For most revocable living trusts, the trust maker is also the trustee. If it’s a joint marital living trust, both spouses are frequently co- trustees; when the first spouse dies or becomes unable to act, the survivor becomes sole trustee. It’s also possible and important for the trust maker to name one or more successor trustees.
What is a successor trustee?
When you create the trust, you have the ability to designate a successor trustee. The successor trustee takes over management of the trust if you aren’t able to do so. Depending on the trust, the successor trustee distributes the trust assets to your beneficiaries after you die or continues to administer the trust for one or more generations. He or she could also take over management of the trust if you become incapacitated.
Choosing the successor trustee of your trust likely is one of the most important estate planning decisions you face. The successor trustee must follow the terms of your trust about how to distribute the trust property to your beneficiaries.
The successor trustee may be the primary beneficiary of the trust. However, the successor trustee can be anyone you trust. For example, the successor trustee can be a close friend, an adult child, your spouse, your lawyer, an accountant, or a corporate trustee.
Must the Successor Trustee Live in the Same State?
A successor doesn’t have to live in the same state that you do. It’s usually more convenient if he or she does. When you consider whom to choose as your successor trustee, you should consider the amount of time and effort the successor will have to spend. You should also consider his or her ability to perform the duties of the trustee, and his or her ability to deal with the beneficiaries.
What is required for the Successor Trustee to Transfer Property out of the Trust?
If the successor trustee is required to transfer property to the beneficiaries, a copy of the original trust agreement and death certificate of the original trustee should be sufficient for banks, stock brokers, government agencies, and other entities that control the assets to enable them to be transferred to the successor or beneficiaries entitled to receive them. Sometimes, especially when real estate is involved, the successor trustee will have to sign deeds transferring property from the living trust to the beneficiaries.
Should you name a family member as your successor trustee?
Many people choose family members to serve as trustees. They don’t charge a fee, and they generally have a personal stake in the trust’s success. Using a family member as successor trustee can be a good more for a small or medium sized trust if the family member:
- is competent to handle the financial matters involved
- has the time and interest to do so
- can handle family conflicts.
If you decide to make a relative a trustee, be sure to consider who the successor will be in the event of the person you choose as successor trustee dies, becomes incapacitated, gets divorced, or if family strife develops.
Many trust makers name co-trustees. Usually the spouse will be a co-trustee, so that when one spouse dies, the other takes over, with a successor co-trustee who’s a lawyer or has some specialized legal or financial knowledge. But corporate trustees, while expert, may be too expensive for moderate estates. Before selecting a trust company, it is advisable to discuss this with a trust officer of the institution.
Often, of course, the beneficiary himself is named as trustee, if the beneficiary is an adult. This is sometimes done when the main reason for the trust is to save taxes. If the trustee’s powers are restricted to comply with federal estate tax law limitations, this arrangement may give the trustee/beneficiary control over the trust assets and avoid estate taxes after his death. However, it also subjects him or her to taxes on the income from the trust. Depending on the trust and the powers of the trustee, it might open the trust assets to attack from creditors. And the beneficiary probably won’t have the professional familiarity with investments that a trust officer would – through, again, he or she can hire such help.
What are the downsides to choosing a family member as successor trustee?
Here are the downside to choosing family members as successor trustees:
- Lack of expertise. Relatives often lack the financial acumen of a professional trust officer, and so must often hire professional
- Mortality. Trusts can last for many Human trustees die. Banks don’t. If the bank merges with another bank, the new company automatically will succeed to its trust operations.
- Family conflicts. Depending on their relationship with the beneficiary, family trustees may have problems with what the beneficiaries want or demand, and what the trust documents says and requires of the successor trustee. Sibling rivalries may also complicate arrangements in which one brother or sister serves as trustee for A professional manager doesn’t face such pressures.
