A revocable living trust allows you to protect your assets while continuing to manage them during your lifetime. To get the full benefit of having a trust, though, you must also carefully consider your choice of the successor trustee, the person who will take over for you when you are no longer able to handle your own financial affairs. The role of successor trustee is critical to the continued successful management of a trust.
When you've gone to the lengths of setting up a trust, the last thing you want is for a court to decide who controls it through the appointment of a successor trustee. Indeed, if something happens to you and your named successor trustee cannot serve in the role, your trust could end up in legal proceedings, tying up the assets for which you had other plans.
A trust without a trustee could end up in probate court or the beneficiaries could even bring an action to have a judge name a trustee. Since you probably wanted your financial affairs handled both in private and cost-effectively, having your trust land in court is undesirable all around.
Note, by the way, the important difference between a successor trustee and a co-trustee here. A co-trustee manages a trust alongside a fellow co-trustee, usually with equal rights and powers. A married couple, for instance, may be co-trustees and one may assume full power over the trust if the other falls ill. A successor trustee, on the other hand, has no power until and unless the original trustee can no longer manage the trust.
Successor Trustee Duties
The successor trustee takes control of a revocable living trust when the creator of the trust can no longer do so because of death or incapacitation. In many jurisdictions, an affidavit of successor trustee and/or a successor trustee acceptance letter notifies others, especially beneficiaries, that there has been a change in the trustee of the trust.
If the creator of a trust becomes incapacitated, the successor trustee is empowered to take over the role of the original trustee and handle the financial affairs of the trust. Upon the creator's death, a successor trustee functions similarly to the executor of a will, taking an inventory of assets, paying outstanding debts, selling assets if necessary, distributing trust assets as provided for in its terms, and preparing required tax returns.
A successor trustee, just like the trustee, is bound by fiduciary duty, which means they have a legal obligation to act in the best interests of the trust. In addition to this responsibility, a successor trustee cannot take any actions that directly conflict with the creator's instructions as described in the trust document.
Choosing a Successor Trustee
Because the position of the successor trustee is one of extreme importance, you should have the utmost confidence in your choice. Note that your successor trustee can be a family member—adult child, sibling, or other relative—or a close friend, or you could choose a corporate trustee, such as a trust company or bank trust department.
If you are choosing a person, here is a successor trustee checklist to consider:
- Experience. While it's not necessary that a successor trustee have extensive experience in financial, business, or legal matters, you may feel more comfortable knowing that someone who knows a good deal about these subjects will be in charge of your trust. You may even wish to recommend specific professionals such as CPAs, attorneys, and financial advisers who could be available to help your successor trustee navigate the process.
- Judgment. You must be able to trust that your successor trustee will be responsible, circumspect, and exercise good judgment in handling your trust's affairs. You also want your chosen trustee to understand and respect your preferences.
- Age and health. Age may be a consideration, especially if you have assets in the trust that will be distributed over the course of many years, for example, to beneficiaries who are minor children. While no one can predict the future, you also may want to consider the relative health of potential successor trustees, keeping in mind that you should always keep your trust documents up to date to reflect any life changes, including those of your chosen successor trustee. For example, if your successor trustee falls ill or dies, you should adjust your trust documents accordingly.
- Availability. Some people simply have more time to dedicate to something such as serving as a successor trustee. If your favorite sister is working full-time and raising four young children, she may not have the bandwidth to handle your trust's affairs at the moment.
Overall, remember that your successor trustee will step into your shoes, so think about who would be best to fill them and act as you would. This is your chance to handpick your trustee replacement, so take your time and choose well.
After You Pick a Successor Trustee
Once you've chosen a successor, you should make sure the person you want to serve in that role is willing and able to do so, as it is a commitment that not everyone may want to take on. Moreover, you should also name at least one alternate successor trustee, should your original choice be unwilling or unable to assume the role when the time comes.
Circumstances change, and you certainly can't plan for all eventualities, which is why it's critical to keep your trust documents updated. As noted above, this may mean making changes that reflect the inability of a chosen trustee to serve, but, on the flip side, it could also mean later naming your sister—after her children are fully grown—as your first choice.
If you're considering drafting a revocable trust as part of a comprehensive estate plan, you should consult an experienced legal professional to make sure you are doing what's best for you and your finances. Doing the legwork now can mean a world of difference for your peace of mind over the long run.