Many people find that establishing a trust is a great approach to estate planning. Trusts can be set up to accomplish a variety of goals both during our lifetimes and after we die. When creating a trust, it’s an extra smart move to designate both a trustee to administer the plans, and a back-up trustee in the event the trustee cannot complete their duties. Read on for pointers about trusts, trustees and successor trustees.
Trust, Trustee and Successor Trustee
Although setting up a trust typically requires the investment of more time and effort than creating a will, well-thought out trusts can help accomplish many more goals, including: establishing care arrangements for older age; designating assets for distribution over time or based on particular milestones; and, in the case of irrevocable trusts, enabling qualification for public benefits. Assets gifted to beneficiaries through a trust also have the advantage of bypassing the probate process, ensuring privacy and relative speed. Attorney Paul Kraft offers this basic explanation of what it means to establish a trust:
A trust is a legal agreement that lets the person creating the agreement (the “Settlor”) appoint a Trustee to manage and protect assets intended to benefit a third party. A trust can be a living trust or a testamentary trust. As the name implies, a living trust activates while the Settlor is alive whereas a testamentary trust is activated by a provision in the Settlor’s Last Will and Testament after the death of the Settlor. A trust can also be revocable or irrevocable.
Because trusts can be tailored to address a variety of circumstances, covering needs that might arise both during and beyond the life of the settlor, it is important to work closely with an experienced attorney to ensure a trust aligns to the unique situations of your family. Remember too that the ultimate success of a trust depends largely on the trustee designated to take responsibility for the assets placed in the trust. Attorneys at Frank & Kraft share this overview of the trustee role, and encourage appointing both a trustee and successor trustee:
The job of a Trustee is to manage the trust assets and administer the trust agreement using the provision in the trust agreement. The Settlor of the trust creates the trust provisions, and the details of a Trustee’s job will depend heavily on those provisions…. A Trustee is responsible for guarding and investing trust assets, communicating with trust beneficiaries, keeping trust records and paying taxes owed by the trust, and distributing assets to the trust beneficiaries according to…the trust agreement.
A successor Trustee is just that – a successor. If the appointed Trustee is unable or unwilling to serve as Trustee, and a successor Trustee was appointed in the trust agreement, the successor Trustee takes over the administration of the trust…..If, however, you…fail to name a successor and fail to include provisions for choosing a successor Trustee, a judge will be forced to appoint a successor Trustee if one is needed….
To fully comprehend the importance of planning for a successor trustee, consider the potential longevity of a trust. Say for example, you establish a trust at the age of 65, and then go on to live to a big old age. It’s quite possible that you outlive your trustee, or that life circumstances evolve which prevent your trustee from fulfilling their obligations. Attorneys provide these three common reasons for a successor trustee to become necessary:
- Refusal to serve. The appointed Trustee is under no legal obligation to accept the appointment, meaning he/she can turn down the job, leaving the successor Trustee as the next in line for the job of Trustee.
- Death of Trustee. If the trust is a living trust, and the acting Trustee dies, the successor Trustee will assume the position of Trustee. Sometimes, when the trust is a testamentary trust, the original Trustee predeceases the activation of the trust, effectively moving the successor Trustee up to Trustee.
- Incapacity of Trustee. A common incapacity planning strategy is to create a revocable living trust and name yourself as the Trustee and a spouse/adult child/another trusted person as the successor Trustee. If you become incapacitated, control of your assets seamlessly passes to your chosen successor Trustee immediately and without the need for judicial approval or oversight.
For many people, the question of who to appoint as a trustee and successor seems easy, with adult children or other close relatives topping the list. Current demographic trends, however, add complexity to trustee designation. Families tend to be more spread out across the country or even globe, and even responsible adult children might find they are too busy for the responsibilities involved in serving as a trustee. It’s good to keep in mind that professional or even institutional trustees and successor trustees are a possibility, and can be a wise choice in some circumstances:
A trust department or investment firm can come in and assume the role of your trustee. They are a third party, and this is something that you will undoubtedly have to pay for. But it is their job to manage the trust per the rules and duties you originally set forth in the trust documents — and their services come in handy in situations when you do not have friends or family to assume that responsibility.A trust department or investment firm can do everything from keeping records and preparing tax returns to managing trust funds, disbursing checks, making required distributions to beneficiaries, and other lawful transactions.
Understanding The Trustee Role and Trustee Bonds
All trustees have fiduciary obligations, and are held to exceptionally high legal standards,“the most important of which are the duties of loyalty and care, and the duty to act in accordance with the terms of the trust agreement.” Given the seriousness of the role, trustee bonds are commonly required. Essentially, a trustee bond is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain trustee bonds: Just get a quote online, fill out the information, and enter a payment method. Then, simply print or e-file the bond from anywhere.
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