Choosing a Successor Trustee/Disability Agent
Choosing a Successor Trustee/Disability Agent
very estate plan, whether built around a will or a revocable living trust (for probate avoidance), should include provisions granting another person the legal authority to manage your affairs if you become disabled, incapacitated or die. Those powers are granted under the revocable living trust (RLT), the last will and testament, a power of attorney for financial matters and a healthcare power of attorney. One of the most important decisions you will make is your selection of the successor trustee, personal representative and agent under your financial and healthcare powers of attorney. While you can name different individuals or entities (such as attorneys, trust companies, financial institutions or other professional fiduciaries) to serve under each of those documents, for simplicity, we’ll refer to them in this article as the “trustee.” We have become increasingly convinced that this decision is a “business” decision, and not an emotional one. Often, the individual chosen does not have the skill set, time, professionalism or integrity to carry out the role of a fiduciary.
Common Successor Trustee Problems
Over the years, we have watched the aftermath of choosing ill-equipped family members or friends for this role. Here are some of the problems we have witnessed:
- The trustee doesn’t know what he or she is doing and ends up being sued for mistakes
- The trustee is already busy with his or her own life and can’t handle these additional duties
- The trustee is power hungry and treats beneficiaries unequally
- The trustee mismanages trust funds and loses your hard-earned estate
- The trustee “borrows” trust funds and can never repay them
- The trustee refuses to do the job
- The trustee steals trust funds
- The trustee doesn’t uphold his or her fiduciary duties or follow the law
- The trustee is unfairly placed in the role of his or her sibling’s keeper
- The trustee is doing an adequate job but still faces suspicion and opposition from family members, eventually destroying family bonds
All of these examples are very real…and very detrimental to your estate plan! The business of choosing a trustee is not something to be taken lightly.
Duties of Your Successor Trustee
Have you considered the duties of Your Successor Trustee? A successor trustee is a “fiduciary.” That means he or she must always act in good faith and serve in a manner that is impartial, fair, and in the best interest of the beneficiaries. A trustee has a fiduciary responsibility to manage the trust assets as required by law (which generally includes the requirement to diversify the investments and sign a fiduciary investment policy) and to follow the terms of the trust. A breach of fiduciary responsibility would make the trustee liable to the beneficiaries for any damage caused.
Upon incapacity, your successor trustee would step in and make sure all of your bills are paid; that your investments are structured appropriately to ensure the proper income stream to meet your needs for your lifetime; pay for any necessary care, medical treatment, or alternate living arrangements (such as a rehabilitation center, assisted living facility, or skilled nursing facility). Your healthcare agent would also make healthcare decisions for you, including end of life decisions.
Upon death, your successor trustee is generally required to do the following:
- Review the terms of your trust to determine your intent on distribution
- Pay all outstanding debts
- Fill out and submit claim forms for life insurance proceeds
- Pay all bills as they come in
- Notify the beneficiaries of your death and the existence of the trust
- Order Death Certificates
- Pay expenses of your last illness, funeral and memorial service
- Review mail and make notifications of death, as necessary
- Meet with your CPA regarding outstanding and upcoming tax issues
- Change the homeowner insurance on the home
- Have the home and any other real estate appraised
- Change the automobile insurance policy
- Obtain written date of death valuations for assets
- Determine how retirement account proceeds should be distributed to cause the least tax consequences to your estate and your heirs
- Determine how personal possessions are to be distributed and facilitate that process, after appraisals are done, if necessary
- Meet/communicate with beneficiaries about how the administration will work and what to expect
- If necessary, work with family members to attempt to mediate disputes
- Change title on all assets
- If the home is to be sold, interview and hire an appropriate realtor
- Cancel subscriptions
- Determine if assets will be liquidated and distributed to beneficiaries or if assets will continue to be invested for the benefit of the beneficiaries
- Notify the Department of Health Services of your death and determine if they have a Medicaid claim
- Meet with your financial advisor to determine appropriate investment and/or liquidation of assets
- If you own a home, secure the home (i.e., change the locks and videotape the contents of the home)
- If “sub-trusts” need to be created for your beneficiaries, obtain the tax identification number for those trusts and determine appropriate funding
- File an Affidavit of Death and applicable parent/child exemption forms with the County Assessor to avoid reassessment of property taxes
- If the home is to be sold, determine appropriate repairs to the home in contemplation of sale and hire the appropriate contractors for the work
- Coordinate filing of final income tax returns with family CPA/Accountant. When necessary, file IRS Form 706 (estate tax return).
In other words, it can be a lot of work! You hired a professional to prepare your estate plan and make sure your wishes are properly documented; it may be prudent to hire a professional to make sure your wishes are carried out. The decision as to which type of professional to hire also involves numerous considerations that should be fully evaluated. At the Crandall Law Group, we offer complimentary consultations to explain these, and other important, considerations necessary to develop an estate plan that fits your unique needs and desires.