provisions of the trust. After all, it is also the duty of the trustee to distribute the estate according to the grantor’s wishes.

When a revocable living trust is set up, a successor trustee is named so he can step in and help administer and settle the trust upon the death of the trustor or the person who creates the trust. The successor trustee is also responsible in taking over should the trustor becomes mentally incapacitated. Basically, it is the fiduciary duty of the successor trustee to protect the asset of the trustor. However, while the trustor is still alive, the trustor remains the trustee in a living trust and the successor trustee will assume the role the moment when the grantor is no longer able to manage the trust by himself by reason of death or incapacity.

Choosing the right successor trustee:

Heavy is the responsibility and the burden of a successor trustee during the trust administration. But his specific duty and obligation would greatly depend on the terms and conditions set forth in the trust agreement.

Generally, the responsibility when serving as a trustee requires time and energy – and it can even be lengthy as the trust can possibly take years after the trustor’s death. Thus, it is important to choose someone who is healthy, trustworthy, and competent when appointing the right successor trustee. It also helps to appoint someone who is legally knowledgeable and financially adept to do the job. In some cases, it is also wise to add “backup” successor trustees if your first choice is not available.

Responsibilities of a successor trustee

The following are the duties and responsibilities of a successor trustee:

• Locate and protect the estate assets

The first step in the fiduciary duty of the trustee is to locate the assets as indicated in the trust and to protect them against creditors and the like.

• Collect life insurance policies or annuities on which the trust names a primary beneficiary

Once the trustor has named the trust as the beneficiary of a life insurance policy, it is the duty of the trustee to collect such policies or annuities related thereto.

• Coordinate with an executor should there be a need for probate

In some cases, the existence of a living trust may still result to the possibility of court involvement or probate. It is the duty of the trustee to facilitate with the executor should there be a court involvement.

• Obtain the value of trust assets including real estate appraisals

At one point, the trustee may be required to appraise the trust assets. This is important in order to establish the true fair market value of a certain property in the event of a dispute.

• Creditor identification and payment of debts

As trustees, it is their obligation to identify the grantor’s creditors and pay the grantor’s debt to them accordingly.

• Determination of tax liabilities

Upon obtaining the appraised value of the properties, it is also the duty of the trustee to determine tax liabilities involved and settle them accordingly.

Indeed, serving as a successor trustee can be a daunting task. In matters like these, it may also be fitting to work with an estate planning attorney so you will be provided with better legal options when it comes to trust administration.

A lot of people may have heard that a probate court proceeding is usually frowned upon and it is something that most family members should avoid going through especially during a time of loss and mourning. However, it is also something that must be seriously taken in consideration primarily because no one should have to deal with costly litigation and prolonged court procedure before the estate assets will be disposed or transferred to the intended beneficiaries.

Thus, one of the smart and legal strategies to bypass a probate proceeding is through a trust. And of course, this needs to be properly administered. Else, it will be considered a sham and there will be legally no trust for us to speak of.

Revocable trust vs irrevocable trust

When a trust is being set up during the lifetime of the person, such trust is revocable. This means that the person creating the trust or the trustor may have the freedom to alter the details set forth in the trust. However, when the person dies, the trust may lock up and will be deemed irrevocable. This means that the terms as set forth in the trust can no longer be changed.

Who are the parties to a trust?

There are 3 fundamental parties to a trust: the trustor, the trustee, and the beneficiary.

The trustor is the one who creates the trust. He is also known as the grantor, settlor, or a donor. In a living trust, he has the right to alter the trust. Here, the trust is revocable. Oftentimes, two or more people will decide to create a trust. They are collectively known as trustors or grantors.

The trustee is the person who is responsible in the management of the trust. In a living trust, the trustor is at the same time, the trustee. However, in cases of incapacity or death, the trustor may no longer be able to serve the function of a trustee. The “successor trustee” now steps in and takes over the original trustee, ergo, trustor in the management and distribution of the assets to the beneficiaries based on the terms and conditions set forth by the trustor in the living trust agreement.

The beneficiary is the one who ultimately benefits from the trust. There are different categories of beneficiaries. The primary beneficiaries are considered to be the first ones who gets to benefit from the trust assets. In a living trust, the primary beneficiary is the grantor and the grantor’s wife and children. The contingent beneficiaries are the ones who are entitled to receive the benefits of the trust assets after the primary beneficiaries have received the benefits of the trust assets.

Benefits of a living trust

As mentioned, a living trust appoints a successor trustee who can immediately take care of the trustor’s estate especially during the end-of-life affairs such as funeral costs or the distribution of assets to the heirs. This significantly helps in saving time and money which may be incurred during a probate process.