Duties of a Successor Trustee

Revocable trusts are commonly used as a part of a person’s estate plan. There are three roles in a trust:  the Settlor, the Trustee, and the Beneficiary.   The person who establishes the trust is referred to as the Settlor or Grantor.  The Trustee is the person authorized to handle trust business.  The beneficiary is the person or persons who benefits from the trust property.  Often, the Settlor serves in all roles while living, and the trust spells out who the trustees and beneficiaries will be after his or her death, incapacity, or the resignation of the Settlor as trustee.  This article will provide an overview of the duties of a successor trustee who serves after the Settlor, who is referred to as the Trustee.

The trust document spells out how assets held in the trust will be managed.  If a person other than the Settlor is serving as the Trustee while the Settlor is alive, then the trust will typically require the trustee to use the trust assets for the benefit of the Settlor and perhaps the Settlor’s family.  So, the successor trustee can pay the Settlor’s bills, sell the Settlor’s property and deposit proceeds into the Settlor’s accounts, and otherwise take care of trust business.  Unless the trust allows the Trustee to make gifts, the trust property can only be used for the Settlor’s benefit unless otherwise authorized in the trust.

After the death of the Settlor, the Trustee must follow the instructions in the trust.  Although this may sound obvious, there has been much litigation when a trustee distributes property in a manner inconsistent with the trust document, perhaps citing “this is what mother wanted me to do”.  This is a violation of the trustee’s duties and can lead to personal liability of the Trustee.

After the Settlor passes away, a revocable trust becomes irrevocable, so the trustee generally cannot change the terms of the trust.  Note that some changes may be allowed under provisions of Florida’s trust code or with a court order.

An initial step is for the Trustee to obtain a Taxpayer Identification Number (TIN) from IRS for the trust.  While the Settlor was living, the Settlor could use his or her social security number as the TIN for the trust.  Taxes must be reported to IRS using the TIN following death.  One of the duties of the Trustee is to make sure that all income tax and other tax returns are filed, and any taxes due are paid.  It is important to meet with a tax preparer to make sure tax obligations are followed.

Another primary responsibility is to make sure all creditors are paid.  Creditor claims can be made up to two years following death, so a trustee should be careful and not distribute assets to beneficiaries until he or she is comfortable that all creditors have been paid.  Of course, beneficiaries are often eager to receive their gifts.  A partial distribution may be prudent, with some funds reserved until creditors have been paid.  Sometimes a Trustee will open a small probate so that creditors can be given notice which will reduce the creditor claim period to three months from the time they receive notice of the death.

A Trustee must provide notice to beneficiaries and a copy of the trust agreement upon request.  Also, a Trustee  must provide annual accountings which describe how trust property was managed.  The only court requirement is to file Notice of Trust with the court, which gives creditors the address of the Trustee so they may file claims.

Some of the duties of a Trustee are to marshall the assets, accept any probate property, take care of trust property until it is distributed, and insure trust property.  The duties will vary based on the types of property held in the trust.

A Trustee must comply with statutory standards of care and performance.  He or she has a duty to invest and manage investment assets as a prudent investor would.  The Trustee must act impartially and must invest assets in a way that is fair to all of the beneficiaries.  The Trustee may delegate the investment function to an investment agent such as a financial planner or trust officer.  Finally, the Trustee must distribute the trust assets in accordance with the terms of the trust.

One of the most important decisions a person should make when establishing a trust is who to name as the successor trustee.  There is no court oversight.  It is extremely important that the successor trustee be honest and diligent in fulfilling his or her duties.  The successor trustee can be a person, or a corporate fiduciary, such as a trust company or a trust department in a bank.  If there are different types of beneficiaries, such as a surviving spouse and children from a prior marriage, a corporate fiduciary may be the best choice.

Your estate planning attorney can provide more advice and guidance on who to name as a successor trustee as well as other provisions of your trust.