According to a recent article (11/17/21) by Michael Gilfix, published in the Los Altos Town Crier one should use caution when selecting your successor trustee. This article offers some valuable tips… read on.
Jean had an estate valued at approximately $2 million. The trust indicated that half would go to Rob, her nephew, and the other half to her favorite charity. She chose her nephew as her successor trustee. She trusted Rob to properly administer her estate after her death.
When she died, Rob called the attorney who prepared the trust. He asked who knows about the trust and its terms. The attorney explained that the trust is private, avoids the probate courts, and is therefore effectively invisible to the outside world. Rather than hire the attorney to help administer the trust estate, Rob thanked him, hung up, and never called again.
Question: What are the odds that the charity ever saw a penny?
Jean misplaced trust in her nephew. She chose the wrong person as her successor trustee.
You created your revocable living trust to hold your assets. You did so because of the probate avoidance and other benefits. You may have included sophisticated tax-planning provisions in your trust.
You also chose someone to serve as your successor trustee. This is the person who will manage your trust if you become incapacitated and upon your death. In many ways, this is the most important decision you will make. If you become incapacitated, your successor trustee will be responsible for managing your trust assets, which includes everything except your retirement accounts. Taxes and bills must be paid and investments decisions made. There also will be a high level of responsibility for your quality of care and your quality of life. Choosing the right person for this role ensures your well-being. Choosing the wrong person threatens your well-being.
Upon your death, your trustee will have responsibility for determining the value of your estate, ensuring that all taxes and other bills are paid, and then distributing assets to identified beneficiaries. This process can be complicated. Sometimes, ambiguous provisions in a trust require the trustee to exercise good judgment and discretion.
To be clear, do not choose your first-born child because he or she is your first-born child. Do not choose the child who lives closest to you because he or she lives closest to you. Your choice should focus on finding a responsible person, one who is likely to be a family member but may not be. This does not mean the selected successor trustee must understand everything about finances, the operation of the trust, and tax reporting. Rather, it means that this individual has a sufficient level of understanding and sophistication to obtain appropriate professional assistance. The trustee may need to hire a financial planner, an estate attorney, or a case manager. The trustee can use trust assets to pay for such services.
With all of this in mind, I urge you to think carefully about the choice you have made. Are you perfectly comfortable with the choice? Does your choice of successor trustee let you sleep well at night?
Here is the thought process that can guide you in making or reviewing this decision:
Ideally, you will have a family member or very close personal friend serve in this role. Many adult children are capable of serving in this role. Many are not. Many are capable but are not inclined to accept the responsibility. If you cannot find an individual in this primary category, look to the next level.
Alternative trustees
Next, think about individual professionals who can accept this responsibility. There are professional fiduciaries who are in the business of serving as successor trustees. To consider professional fiduciaries, you must meet with candidates and ask serious questions about experience, capacity, and fees. You must develop a high level of comfort.
In addition to professional fiduciaries, many attorneys serve as successor trustees in selected matters.
The next level of opportunity is the world of financial institutions and trust companies. Most banks have trust departments and are willing to accept this responsibility. Some have minimums, meaning they will only accept responsibility for estates with relatively high levels of liquidity. Fees can be higher than those of professional fiduciaries or other professional individuals. An arguable benefit of a financial institution is its longevity and likely existence into the indefinite future.
If you consider a financial institution as successor trustee, be sure to ask a representative how it monitors such things as quality of care if you become incapacitated. Ask how it will evaluate your needs and ensure quality of care at home or in a care facility.
Another alternative, in selected matters, is the world of nonprofit organizations. There are pooled trusts, for example, that accept trustee responsibilities for individuals with special needs and for whom special-needs trusts have been created. Other nonprofit organizations are willing to serve as trustees for individuals with no other alternative.
With all of this in mind, it is a good idea to review your choice of successor trustee every couple of years with your Cincinnati estate planning attorney. Your quality of life may depend on it.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate, or trust administration in Cincinnati (and
throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate, or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526). David H. Lefton is an Estate Planning and Probate Attorney. He is a partner in the law firm of Barron, Peck, Bennie &
Schlemmer.
From: Michael Gilfix, published in the Los Altos Town Crier 11/17/21