Though once used almost exclusively by wealthy families to pass down the family fortune, trusts are now commonly found in the estate plan of the average person. If you are contemplating the addition of a trust to your estate plan, there are some common mistakes you want to avoid making, such as failing to name a successor Trustee. For those who are not familiar with how a trust is administered, a Vero Beach trust attorney at Kulas & Crawford explains why naming a successor Trustee is so important to the success of your trust.
First, it is important to have a firm understanding of what a trust is and how a trust works. A trust is a separate legal entity that owns and holds property for the benefit of one or more beneficiaries. A trust is created by a Settlor, also referred to as a Grantor, Trustor, or Maker, who transfers property to a Trustee appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, as the name implies, does activate during the Settlor’s lifetime.
What Does the Trustee Do?
Next, you need to have a firm grasp of the breadth and complexity of the duties and responsibilities of a Trustee during the administration of the trust. The overall job of a Trustee is to protect and manage trust assets while administering the trust using the trust terms created by the Settlor. The specific duties and responsibilities of a Trustee makes for a long list that includes things such as:
- Manage and protect trust assets
- Abide by the trust terms unless they are impossible, illegal, or unconscionable
- Invest trust funds using the “Prudent Investor Standard”
- Monitor trust investments
- Communicate with trust beneficiaries
- Resolve conflicts among beneficiaries
- Make discretionary decisions
- Distribute trust funds to beneficiaries
- Approve or deny distributions if given discretionary authority
- Keep trust records
- Prepare and pay trust taxes
As you can see, the Trustee plays a critical role in the administration of any trust. In fact, the Trustee often plays a pivotal role in the success, or failure, of a trust. If the Trustee is suddenly unable, or unwilling, to serve for any reason, the trust becomes a ship without a captain.
Why Is Naming A Successor Trustee Crucial?
It should be clear by now that the Trustee guides, manages, and protects the trust – he/she is the captain of the ship. There are an infinite number of reasons, however, why the Trustee might suddenly be unable to serve, including death, incapacity, poor health, unforeseen conflict, relocation, or the Trustee may just not want the job anymore. Without a Trustee, distributions cannot occur as planned. Important investment decisions cannot be made and/or investment opportunities might be missed. Recordkeeping could fall behind which could create problems with tax authorities. In essence, a trust cannot operate successfully without a Trustee.
If the trust is a revocable trust and you are still alive and capable of naming a new Trustee, that’s an easy solution. If, however, the trust is an irrevocable trust, or you are not alive or are incapacitated, naming a new Trustee yourself is not possible. Therefore, if you failed to name a successor Trustee, or at least include instructions for how to choose a successor Trustee, the only option is for a court to appoint a new Trustee. One problem with relying on a court to appoint a new Trustee is that the process of petitioning the court may take time – time in which the trust is without a Trustee. In the interim, the trust could lose assets and opportunities. The other big problem with relying on a court to name a new Trustee is the simple fact that someone you may not even know is now administering your trust. The way to avoid such an unwanted outcome is to work with an experienced trust attorney when you create your trust agreement to ensure that all possible contingencies are considered and covered.
Contact a Vero Trust Attorney
To learn more, please join us for an upcoming FREE seminar. If you have additional questions or concerns about the importance of naming a successor Trustee, please contact an experienced Vero Beach trust attorney at Kulas & Crawford by calling (772) 398-0720 to schedule a consultation.