There is an increasingly popular middle course between naming an institutional trustee and naming a family member as trustee. You can choose a relative as trustee and hire a bank or investment company as an independent investment advisor. This is instead of naming the bank or investment company as a co-trustee. The bank or investment company is familiar with the nuances of law and investment financing. If you hire them outright, its fee for investment advice may be smaller than the one it charges to serve as a co-trustee.
Should you choose a professional trustee as successor trustee?
There are circumstances in which you will want the successor trustee to have more expertise, or at least the ability to hire professional help. For example, if any of your beneficiaries are minors or disabled, the successor will have to manage the trust property until such beneficiaries reach the ages at which you specified the property would be distributed to them. This may involve preparing tax returns, investing funds, and so on.
Banks, trust companies, CPA firms, and similar financial institutions are permanent institutions that can manage your trust for decades. They also have professional knowledge of and experience with investment options. They’re objective and regulated by law. If you question the honesty or reliability of friends or family members, a professional trustee is the usual preference; and it can handle the investments, tax preparation, management, and accounting.
What are disadvantages of a professional trustee?
Some people see the following as disadvantages of naming a professional as a successor trustee:
- Cost. If you do use a bank or trust company to manage the assets, expect to pay a fee for those These institutions sometimes have a minimum fee that makes them costly for a small trust. Ask your trust company for its schedule of fees or discuss it with a trust officer. Find out what services are included and those for which additional fees are charged, including a termination fee. Fees are deductible for income tax purposes, to the extent the income is taxable to the trust or beneficiaries.
- Bank investments are generally conservative, with all the advantages and disadvantages that implies. While you, the trust maker, can program the kind of investment strategy you want the professional trustee to follow, that can cause problems because of changed circumstances after your death. For example, an investment in the company that pioneered the brush-and-fluid system for cleaning LP records would have looked like a great investment twenty years ago; the advent of the compact disk changed all that.
- Impersonality. While a bank probably won’t die, that doesn’t mean your beneficiaries will always be dealing with the same person; personnel move around or move on. As depositors in many banks have learned, the bank itself can change hands. And your beneficiaries will want someone who’s willing and able to listen to and discuss their needs and questions. Many families may view banks and professional trustees as impersonal institutions. On the other hand, when squabbling relatives are involved, impersonality can be a boon.
If you do choose an institutional trustee, make sure you and your beneficiaries are comfortable with the people they’ll be dealing with.
Can you name more than one person as successor trustee? Can you have co-successor trustees?
You also can have more than one trustee. You might have a professional trustee and a non-professional trustee. Or, you might have two family members as co-successor trustees. You might pick someone who’s good with investments, another who knows taxes, and a third who can talk to the beneficiaries. Usually, the attorney for the trustees can handle the tax problems without being a co-trustee.
You (the trust maker) can decide how the multiple trustees will make decisions; be sure to establish some mechanism for resolving disputes. Obviously, too many cooks can spoil the broth. You shouldn’t make someone a trustee just to keep him or her from feeling left out. Make sure he or she can be useful.
The co-trustee should be familiar with the nuances of your trust. Also, the co-trustee should be sensitive to potential conflicts between family members you’ve named as co-trustees.
If you designate family as the co-trustee, be sure to designate someone else to take over if the original family member co-trustee dies or becomes incapacitated.
Naming A Successor Trustee Conclusion
When children are beneficiaries, parents often choose to make them all equal co- beneficiaries. In such a case, it may make sense to name them co-successor trustees as well. However, if you fear the children may fail to agree, this can be a bad idea. You may have to choose one child as trustee.
You may also have to include a mechanism in your trust for resolving conflicts between co-trustees, such as arbitration. In any case, be sure to have a lawyer advise you if you fear such conflicts.
Conflicts between beneficiaries may make an independent trustee necessary. The size or complexity of the trust may also make an independent trustee necessary.
You have to specify the successor’s powers. Those powers will normally be broadly phrased. The successor trustee may have the ability to:
- transfer assets to people or institutions.
