The management of a revocable living trust is intended to be a simple, private, inexpensive matter handled by the Settlor and those people the Settlor chooses, without court intervention. It is always a good idea to seek professional advice when taking over the management of another persons trust. Generally the roles, responsibilities, and duties can be explained quickly and stop many problems before then create harm.
The following are general guidelines that you should supplement with the specifics of the trust you will be managing; these guidelines are not intended to be specific advice for any particular situation. These guidelines apply to successor trustees who find themselves in charge of a trust.
There are three situations in which you may have assumed the title of Trustee: 1) The Settlor has been determined to be incapacitated as defined in the Trust; 2) The Settlor has died; or 3) The Settlor has resigned as the Trustee and either appointed you as the Successor Trustee or named you the Successor Trustee in the Trust document.
Regardless of why or how you came to be trustee, all successor trustees should keep a few general ideas in mind.
- You are handling someone else’s property, not your own. When you act as a Trustee you should follow the rules and laws that apply to the trust. These rules and laws come from two sources. The first source is the trust document. In that document you will find many paragraphs that describe what you are allowed to do, what you are required to do, and what authority you have to exercise your own discretion in making decisions. The second source is the state and federal laws that apply to the trust.
A successor trustee should immediately familiarize himself or herself with the trust document, and any amendments to the trust, to be certain that the successor trustee knows what is expected and what is required by way of management, distributions, reporting, accounting, and any other specific duties that the trust might place on the trustee.
- You will be required to account for and explain your decisions and activities in the management of the trust. You will be required to provide regular accountings to the beneficiaries of the trust, and may be required to make certain reports to the tax authorities. Detailed records will make that reporting a lot easier. Your records might include detailed checking ledgers much like you would keep for your own checkbook. The records should show the check number, date, amount paid or received, whom the payment was from or to, and the purpose of the payment. Another good idea is to keep a journal or log book of activities for the trust, in which you would make notes about what you have done and why. You should have a good initial accounting where you list the assets at the time you took over the job.
- Clear communication between the trustee and the beneficiaries can avoid future misunderstandings.
- Avoid self-dealing. Do not have your spouse or family provide services for the trust if they will be paid for their work. If you feel that you must be involved people who you have a close relationships with, you should only do so after a full disclosure of the terms and circumstances and obtaining written approval from each of the beneficiaries. A small degree of formality now can avoid a major misunderstanding later when the trustee and the beneficiary may have quite different recollections of an arrangement.
Succession Because of Incapacity
If you have become trustee because the Settlor or the previous trustee has become incompetent, you should keep the following things in mind, as they apply to your situation.
- Locate all trust assets. You should locate all trust assets and property and make certain that title to the Settlor’s or Settlors’ property is in the trust.
- Review instructions. Review the trust document to clarify the exact instructions for management of the trust in the event of the incapacity of the Settlor(s) or prior successor trustee(s).
- Transfer property into the trust. If the Settlor or Settlors own property that should be in the trust, but which has not been transferred, you or one of the persons named in general durable powers of attorney or in durable special powers of attorney should move immediately to complete the transfer of assets into the trust. Before completing transfers, you should review any funding instructions you find in the trust document, and consult with the attorney and/or accountant to be certain the transfer is consistent with your duties as trustee. If such a transfer would change the potential interest of the beneficiaries, you should seek legal advise before completing this transfer. In addition seek professional tax advice before transferring retirement accounts or 401K.
- Determine the Settlor’s or Settlors’ Needs. One of your responsibilities will be to provide funds, from the trust, to cover the cost of the Settlor’s or Settlors’ care. You will need to coordinate decisions about investments, placement of funds, liquidity, and rates of return with the needs of the Settlor or Settlors need for funds.
- Long Term Care. If long-term care, as in a nursing home, will be required by the Settlor(s), you will need to review the trust document very carefully to iidentify any special instructions the Settlor(s) may have included for such a situation. If the language in the trust providing for long-term care is not clear, you should consult with an attorney to determine just what your duties are in the situation.
