How to Succeed as Successor Trustee

You might get the news from an unexpected phone call. Maybe you knew it would come someday, but were surprised when the day finally arrived. Or perhaps no one told you, and you learned about it after stumbling upon your deceased parent’s trust.

No matter how it happens, the news is the same: You’ve been appointed a Successor Trustee.

How did you become trustee?

There are primarily two scenarios:

The trust document itself names you as a successor, and the previous trustee cannot do it any longer. He or she could be deceased, incapacitated, or simply not interested in serving as trustee. If the previous trustee has resigned, you should receive a written, signed resignation from him or her.
The trust document does not name you at all, but you have been appointed to step in as trustee by the trust’s grantor, beneficiaries, or previous trustee.

In either scenario, it’s an honor…but, it is an honor that comes with great responsibility.

What if you don’t know anything about the trust?

Here are the steps you need to take to be a competent trustee:

Most trusts require you to accept your appointment in writing and to notify the trust beneficiaries. It is critical at this stage to read the trust, preferably with a lawyer, to see who the beneficiaries are, and how you have to make distributions.

Gain access to the trustee’s bank accounts and other financial assets. But, first, you may need to get a new tax identification number for the trust. It all depends on the type of trust.

a. If it’s a living or revocable trust and the grantor is still alive, then you don’t need one. The trust uses the grantor’s Social Security Number.

b. If it’s an irrevocable trust, and the grantor is still alive, then you also don’t need a new tax ID number as long as it’s a “Grantor Trust,” which means that it was written in such a way that the trust income is reported on the grantor’s tax returns. If it’s not a Grantor Trust, and the trust files its own tax returns, then it should already have its own tax ID number.

c. For any trust, if the grantor is now deceased, then you need a tax ID number. You can obtain one by completing Form SS-4 or requesting one from the IRS online. Our firm regularly assists clients with this step as part of our estate and trust administration process.

Now you’re ready to head to the bank. The good news is that you do not have to wait for probate to gain access to the accounts. Bring with you the following documents as proof of your appointment as Successor Trustee:

- The title page, signature page, and trustee appointment pages of the trust. Remember that the trust is a private document, and you do not need to share the whole contents with anyone.
- The prior trustee’s resignation or copy of death certificate, if applicable.
- Your acceptance of appointment. Banks usually don’t ask for this if you were appointed in the trust document.

Make sure that one of the trust bank accounts is a checking account which has your name on the account as trustee–e.g., “John Smith, Trustee of the Jane Smith Trust.”

Managing real estate

Managing real property can be trickier. Technically, the trust is the legal owner of the house, and your job is to manage that house on behalf of the trust. You have to pay the taxes, insurance, and other carrying costs of the house using your trust checking account.

Make sure that any bills go directly to you by updating the name on any accounts (such as the insurance policy) to include your name as trustee and your home address.

What if someone else is living in the house? The deed or the trust may give that person life use, which could obligate them to pay the carrying costs.

But let’s say that the house is vacant, and the beneficiaries are eager to sell it. In that case, you would sign the real estate contract and the deed selling the property. Along with the deed, you’ll have to sign something called an “Affidavit of Facts” and record it on the land records to assert your authority under the Trust.

Managing investments

If the financial investments are significant, it would be smart to see a financial advisor about how best to invest them. Remember that you have a fiduciary duty to invest properly, but you are not being judged on your own personal investing prowess. If the previous trustee was already using a financial advisor, you can keep using them, but you have the discretion to change to a different one.

When investing, be aware of how long the trust is supposed to last. If you take over a trust after the grantor dies, and the trust directs you to distribute the assets to the beneficiaries upon death, then it does not make sense to begin long-term investments.

However, you may become Successor Trustee for a trust that lasts for the lifetime of a beneficiary. If that beneficiary may live for decades, then it would be prudent to think long-term, while also keeping liquid assets available for distributions as needed.

All the normal advice about being a trustee applies – you are a fiduciary, which comes with certain duties and responsibilities. In particular, trusts can have complex distribution standards and various types of sub trusts for different beneficiaries.

Most smart fiduciaries retain an attorney to ensure that they are complying with all their legal obligations. Contact us when you need a hand. We’d be happy to help!