- pay debts and taxes.
- spend trust principal for maintenance, education, support, and health.
Be sure to get a lawyer’s advice about the successor trustee’s powers, if you have questions. Your lawyer can help write into the agreement special rules that will carry out your wishes.
Don’t forget to name an alternate successor trustee in case your first choice dies before you or otherwise is unable to serve.
3 Main Parties of a Revocable Living Trust
A revocable living trust is an agreement that you write with yourself about how your property will be managed during your lifetime and after you die. A revocable living trust has three main parties: (1) the Grantor; (2) the Trustee; and (3) the Beneficiary.
Trust Maker or Grantor
When you create a revocable living trust, you the grantor or the trust maker. This simply means that you are the person who created the trust.
The Trustee is the person or people, or the institution or business, that manages the trust assets or property for the beneficiaries of the trust. Most people name themselves as the trustee in charge of managing their trust’s assets during their lifetime. This way, even though your assets have been put into the trust, you can remain in control of your assets during your lifetime.
You can also name a successor trustee (a person or a business or institution) who will manage the trust’s assets if you ever become unable or unwilling to manage your property, or when you die.
The trust beneficiary is the person or people who receive the benefit of the revocable living trust’s assets or property. This means that the trust’s property will either be distributed to them outright, or held in trust for their benefit. During your lifetime, you will likely be the main trust beneficiary.
If you become unable to manage your day-to-day affairs, you likely will continue to be the trust’s beneficiary. Once you die, other people, institutions, or charities may be the trust’s beneficiaries.
People often name their children or other family members or loved ones as trust beneficiaries. These beneficiaries ultimately will inherit the trust’s property when the trust maker dies. People also may name one or more charities to receive a portion of the trust’s property, if the trust maker is charitably inclined.
What’s In a Name?
A revocable living trust is sometimes called a revocable inter vivos trust, revocable trust or a grantor trust. This simply means that you can amend or revoke your trust at any time, as long as you are still competent.
An irrevocable trust is another type of trust. Irrevocable trusts are not revocable living trusts. An irrevocable trust cannot be changed once you establish it, except in certain limited circumstances. Irrevocable trusts are an advanced estate planning tool. They usually are used to achieve a specific estate planning goal.
Benefits of a Revocable Living Trust
Your revocable living trust has many benefits. Your revocable living trust agreement will likely:
- Give the trustee the legal right to manage and control the assets held in your trust.
- Instruct the trustee to manage the trust’s assets for your benefit during your lifetime.
- Name the beneficiaries (persons or charitable organizations) who will receive your trust’s assets when you die.
- Give guidance, power and authority to the trustee to manage and distribute your trust’s assets.
- Your Trustee
Your trustee stands in a special relationship to the trust beneficiaries. You trustee is a fiduciary. This means that he or she holds a position of trust and confidence. Your trustee is subject to strict responsibilities and very high standards. For example, the trustee cannot use your trust’s assets for his or her own personal use or benefit without your explicit permission. Instead, the trustee must hold and use trust assets solely for the benefit of the trust’s beneficiaries.
A living trust can be an important part — and in many cases, the most important part — of your estate plan. Please contact us if you would like to discuss whether a living trust is right for you.
What you need to know about PROBATE and how to avoid it
There is a saying: “Where there’s a will, there’s a way.” In estate planning, it should be: “Where there’s a will, there’s a probate.” In California, a will has to go through probate. So a will doesn’t help you avoid probate. It guarantees probate. Still, you might ask, is there a way to avoid probate if you have a will? The short answer is, it depends. There are circumstances where you can avoid probate. First, let’s define –
What is Probate?
Probate is the legal process in which a will is reviewed by a court to determine whether it is valid and authentic. The court then will order distributions of property to beneficiaries according to the will’s terms. Probate also refers to administering a deceased person’s estate without a will. If you die without a will, the probate court will rely on state laws to distribute assets and pay any liabilities remaining in your estate. A clearly written will could make the probate process easier for your beneficiaries after you die, but it it’s not enough to avoid probate.
