If you have a revocable living trust or you’re creating one, you’ve probably named yourself as the trustee. Being able to maintain complete control over your assets while you’re alive is one of the big benefits of a revocable living trust.
But you also have to name a successor trustee for that inevitable time when you’re unable to manage the trust — either because of death or incapacitation.
We often call the successor trustee the “backup trustee,” but that can be a misleading phrase. Many of us think of a backup as not that important — that thing you need “just in case.”
That couldn’t be farther from the truth when we’re talking about a successor trustee. They are vitally important to the effective functioning of your trust.
So who should that successor trustee be?
Let’s start with how revocable living trusts work and then talk about some things you should consider when choosing your successor trustee.
How revocable living trusts work
When you create a trust, you’re making a legal agreement between a grantor and a trustee for the benefit of a beneficiary (or multiple beneficiaries). The interesting thing about a revocable living trust is that you serve as both the grantor (the person who makes the trust) and the trustee (the person who operates the trust).
You act as the trustee while you’re alive and able to do so. That way you maintain control over your assets, and you can make changes whenever you see fit. You can even dissolve the trust altogether.
Most people are aware that they’ll need a successor trustee to step in when they die — sort of like the executor of a will. But many people don’t think about what happens if they become incapacitated. The successor trustee also needs to take over then. Either role can be a big and time-consuming job, so it’s important to make sure the successor trustee you choose is up for it.
What a trustee does
Once your successor trustee becomes the trustee, they have a fiduciary responsibility to carry out the terms of the trust. They will probably use the expertise of some legal, tax, or financial professionals, but it’s often useful to choose someone with at least a little business or financial sense.
These are some of their primary responsibilities
- Administering the trust. The trustee must field requests from beneficiaries about using the trust funds. If the trust assets are going to be distributed quickly, this task might not be large. But for trusts that last for a long time, trust administration can be a long and time-consuming task.
- Keeping accurate records. Recordkeeping can be complex, depending on the trust. The trustee must also ensure the timely filing of trust tax returns.
- Manage trust investments. The trustee must manage any investments for the long-term benefit of the beneficiaries.
Choose a successor trustee that has time
Many people choose their adult children to act as their successor trustee. That’s often a good setup.
However, it’s important to think about whether the person you’re choosing has the bandwidth to take on their role if needed. For example, if your son has four young kids and also seems panicked and overwhelmed, he might not have the capacity to serve as a trustee.
Remember, you can change the successor trustee if you need to. So if your son can’t be successor trustee today, that doesn’t mean he won’t be the right choice in 10 years.
Choose a successor trustee that you trust
The person you choose as successor trustee will manage your finances — possibly while you’re still alive. And there won’t be a court overseeing their actions.
They have a fiduciary duty to act in accordance with the terms of the trust. But without much oversight, you’ll want to be sure you choose someone you trust. Depending on what assets you have in your trust and how you’ve set it up, they may be managing things for quite a while.
For instance, say you’ve set your trust up so that your toddlers don’t have full access to their inheritance until they’re 25 years old. Whoever you choose as successor trustee will be managing the funds and your children’s access to them for two decades.
Choose a trustee with the right temperament
Trusts, like all forms of inheritance, have the potential to create family conflict.
Let’s imagine you set up your trust so that the money can be used only for educational expenses until your children turn 21. Your son decides he doesn’t want to go to college but instead wants to become a dog groomer. He’d like to use some of the trust money for a dog grooming training program.
Your sister is acting as trustee, and she feels strongly that everyone needs a college education. She’s sure you intended that the money be used for college, not for a vocational program.
Do you want someone who will be a strict adherent to the letter of the law when they’re administering the trust? Do you want someone who will try to keep the peace? Do you want someone whose decisions will be impacted by others’ desires?
Consider a professional trustee
What if you can’t think of anyone in your life that would make a good successor trustee? Or you might be worried that family dynamics could create difficult situations among the trustee and beneficiaries.
You have another option — a corporate trustee. You can hire a bank trust department or a trust company to serve as successor trustee for your trust.
This can be a helpful solution if you’re worried about favoritism or family in-fighting. It can also be helpful if you’re concerned that no one close to you has the expertise or professional resources to manage the trust. Another option if that’s the case is to name co-trustees — a family member and a corporate trustee.
One big benefit of corporate trustees is that they’re generally around for a long time. If your trust is being administered for 20 or 30 years, the person you named as successor trustee may not be available or able to administer the trust that whole time. Corporate trustees have more permanence and the ability to pass administration along to someone within the same entity.
Whoever you choose as successor trustee, don’t include their name without talking to them first. Serving as trustee is a big job that requires a lot of responsibility. Make sure the person you choose is willing to take that role.
We help individuals and families create trusts to safeguard their financial futures. Schedule a phone or zoom consultation online to find out how we can support your estate planning goals.