Article Written by Michael G. Montgomery, Esq.
During our Firm’s initial planning conference with clients, this question is often asked: “What is the role of my Successor Trustee upon my disability or death?” This excellent question is typically answered either during the initial conference or at our Presentation/Signing Conference. The Successor Trusteeship begins when you—the Trustmaker—can no longer serve as Trustee, either upon your disability or death. Let’s examine each event.
ROLE OF THE SUCCESSOR DISABILITY TRUSTEE
When a Revocable Living Trust (“RLT”) is established, the Trustmaker will always name in the Trust document an individual(s) (for example, the spouse or other family member) or an independent corporate Trustee (CPA, law firm, bank or trust company) to serve as the Successor Disability Trustee. In our RLT, Article Four contains all the important Trustee instructions and provisions. Upon disability, the Trustmaker has already determined who the Successor Trustee will be, as well as the parameters of the authority, so decisions can be made privately—without court or guardianship proceedings.
In fact, one of the significant benefits of the Revocable Living Trust over other Estate Planning documents (wills or testamentary trusts) is the importance of this disability protection to Trustmakers and the “Peace of Mind” it brings with it. For instance, not only does the Trust contain important disability or incapacity instructions for the Successor Trustee, the RLT also dovetails with the Trustmaker’s Advance Medical Directive. In short, the RLT manages and safeguards the Trustmaker’s assets while the Advance Medical Directive provides the authorization for making health care decisions on behalf of the Trustmaker. In many cases, the Trustee and the health care Agent are the same parties, except where the Trustmaker has a corporate trustee serving under the RLT.
More specifically, what is the ROLE of the Successor Disability Trustee? Here is the checklist that we provide to clients, which we ask them to share with their Successor Trustee in case of disability:
- Carefully read the Trust document (especially Article Four) for specific instructions. Have two physicians write a private letter documenting the Trustmaker’s disability or incapacity. One physician should be the Trustmaker’s primary care physician, if available.
- Notify the attorney who prepared the Trust document, who should be made aware of the disability in case the Trustee or a family member needs to call with questions.
- With the two physicians’ letters, have the attorney prepare a Certification of Trust for the Successor Disability Trustee to identify authority to assume the role. Several duplicate originals will be made for the Trustee. The Certification will provide the Disability Trustee the authority to exercise the fiduciary powers and control over the disabled Trustmaker’s assets.
- Secure and inventory all property, especially real estate and valuable tangible personal property. Make sure you have the house and car keys, take care of any home maintenance items, and keep all insurance coverage in force.
- Check all property (investments, assets, vehicles, real estate, accounts, etc.) titles to make sure the property is owned by the RLT. If you identify any property (by the real estate deeds, car titles, bank account signature cards, investment account titles, insurance policies, etc.) that is owned by the Trustmaker individually, and not owned in the name of the RLT (or payable on death to the RLT), you should promptly seek legal counsel concerning how to transfer such property to the RLT, if appropriate. Having property titled outside of the RLT ownership may result in having to conduct probate upon the Trustmaker’s death. There will be a Power of Attorney document in the disabled Trustmaker’s estate planning portfolio that will authorize you or someone else to transfer the property to the RLT.
- Notify the bank or credit union, Trustmaker’s professional advisors, and appropriate others that you are now the Successor Trustee for the disabled person. They will want to see a copy of the doctors’ letters, the Certification of Trust for the Successor Disability Trustee or pertinent provisions of the Trust, and your personal identification.
- Transact any necessary business or personal finances for the disabled person. For example, you should apply for any disability benefits, pay insurance premiums, receive and deposit funds, pay bills (including mortgage, taxes and other obligations) and, in general, use the disabled person’s assets to take care of him/her until recovery (re-certification by two physicians). Always act with the utmost honesty at all times and document MAJOR decisions and actions. There should be absolutely no commingling of Trust assets with your own assets. Keep a ledger of accounts payable and a copy of all statements and receipts.
- Collect all income due the disabled Trustmaker. Keep a ledger of income received. Keep all check stubs and letters of explanation.
- Make assets productive, including the checking account. Review the Trust Articles related to the Trustee’s administrative and investment powers. Always exercise prudence, reasonable care and skill when investing trust assets. If you are an individual and lack the requisite skill or experience, use the Trustmaker’s professional advisors. If necessary, retain a skilled investment advisor.
ROLE OF THE SUCCESSOR DEATH TRUSTEE
As in the case of disability, the Trustmaker, upon signing an RLT, will always name a Successor Death Trustee or co-trustees. This individual may be the surviving spouse, family member, close friend, third-party corporate or professional trustee, or a combination of these parties acting as co-trustees. Obviously, like the Disability Trustee, naming a Death Trustee is an extremely important decision and careful thought and advice should always be sought. Always remember that the effectiveness and efficiency of your Successor Trustee is in direct relationship with having your assets and beneficiaries of life insurance and retirement plans appropriately titled (named) to your Revocable Living Trust. For any assets not in the name of the RLT, the “Pour-Over Will” will allow the title to be changed at death into your RLT through probate.