- Provide an Annual Account. As a Trustee, you will need to provide an annual accounting to the beneficiaries of the trust. That means that you must keep the careful records mentioned above, and that you must know whom the beneficiaries are. A careful reading of the trust document should identify whether or not the Settlor(s) are the only beneficiaries, and whether or not there are other beneficiaries who have rights to receive anything from the trust, and to whom you might owe a report.
- Distribute Trust Assets. It seems quite obvious, but one of your duties of successor trustee will be to distribute trust assets as the trust instructs. Such a duty requires that you carefully read the trust and understand who the trust beneficiaries are, and exactly what they are entitled to receive.
- File Tax Returns. The tax filings required for the Settlors must be continued showing the income to the trust and where it was distributed. Unless you are very skilled in the tax area, you would do well to contact an accountant with knowledge of trust reporting to advise you on your reporting duties. The best place to begin your inquiry is the accountant that prepared returns for the Settlor(s) in previous years. If that contact does not produce acceptable results, contact an attorney knowledgeable in living trust planning for a referral to an accountant who is also knowledgeable in living trust planning and tax reporting.
Succession Because of Death
If you have become trustee because the Settlor or the previous trustee has died, you should keep the following things in mind, as they apply to your situation.
- Locate all trust assets. Identify and locate all trust assets. Much useful information should be located with the estate-planning documents.
- Identify and locate non-trust assets. Identify and locate any assets belonging to the Settlor(s) that might be outside the trust. If the Settlor failed to transfer all his/her assets into the trust, these assets may require a probate procedure to pass into the trust under the pour-over will.
- Review the trust document. Review the trust document to clarify the exact instructions for management of the trust in the event of the death of the Settlor(s) or prior successor trustee. Florida laws may modify the terms of the Trust so it is important to have an attorney review and analyze the trust agreement. You need to know whether the trust will be winding up its operation and distributing all the assets, or whether the trust will continue for some other purpose. You need to plan for following the instructions contained in the trust document.
- Evaluate trust assets. Obtain date of death valuations for all trust assets. This information will be very important for tax considerations later.
- dentify and verify debts. Identify and verify all of the Settlor(s) debts, including expenses of last illness, funeral expenses, debts, taxes, etc. Review the language in the trust authorizing payment of these expenses before issuing payments.
- Collect all assets. Collect any life insurance or other death benefits that are due and owing to the trust.
- File tax returns. Direct the trust accountant or attorney to complete and file the appropriate state and federal income and estate tax returns. These returns are the responsibility of the trustee. (In Florida, as of January, 2013 no estate tax return is required. An estate under $5,250,000 (indexed for inflation) will face no federal estate taxes under 2013 law, but you should review the facts of your situation with an accountant or an attorney to be certain what, if any, filings may be required as recommended e.g. – the “portability election”.) If the Settlor(s) was/were domiciled in a state other than Florida at the time of his/her/their death(s), you should consult with local professionals in that state to determine that state’s tax reporting requirements. In addition, final income tax returns may need to be filed.
- Review trust document. You should look to the trust document to determine what your duties are with regard to holding or distributing trust assets in the circumstances in which you find yourself. The important point to keep in mind is that the Settlor(s) left written instructions in the document telling you, the successor trustee, what you are to do with trust property. Understanding your obligation to distribute, or to hold trust property, begins with a careful reading and a good understanding of the instructions in the trust document. Those instructions should outline what you are required to do and when you are required to act. Understanding and following those instructions is your best course of action for preventing problems in your administration of the trust, and for accomplishing the Settlor(s) objectives.
Succession Because of Resignation
If you become successor trustee, and the Settlor is living, you may have the rare luxury of a competent Settlor to provide you with guidance in the administration of the trust. In such a situation, the trust document would define your authority. That document may contain specific or special instructions for you in the event the Settlor(s) resign, and remain competent and living.
In this case you have the Settlor(s) and the document to serve as trust advisors, authorizing specific actions, directing specific actions, and, if necessary, amending the trust to provide for some special situation.
The job of successor trustee should be taken seriously. Any Trustee should keep good records and look to the trust documents to tell them what should be done. Communication skills and disclosure can help avoid problems down the road. Many trust documents provide a release from liability when legal advice is sought before making decisions.