If you are a living trust trustee, co-trustee or successor trustee of a living trust, you have certain duties and responsibilities. I find that many people don’t really understand these duties, and it can cause huge heartache. I don’t care if you created your own living trust online or paid an attorney to create the document. Most folks just really don’t understand it or they forget. Here’s your refresher course.
Basically, a trustee must manage the assets in a manner that is prudent and set out by the trust. Also, when certain things happen (like the death or incapacity of the grantors), you will probably be asked to manage or start splitting up the assets. I’ll talk more about this in a minute.
If you are a successor trustee, you don’t have to do a darn thing. There will be a triggering event (as I described above) that will result in you becoming a trustee or co-trustee. That’s when you’ll have the duties and responsibilities described above.
As you probably already know, people use revocable living trusts to control what happens to their assets once they are incapacitated or die. The people who put their assets into the trust are called the grantors. The grantors write the trust and in so doing, spell out which beneficiaries are supposed to get which assets when they die. The trustees simply take direction from the trust document. The beneficiaries are the people who are supposed to get the assets.
If you are successor trustee, you don’t have to do anything now, but you should know:
- What the trust assets are
- Where the other documents are, including life insurance, medical insurance, etc.
Once you become a trustee, you have to think of yourself as a caretaker. If you don’t act like a fiduciary, you might be accused of financial abuse. It happens all the time.
Remember…the assets aren’t yours. They belong to the beneficiary and your job is to take care of those assets until you distribute them to the beneficiaries. The trust will tell you exactly what you should do with the assets and when. You can’t intermingle your assets with trust assets and you can’t use trust assets for your own good.
Remember, you’re a caretaker and nothing more.
If you don’t understand what the trust is asking you to do, ask the attorney. The trust will likely authorize you to employ lawyers and accountants. But under no circumstances should you take any action that isn’t expressly provided for by the trust document. If you do something that isn’t allowed for, you open yourself up for law suits from the beneficiaries — so watch it.
You may have to take care of these assets for quite some time depending on what the trust calls for. As a result, you’ll have to manage the assets. Your job isn’t to create wealth. Your job is to preserve it.
The trust will likely require that you invest conservatively. But “conservative investments” are often in the eye of the beholder. The trust will have a section called “investment powers” and will detail exactly what you can and cannot invest in.
You should keep good records and you’ll probably have to file a tax return every year.
Once you are named trustee, you can do business as if you were the grantor. You can pay bills and make investments.
Since you might be responsible for having an estate tax return done, you’ll probably want to get a valuation of all the assets as of the date of death of the grantor. You might make some distributions of assets or income but you should only do so at the direction of the attorney and not distribute too much. You may need that money for estate settlement and taxes. If you distribute too much money and then don’t have enough to pay the estate tax, guess who is responsible to pay those taxes? You are.
Notify the banks and brokerage firms that you are the trustee now. They’ll need a certified death certificate and other forms. They’ll let you know what they need. Once they get those documents, they’ll change the title to reflect that you are the trustee. You need to do this in order to get authority over the account.
Once you get the green light from the lawyer – not the accountant – you can distribute all the trust assets. At that point your work is done. The trust can be dissolved.
If the assets are to be fully distributed, you will divide the cash and transfer title of any remaining assets according to the instructions in the trust. That’s it.