The following is a suggested checklist for a Successor Death Trustee to consider upon the death of the Trustmaker:
- Inform the family of the Successor Trustee’s assumption of the trusteeship and assist them as needed: funeral arrangements, flowers, cemetery marker, announcement in paper, special wishes for memorial service, notifying friends, relatives, employer, professional advisors, etc. Before you begin, make sure you check the Trustmaker’s Estate Planning Portfolio (usually a red binder provided by Carrell Blanton Ferris & Associates) under these TAB sections for instructions (1) Memorial/Burial and (2) Location Lists (list of key advisors, list of close friends/ relatives, lists of important documents and personal papers).
- Provide the family with adequate time for grieving. There is no need to rush into your Trustee duties until the environment has settled. Notify the attorney who prepared the Trust document in case you need to call with questions or seek assistance with your duties.
- Carefully read and understand the Trust document so you will know: (1) who the beneficiaries are; (2) what they are to receive and when; (3) how long the Trust will remain in effect after the death of the Trustmaker; (4) who, if any, are your co-trustees; and (5) your activities and duties per Trust instructions.
- Engage an attorney to prepare the Certification of Trust for the Successor Death Trustee. An attorney’s advice can be very helpful in ensuring that you understand what the Trust provides and your role therein.
- PLEASE NOTE: DO NOT change titles to any of the decedent’s assets, make life insurance death claims, or rollover the decedent’s IRA/401k or pension benefits until you have verified the claiming and tax options with a CPA or Estate Tax Planning Attorney. There may be important post-death tax planning options available that can be LOST if you act without professional advice.
- Secure and inventory property, especially the home, other real estate, and valuable tangible personal property. Make sure you have the keys, make arrangements to keep the utilities on, keep all insurance in force, pay the mortgage payments, etc. Start a list of all assets, ownership, beneficiary designations, and all debts/liabilities of the deceased.
- Order at least 10-12 certified Death Certificates, which may be required by financial institutions, insurance companies, the Clerk of Court, and other third parties holding assets of the decedent.
- Notify the decedent’s professional advisors and appropriate others (see List of Advisors in Estate Planning Portfolio) that you are now the Trustee for the deceased Trustmaker. Remind them not to change titles or execute IRA transfers until they receive written instructions from you in accordance with the terms of the Trust or beneficiary designations. Also, you may need to change the home address with the post office.
- Notify life insurance companies, retirement plans, military affiliations/associations, and any others that will provide a death benefit. Remember, do not file a death benefit claim on the decedent’s life insurance, IRA, etc., until you have verified the tax options with a CPA or Estate Tax Planning Attorney. Keep copies of all forms and correspondence. The Social Security Administration will be notified by the funeral home.
- Collect all income due the deceased; keep a ledger of income received. Keep all check stubs and letters of explanation. NEVER commingle trust/estate assets with your assets.
- Collect and pay all contractual obligations, bills due, and taxes. Keep a ledger of accounts payable and keep a copy of all statements and all receipts.
- Make assets productive during the estate/trust administration process, if appropriate. Follow the applicable Article of the RLT for your Estate Administration procedures. Always exercise prudence, reasonable care and skill when investing Trust assets. If you lack the requisite skills or experience, use the decedent’s professional advisors. If necessary, retain a skilled investment advisor.
- Make sure you keep any co-trustee and Trust beneficiaries fully informed from the death of the Trustmaker until the completion of the Trust Administration Process. They are generally permitted to have a copy of the Trust and supporting documents.
- Engage a skilled CPA or Estate Administration Attorney for preparation of the decedent’s final income tax returns and, if applicable because the decedent’s estate exceeds the available Estate Tax exemption, an Estate Tax return, due nine months from date of death.
- Begin (within the nine months) the creation and funding of additional subsidiary trusts pursuant to the terms of the RLT. For example, there may be Marital and/or Family Trusts for the benefit of a surviving spouse, Beneficiary Trusts for children or other beneficiaries, and in certain cases, a Common Trust/Elder Parent Trust or Grandchild(ren) Trust(s). Your CPA or Estate Administration Attorney should counsel you on this process since effective estate/income tax saving results can be achieved if done properly.
Being selected and then serving as a “Successor Trustee” is one of the most important things you do for a loved one. Indeed, it is a high honor that comes with a great deal of responsibility and accountability. With proper help and counsel, you will do a very good job and earn the satisfaction of knowing that you have served the disabled or decedent Trustmaker and the Trust beneficiaries well.