What is wrong with Probate in California?
Many people have heard that probate in California is something you should avoid. There are four main reasons for this.
First, probate is slow. In Sacramento County, Yolo County, Placer County, Solano County, and the surrounding areas, it may take anywhere from 18 to 24 months from the time a probate case is started until it is done. This is a very long time, particularly if family members or other heirs are in need of a distribution from the estate to pay their bills.
Second, probate is expensive. The probate law says that an executor who is managing the probate estate can be paid a fee for their services as executor. This makes sense, since the executor is essentially taking over all of the finances of the decedent. The fee paid to the executor is a percentage of the gross estate value. “Gross estate value” means the fair market value of the decedent’s probate assets on the date of their death, without subtracting any debts. For example, assume that a decedent owned a house with a fair market value of $1,000,000 on their date of death. Further assume that the house had a mortgage of $800,000. The executor’s fees will be based on the $1,000,000 fair market value, and not on the $200,000 equity in the house. The probate code also says that the executor can hire an attorney to help the executor administer the estate. The attorney is paid the same way as the executor: As a percentage of the gross estate value, valued as the fair market value of the probate assets.
The third problem with probate in California is that a probate proceeding is public. Everything that gets filed with the court is a public record, with certain rare exceptions. This means that the will becomes public, as well as who will inherit under the will. One of the last things that the executor does before the court will sign an order authorizing that property be distributed to the beneficiaries is to file an “inventory and appraisal” of all of the probate assets the decedent owned on their date of death. This lists the assets and property that the decedent owned, along with the fair market values. So on the one hand, you have who is receiving property under the will. On the other hand, you have what that property is and what it is worth. This is a lot of private personal financial information to have in the public domain.
The fourth problem with probate is that the law requires that if a beneficiary under the will legally is an adult, they are entitled to their inheritance outright.
If the beneficiary is a minor, the court will take steps to protect the minor’s inheritance, usually by putting the money in a blocked account that restricts access to the money until the beneficiary legally is an adult. In California, somebody is legally an adult when they turn 18. This means that somebody who is 18, 20, or even 25 years old is entitled to receive all of their inheritance outright, without restrictions. This may be contrary to what the decedent wanted, and may not be in the beneficiary’s best interest.
Because of the problems with probate, many people want to avoid it. Here are three ways you can avoid probate.
1. You Can Avoid Probate With A Spousal Set Aside
If you are married, and you and your spouse have separate, individual wills, if your spouse dies first, you can use what’s called a “Spousal Set Aside” to bypass probate. A Spousal Set Aside is an optional procedure in the probate law that allows for short cutting the probate administration of community property you own with your deceased spouse and of your deceased spouse’s separate property that passes to you. The set aside procedure provides a formal court order related to the decedent’s property that passes by will or intestacy to you, the surviving spouse. It also confirms the community property interests that already belong to you as the surviving spouse.Generally, you can only use Spousal Set Aside for property that you already share with your deceased spouse.
Spousal Set Aside has a number of risks. First, it leaves the surviving spouse open to claims from the deceased spouse’s creditors and beneficiaries. Second, it leaves the surviving spouse open to claims for the deceased spouse’s medical bills and funeral expenses. Another problem with the Spousal Set Aside is that it only works upon the death of the first spouse: If the surviving spouse doesn’t do any estate planning after the deceased spouse’s estate is finalized, the surviving spouse’s estate will likely have to go through probate upon the surviving spouse’s death.
