I’m Taking over as Successor Trustee: Now What?

There is no doubt that avoiding probate by having a fully funding a trust and naming successor trustees to manage the trust upon your death is the best and easiest way to manage your trust. That said, becoming the trustee comes with responsibilities. 

Aside from fulfilling the dying wish of the trust maker who charged you with the solemn task of seeing his or her estate administered properly, there are very serious statutory and contractual duties placed upon the trustee. The failure to perform these duties can give rise to a lawsuit against the trustee. This article is a primer on what those duties are, but you should consult with your attorney on their recommendation as to how to steer clear of legal misconduct by failing to properly fulfil these duties.

The Trustee Checklist

There may be an enormous amount of paperwork or electronic paperwork involved in administering the trust, and there will inevitably be a certain degree of “red tape” to cut through. Keeping good records is, in fact, a statutory duty that we will explore later, but before going into the statutory duties of the trustee, let us explore the actual steps a trustee must take upon his or her succession.

Give Appropriate Notice

You will want to make family members and institutions aware of the situation. Keeping family members apprised of your role and setting a comfortable deadline of when they can expect things by can eschew frustrations during a sensitive time. Alerting institutions allows those entities to begin their own duties.

1. Inform the trust makers family and loved ones that you are the successor. This can be as simple as sending emails and making phone calls indicating saying, in effect, “I am the trustee, I have been appointed to serve as trustee, I expect this to take (an estimated) amount of time.”

2. Provide copies of trust to the named beneficiaries. 

3. Obtain certified death certificates. 

4. Notify relevant banks 

5. Notify the Social Security Administration, life insurance companies, retirement plan administrators, employee benefits insurance, and Medicare.  Be prepared to provide the decedent’s name, social security number, the date of death, whether death was due to accident or illness, along with your name an

Marshal the Estate

You need to organize the estate and make sure it is in all manner of legal compliance. This will make distribution a more seamless process.

1. Identify necessary tax filings.

2. Close any accounts that are not needed → note to keep utility accounts and insurance policies active until the respective asset is sold.

3. Inventory the assets by making a spreadsheet of all the assets in the estate.

4. Confirm beneficiary designations on life insurance policies or annuities.

5. File current and or prior year tax returns. 

6. Provide trustee affidavit and/or trust cert to institutions

Managing the Assets and Distributing the Property

Some trusts may require that the trustee simply distribute the trust property to the beneficiaries, others may have the trustee retain and manage the trust property, and others still will require the trustee to do both.

1. Maintain insurance coverage on all properties until liquidation.

2. If the property is to be sold, consider capital gains tax issues. At this point, you may want to consider consulting with an attorney.

3. Manage all assets intended for investment prudently. Here you may want to consult a financial advisor.

4. Distribute trust property to beneficiaries.

Duties of the Trustee

Separate from the above checklist, the trustee is required by law to uphold certain duties. These vary slightly in some states, but almost all states have similar duties to those enumerated below.

1. Duty of loyalty. This duty requires the trustee to act in the interest of all the beneficiaries. Problems can arise when you are managing trust assets for siblings with competing visions for the trust property (i.e whether it should be bought or sold).

2. Duty not to delegate. This duty only applies if the duty can reasonably be expected to perform personally. A trustee may employ agents such as attorneys, accountants, and investment advisors, but may not blindly follow their advice.

3. Duty to render and keep accounts. Clear and accurate records are priority number one. The failure to fulfill this duty can cause big problems if there are frustrated beneficiaries or if institutions cannot proceed without proper documentation.

4. Duty to exercise reasonable care and skill. Trustees must understand that breach of fiduciary duties can make them civilly liable, or, in other words, able to be sued in court.

5. Duty to take and keep and control trust property. Effectively, this means managing the estate in the way described in the checklist above.

6. Duty to enforce claims and defend actions. Sometimes this is based on a cost-benefit analysis. If pursuing a minor claim will cost more than the claim is worth, than this is not in the interest of all beneficiaries, nor is it prudent.

7. Duty to not comingle. Many family-member trustees feel inclined to close accounts and put trust assets into personal account to make it easy on themselves. This practice must be strictly avoided.

8. Duty to make property productive and invest under the prudent investor rule. Investments must be done prudently, but at the same time a total failure to invest runs afoul of this duty as trustees must make the property productive.

Entrusted with the Estate

It’s in the name: trustee. As you can see, a fair share of responsibilities fall on you once you become trustee. Consider this if you have been named a trustee. When in doubt, seek professional assistance with administering an estate.