Choosing a Successor Trustee: Why the Right Decision Matters

If there is one truism about trusts, it is that the job of a successor trustee is demanding, time-consuming and can last for months or years. That makes naming a successor trustee a critical decision that the grantor cannot take lightly. 

Typically, a grantor (or settlor, or trustor, the person who creates the trust and funds it with assets) names himself or herself as trustee during their lifetime, and names one or more successor trustees to carry out the trust’s instructions after their death. 

Sounds simple. It isn’t. 

Carrying out the instructions of a trust involves identifying and locating all assets, establishing their valuation and considering the provisions of other instruments such as wills and estate planning documents. It is an involved and time and energy-consuming process.  

That’s why the first and foremost duty of a successor trustee is to put together a team. This task is almost always too big for one person, especially if that person already has a full-time job and/or a family. The team should include an attorney, a tax advisor and, most likely, a valuation expert who can render opinions about the fair market value of such assets as real estate, collections, art, books, jewelry, vehicles and boats. 

Beyond that, managing the provisions of a trust as the successor trustee also involves a great deal of judgment. For instance, the trust may provide for a small stream of income for an adult child. However, the child may ask for a large one-time payment to facilitate buying a house. Such a purchase for this beneficiary may or may not be a good idea. Is the child overreaching their financial ability by buying a house that’s too expensive to purchase much less insure, pay taxes on and maintain? Does the child have a history of defaulting on loans? A trustee may look at such factors and decide to deny the one-time payment, or may decide — with the agreement of other beneficiaries — to structure the payment through a local bank that will provide oversight. 

Corporate Trustees

Some grantors are aware of the intense commitment and judgment involved in being a trustee, and will name a corporate trustee — along with a relative or friend — as a successor trustee. Two heads are often better than one. 

A corporate trustee can be a trusted advisor such as Adams Brown Trust Solutions (ABTS), or an attorney or private banking professional. These professionals can take a leading role as a successor trustee, or can remain in the background, available to advise the primary trustee on certain matters. It’s common for ABTS to be in an advisory role, with a spouse and one or two adult children functioning as primary successor trustees on a day-to-day basis. 

The fees for a corporate trustee vary and are usually based on a percentage of the market value of the trust’s assets. Typically, if a corporate trustee functions on an as-needed basis, fees are charged only when they have been consulted for advice. 

Duties of a Trustee

The initial duties of a trustee include: 

  • Thoroughly review all estate planning documents. This should be done quickly, as sometimes burial instructions are included in a power of attorney, or the deceased leaves instructions that a certain relative should be let into the house (or not let into the house) immediately. Don’t make the mistake of thinking you know the deceased well enough to “just know” what they wanted. Everyone’s life is unique and everyone’s estate planning documents are unique. 
  • Inventory the home. This includes examining all correspondence, books and boxes. Leave no stone unturned. Documents and even cash are sometimes hidden behind framed paintings or in the freezer or even inside shoes. List each item separately, using descriptions such as “white stone” and “yellow metal” for a diamond ring. (You don’t know if it’s really a diamond ring until a valuation professional has evaluated it; you create a problem for yourself if you list “diamond ring” on the inventory and it turns out to be a yellow alloy metal with a cubic zirconium.) And have all of the locks changed while you’re inspecting the house from top to bottom, then up again. 
  •  Accumulate financial records. This includes credit cards, checking and savings accounts, mutual funds, investment portfolios, real estate and closely held businesses. Collect all notes and recent statements, and pay attention to recent transactions. 

These are just the beginning steps that a trustee must make in the days and weeks following a grantor’s death. Further steps include:  

  • Taking care of tax obligations. 
  • Converting assets to cash. 
  • Initiating fiduciary duties, such as notifying all beneficiaries and preparing a periodic accounting of assets. 
  • Developing an investment plan for the trust assets that demonstrates impartial care, skill and good faith and fulfills the prudent investor standard.  
  • Providing complete, timely and accurate statements of activity and value to all beneficiaries. 
  • When beneficiaries reach the age of majority or a “qualified” age where they are entitled to a disbursement from the trust, they must be notified. 
  • Managing all issues related to taxes, including maintaining records to facilitate investment management and tax preparation, utilizing tax-free investments wherever possible, and utilizing Q-TIP (qualified terminal interest property election) and Generation-Skipping tax exemptions and exclusions as appropriate. 

How Do Multiple Trustees Work Together?

When there is more than one trustee managing the assets of a trust, disagreements may be inevitable. In some cases, the trust documents require unanimity among trustees, and in others they require majority agreement. If unanimity is required and the parties can’t reach a solution, they must go to court to settle the dispute. But that is rare, as most trustees and their corporate trustee advisors typically work out their differences. 

For this reason, having three trustees managing a trust is usually workable. Having five trustees is usually not. If the beneficiaries of a trust want additional successor trustees named, they may petition a court to do so. 

Common Obstacles to Managing a Trust

Technology is a big obstacle in identifying and quantifying trust assets. We live in a digital age where bank accounts, investment accounts and credit card accounts are online. When Uncle Bob dies, who knows his login and password credentials? Even if you are named as a power of attorney or trustee of the estate, a bank may or may not recognize your authority and give you digital access to the accounts. 

Anyone who has a power of attorney (POA), a will and/or a trust should have a current record of all login credentials kept with the estate records. The credentials must be updated every time a login or password is changed. Most people do not do this, and the lack of account access slows down the trust management considerably, delaying the distribution of assets to beneficiaries. Moreover, a POA or a will can be written specifically to include digital access, but it’s important to get the wording right, which a lawyer can help with. This can go a long way toward getting access to financial accounts. 

A good practice is to provide your trust advisor with an updated list of your login credentials every year when you meet to review and update your plan, along with updated contact information for all of the trust’s beneficiaries. 

Other obstacles include property ownership that is not adequately identified in the grantor’s records. The trustee may need to examine the local recorder’s office database to see what the grantor was paying in property taxes, or review income tax returns to see where interest, dividends and rents were collected. 

A Word About Revocability

Whether a trust was written as a revocable or irrevocable trust is irrelevant after the grantor has died. Upon death, all trusts become irrevocable. But there is one exception. You can stipulate that a joint trust that is revocable remains revocable after the first spouse’s death; it becomes irrevocable only after the incapacity or death of the second spouse. 

Questions?

Being named a successor trustee for a trust may feel like a badge of honor, evincing the trust and esteem that the grantor held for you. But it can also be an all-consuming and stressful job.  

If you would like to discuss including a corporate trustee as a successor trustee in your trust, or if you have other questions about trusts, contact an Adams Brown Trust Solutions advisor.