In the American legal system, a successor trustee is an individual that takes over the responsibility of managing another person’s trust fund if they become incapable of doing so themselves. Whether you have been appointed as a successor trustee, are trying to choose someone to fill this position for you, or are just interested in finding out more about this role, you’re in the right place. In this article, we look at the successor trustee definition, their duties and responsibilities, and answers to other important questions.
What is a Successor Trustee?
Many people choose to set up trusts to add extra protection over how certain valuable assets are handled after death. In the United States, a person setting up a trust will need to appoint a successor trustee. But what does successor trustee mean?
The successor trustee is the phrase used to describe the individual responsible for administering and managing the trust after the person who has created the trust, known as the grantor, becomes incapable of doing so. In many cases, this is when the grantor passes away. However, the successor trustee can also take over if the grantor becomes legally incapacitated and is unable to make decisions for themselves. Examples of someone being incapacitated include an intellectual disability, mental disorder, dementia, or other medical disorders that affect awareness and logical thinking. The successor trustee will be named by the grantor in the Declaration of Trust.
What are a Successor Trustee’s Duties?
The primary duties of a successor trustee are to manage the trust in question and distribute the assets within it as per the grantor’s best interests. However, the precise role of the successor trustee will depend on the set of instructions left behind by the grantor. Their duties will also vary depending on whether the grantor has passed away or become incapacitated. In the following sections, we look at the successor trustee’s duties in both situations.
Duties When the Grantor Has Passed Away
In situations where the grantor has passed away, the primary duty of a successor trustee is to distribute the assets as per the declaration of trust and liaise with the executor of the will to pay off outstanding debts and close any accounts. As such, they are responsible for:
- Notifying all family members and relatives that they are the successor trustee following the grantor’s death.
- Contacting all beneficiaries of the trust and providing them with copies of the declaration of trust.
- Informing all financial institutions, life insurance companies, retirement plans, and other organizations that the grantor has passed away.
- Coordinating with the executor of the will to close any open accounts and pay off any outstanding debts, using the trust if needed.
- Distributing all property and assets to the beneficiaries of the trust as detailed in the declaration of trust.
- Closing the trust once all of the above has been completed.
Duties When the Grantor Has Become Incapacitated
On the other hand, the duties of the successor trustee change if they’ve taken responsibility as the grantor is legally incapacitated but alive. They take over the role of the grantor to handle all affairs. As such, they will usually use the property in the trust to pay for the grantor’s end-of-life care and other outgoings while they are alive. Therefore, they are responsible for:
- Informing all family and relatives they are the successor trustee.
- Notifying all banks and financial institutions that they are the successor trustee to gain access to these accounts.
- Taking any necessary steps required to secure the trust and the property within it.
- Liaising with relevant organizations to organize for any bills and expenses to be paid using the property and assets in the trust.
- Keeping track of all expenses that have been incurred and paid for using the trust.
- Applying for any disability benefits on the grantor’s behalf they may be entitled to.
- Completing all the steps listed in the previous section as and when the grantor passes away.
Trustee vs. Successor Trustee: What’s the Difference?
You may be wondering what is the difference between a trustee and a successor trustee?. The words trustee and successor trustee are similar, which can cause some confusion. Indeed, the roles of both a trustee and successor trustee are pretty similar. Both individuals must look after the property and assets within the trust, acting as its rightful legal owner and making decisions in accordance with the declaration of trust.
However, the two run on different timelines. The trustee is responsible for managing all property and assets in the trust when it is first created. When talking about a revocable living trust, the trustee is also known as the grantor, and these two words are used synonymously. On the other hand, a successor trustee takes on the responsibility of the original trustee at a later date. This is either when the trustee passes away or becomes incapacitated.
Successor Trustee vs. Executor: What’s the Difference?
Another two similar roles that people commonly get confused over are that of the successor trustee and the executor. Both of these individuals liaise and cooperate, when the grantor passes away, to ensure their trust is handled appropriately and the beneficiaries are given what they are entitled to. However, whereas the successor trustee’s main duty is to manage the trust itself, the executor is responsible for handling all the deceased’s affairs. Of course, this in part includes any trusts, meaning there is some overlap in responsibility.
The other main difference between a successor trustee and the executor is in terms of duration. The executor will only ever be given powers over the management of affairs in the event of death and must deal with the probate process immediately. Comparatively, the trust could state that some beneficiaries only get their inheritance when they reach a certain age. A common example is money being left to young children and released either when they turn 21 or when they graduate from college. This could potentially be years in the future, meaning the successor trustee could be in charge of protecting this inheritance for a long period.
How to Appoint a Successor Trustee?
The grantor can choose anyone they wish to take on the role of the successor trustee. This is commonly a close relative or family friend, whereas others choose to appoint a financial advisor, estate planning attorney, or a trust company to take on this responsibility. Whoever the grantor chooses then needs to accept the role for it to become official. If the individual chooses to accept, the grantor then typically organizes a meeting during which both can discuss the trust and ensure that the successor trustee has a full understanding of their responsibilities.
On the other hand, the individual or organization chosen by the grantor can choose to decline the offer. Being a successor trustee is a big commitment, and can take up a substantial amount of time, especially if the grantor is incapacitated or named beneficiaries are young. In these cases, the grantor will need to find a new successor trustee to take on the role.
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How to Sign as Successor Trustee?
Once a successor trustee has been appointed, they can relax until circumstances change and they need to begin administering the trust. As stated, this will typically begin with this person notifying friends, family members, and financial institutions that they are the successor trustee. They will then be able to sign on the grantor’s behalf to finalize important financial decisions. However, there are a few steps you need to complete before this is possible:
1) The successor trustee needs to obtain either a death certificate from the country clerk or other government office or a document proving legal incapacitation for when the grantor has passed aware or becoming incapacitated, respectively.
2) Both the declaration of trust, and either the death certificate or the proof of legal incapacitation, need to be presented to third parties holding estate property, such as banks and government agencies.
3) An affidavit of death of trustee or an affidavit of incapacity of trustee needs to be prepared and filed with the county clerk in any jurisdiction in which the grantor owns real estate property.
After these steps have been taken, and it is proven that the original trustee is either dead or incapacitated, the successor can then legally sign on their behalf. When doing so, the signature needs to reflect their new position as trustee. For example, you may sign a trust-related document as John Smith, Trustee.
Being appointed a successor trustee is a highly important role that has the potential to be long-term and carries a lot of responsibility. They need to manage the trust on behalf of the grantor, something they could be doing for years. As such, anyone that has been asked to be a successor trustee should ensure they understand the full responsibilities of what the role entails before committing.
On the other hand, anyone drafting a trust of their own needs to ensure they appoint an individual or organization that is competent and trustworthy enough to take on these duties. It is often wise to appoint a young successor trustee who will likely be around long enough to settle all issues. If you need further help planning your estate, we also recommend speaking to an estate planning attorney to guarantee you’re making the best choices for the property and assets you own.