When establishing a revocable living trust, it is crucial to follow best practices for naming successor trustees, as this individual will be responsible for managing the trust’s assets and honoring the trustor’s intentions long after their passing.
Despite their name, when forming a revocable living trusts it is essential that the founder make decisions with the future in mind. These trusts are often formed for the benefit of children or other successors, which will survive for decades even beyond the death of the trustor (the person making the trust). While the trustor is always themselves the trustee of a revocable living will (thus being the person who is able to control and manage the trust), it is essential to also select at least one successor trustee who can assume those responsibilities after the trustor’s death. Revocable living trusts convert to irrevocable trusts upon the trustor’s death, meaning they cannot be changed easily, so ensuring they have chosen a competent successor trustee is critical to ensuring that the trust is managed properly for the beneficiary after the trustor is gone.
Who to Choose as a Successor Trustee?
While trustor may want to “keep it in the family” when it comes to the management of a trust after their death, often selecting a family member like a spouse, sibling, or adult child can lead to complications. Those family members may have a different, or more complicated, relationship to the beneficiary than the trustor did, leading them to act differently from the initial trust’s purpose out of the belief that “they know better” how to serve the beneficiary. This can lead to fighting and even legal battles over the successor trustee’s actions if they run contrary to the trust instructions.
In addition, family members may not have the financial experience or legal knowledge to fulfill their fiduciary obligations to the best degree possible. They may not feel comfortable managing these types of assets and making these decisions, leading them to seek advice from individuals the trustor does not want to influence the distribution of the trust.
Consider a Professional Trustee
Instead, a better option for a successor trustee is to select a financial institution or professional successor. These trustees will often have the experience and knowledge to effectively manage a trust, and larger institutions or practices may have several individuals who can be relied upon for advice. These trustees would also not act in a biased or subjective fashion towards the trust or beneficiaries, as they do not have the personal relationship a family member or friend might. They will, instead, act under their legal obligation to you, and the trust to act in the best interests of the trust. The downside to this option is that these successors will require a fee for their services, but that may be a worthwhile price to pay for peace of mind.
For a comprehensive guide on evaluating potential successor trustees, considering reading Law Stein Anderson’s article: Key Questions to Ask When Picking Your Successor Trustee.
What Powers Do Successor Trustees Have?
While there may be concerns that a successor trustee can override the trustor’s will, there are steps that can be taken to ensure the trust’s purpose is preserved. To begin, successor trustees do not have power over the trust while the trustor is alive unless they become incapacitated. The trustor will, therefore, have the ability to disburse assets, manage the trust, and make changes to the trust (including changing successor trustees) so long as they are living.
Once the trustor has passed, however, the successor trustee will have the same powers that the trustor did, subject to any limitations they may elect to place during their life. This is the reason why it is important for the trustor to define the duties of the trustees (including themselves) as well as the limitations the trustee has when managing the trust.
What Powers do the Beneficiaries Have?
While the beneficiaries often have no say in how the assets of the trust are managed, it is crucial that the trustor leaves them some options in the event that the successor trustee begins to act contrary to the trust’s purpose. The biggest tool that a trustor can leave for the beneficiary is the ability to replace a successor trustee. Without resorting to a lengthy and expensive lawsuit.
It’s often best for a trustor to include a provision in the trust that allows for an independent third party (like an independent third party) to be able to remove and replace trustees without judicial intervention. It’s important that this decision not be left solely in the hands of the beneficiary, as they can abuse it to remove a successor trustee solely to install someone who will act in their interests rather than the trusts, but a third party should have the option to remove a trustee who is abusing their power.
Having a third party who can remove a trustee also serves an important purpose of forcing the beneficiary and trustee to resolve any disputes without an expensive lawsuit. For this reason, it is critical to make sure that this third party does not have a relationship with either the beneficiary or the trustee.
However, if the trustor believes that these beneficiary/trustee disputes are best handled objectively, and they wish to use the costs of legal proceedings as a deterrent, they can simply leave the decision to the courts if a beneficiary wants to remove a trustee.
What are the Best Practices for Naming a Successor Trustee?
To recap, naming a successor trustee is critical for ensuring that a trust is managed in accordance with the wishes of the trustor. Best practices for naming a successor trustee include:
1) Naming a professional or institution as trustee rather than a family member or friend
2) Ensuring that there are appropriate limitations on the successor trustee’s powers for managing the trust
3) Leaving some means for a beneficiary to remove a trustee, if needed
Taking these steps will ensure that a trust continues to serve its purpose long after the initial trustee is gone and that there are as few legal headaches for the beneficiary and trustee as possible.
For more information on Trust Experience’s professional fiduciary services, please visit our Services page or contact us for more information.