2. You Can Avoid Probate With A Small Estate Affidavit
If the decedent died with assets and property worth less than $184,500 (in 2023), and died with real estate worth less than $61,500, you may be able to avoid probate by using an “Affidavit of Small Estate.” The $184,500 is the value of the entire estate, and not the value of an individual asset. The following personal property, however, are excluded from “small estate” claims:
- Cars, boats, or mobile homes
- Real property outside of California
- Property held in trust, including a revocable living trust
- Real or personal property that the person who died owned jointly with someone else (such as joint tenancy)
- Property that passes directly to a surviving spouse or domestic partner
- Life insurance, death benefits, or other assets that pass directly to beneficiaries
- Unpaid salary or other compensation up to $5,000 owed to the decedent
- Debts or mortgages
- Bank accounts
3. You Can Avoid Probate If You Have A Funded Revocable Living Trust
There are two general steps to using a Revocable Living Trust as the foundational document for your estate plan: (1) Establishing the Trust; and (2) Funding the Trust. An estate planning attorney can help you create your trust. After your trust is created, you should begin the process of funding the trust. “Funding your trust” is an umbrella term which is used to describe the process of changing ownership of certain of your assets in property so that it is owned by the trust instead of being owned by you individually. A Revocable Living Trust is like securing your estate in a vault: It not only prevents an unnecessary and costly probate case, it also protects and distributes your estate according to your plan.
Consult an Estate Planning Attorney To Avoid Probate
Compared to a will, a Revocable Living Trust provides privacy as well as flexibility over your property. Schedule your consultation with our team who can help get started with your estate planning.
What is a successor trustee’s liability if found to have breached their duties?
A successor trustee assumes both general duties and specific duties as trustee. It is an important job. If you are found to have breached any of these duties (which is also sometimes referred to as a “breach of trust”), a beneficiary can file a lawsuit seeking:
- To compel you to perform your duties.
- To enjoin you from committing breach of trust.
- To compel you to redress a breach of trust.
- To require an accounting.
- To remove you as trustee.
- To reduce or deny you compensation.
These are the most common claims that the beneficiaries make against a successor trustee of the trust. The successor trustee is able to defend his or her actions, and usually can use the trust’s assets to pay an attorney for the cost of such defense.
There are also several defenses available to a trustee charged with breach of the trust.
A successor trustee of a trust has several specific duties:
- Duty to administer the trust by its terms: The trustee is required to follow the instructions left by the trust maker in the trust document. The trustee is required to follow the trust language.
- Duty of skill and care:
- Duty to give notices to the beneficiaries and interested parties.
- Duty to furnish information and communicate with the beneficiaries.
- Duty to account to the beneficiaries: The successor trustee must account to the beneficiaries periodically. Generally, the trustee must provide an accounting to the beneficiaries at least once per year. The probate code lists what is required in an accounting.
- Duty not to delegate.
- Duty of loyalty to the beneficiaries: The trustee must administer the trust solely for the interest of the beneficiaries and avoid acting in ways that benefit the trustee at the expense of the beneficiaries. If the trustee personally purchases trust property, the trustee may violate this duty. Similarly, if the trustee sells trust property to an entity in which the trustee has an interest, it may violate the duty of loyalty. Further, a trustee may violate the duty of loyalty if the trustee make a loan from trust property to the trustee personally.
- Duty to avoid conflicts of interest.
- Duty to segregate trust property from the successor trustee’s personal property: The successor trustee must keep the trust’s assets separate from the successor trustee’s personal assets. This means that the successor trustee has to manage the trust bank accounts separately. The trustee can’t deposit trust funds into the successor trustee’s personal bank account, unless the successor trustee has made a distribution of assets to the beneficiaries.
- Duty of impartiality: The trustee can’t favor one beneficiary over another beneficiary.
- Duty to invest trust assets: The trustee must invest trust assets to make the assets productive. The trustee generally can’t allow trust assets to sit idle.
- Duty to enforce and defend claims against the trust: The trustee is the party who can bring a lawsuit on behalf of the trust, such as to collect on a debt or obligation owed to the trust. The trustee also can defend the trust, if someone sues the trust.
- Duty of confidentiality.
These duties are in addition to the general duties of the successor trustee.