When creating an estate plan, grantors need to consider choices for a successor trustee. Often, parents want to choose all their children or just one child, or maybe a close friend or relative. Who should become a successor trustee? What does it mean to act as a Successor Trustee?
What is a Successor Trustee?
A Successor Trustee is a person who is named to oversee a trust for the benefit of the beneficiaries of a trust document.
The Successor Trustee steps into the shoes of an original Grantor or Trustee and acts in a fiduciary duty to take care of the trust assets.
The named successor trustee steps into the role in the following ways:
· Trustee's resignation
· Trustee's incapacity
· Court Appointed role
· Trustee's death
To become a successor trustee, the person must accept the position in writing. Typically, an Affidavit for Successor Trustee is signed and notarized to take over the duties as successor trustee.
What are the Duties of a Successor Trustee?
The duties of a Successor trustee resemble the actions of business entity. A successor trustee acts in a fiduciary capacity. A person must act in a responsible and honest manner and oversee a trust.
What does it mean to act in a fiduciary capacity. "A trustee is a fiduciary of the highest order and is required to exercise a high standard of conduct and loyalty in administration of the trust..." Twin Chimneys v. J.E. Jones Const., 168 S.W.3d 488 (Mo. 2005). States passed laws setting out the duties a trustee owes to a trust and beneficiaries. A Successor Trustee acts with a duty of loyalty, care, confidentiality, with a responsibility to inform and report as needed or required by statute or the trust instructions.
- Duty of Loyalty - "A trustee shall administer the trust solely in the interests of the beneficiaries." MO Rev. Stat. 456.8-802 (2023).
- Duty of Care- "A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution." MO Rev. Stat. 469.902 (2023 Edition).
- Duty of Confidentiality – A Trustee should not disclose to third parties, the identity or interests of the trust assets or the identity of the beneficiaries.
- Duty to Inform and Report – During incapacity of the Grantor or at death, "A trustee shall keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests." MO Rev. Stat. 456.8- (2023 Edition).
How are Duties related to Estate Planning?
How are the duties related to a grantor's estate plan? A successor trustee's powers and duties are expressly written in the trust document or there is an implied action based upon statutory duties or findings in case law. The trust document should contain an article related to trustee powers and the choosing of a successor trustee. The trust often clearly spells out who acts as successor trustee upon a grantor/trustee's incapacity and what occurs at death.
The successor trustee gathers the trust assets funding the trust. It is necessary to inventory and value personal and real property, including any business ownership assets. Assets, and their value is determined as well as securing the grantor's liabilities. An estate planning budget for trust administration is needed for ongoing expenses. He or she needs to work with the grantor's estate planning attorney. If the attorney is no longer active, then work with an estate planning attorney who has knowledge of trust administration.
A successor trustee has an implied power of sale, mortgage, leasing, improving, or conducting transactions incident to the administration of a trust. In Missouri, a successor trustee may also be responsible for a grantor's digital assets. The Successor Trustee observes a standard of care for taking care of the assets. During incapacity, the successor trustee follows the trust guidelines for distributing principal to the grantor for his or her care. At death the successor trustee follows the distribution guidelines for beneficiaries. To follow the grantor's wishes requires a candidate possessing the right characteristics.
What are the Characteristics of a Successor Trustee?
Choosing a Successor Trustee is sometimes a grantor's most difficult decision. Often, I see parents torn between which child to choose. Sometimes children pressure parents to name siblings as co-trustees. Naming co-trustees is not recommended for a variety of reasons. However, those pitfalls will be addressed in another blog. When thinking about a potential successor trustee, it does not need to be a beneficiary. In fact, often naming the beneficiary is not the best solution. What characteristics should a grantor consider?
A potential candidate should possess the following characteristics:
- Knowledge: The person must understand how to manage a trust's assets and make decisions about financial investments and situations.
- Sound Judgment: A candidate should have a track record of making responsible decisions, able to protect trust assets, and keep in mind the best interest of beneficiaries.
- Trustworthy: A person must be trusted to handle assets with integrity and honesty. He or she is responsible for executing the terms of the trust with the beneficiaries' welfare in mind and must be principled to take action.
- Willingness: A successor trustee must be willing to assume the duties of loyalty, care, and confidentiality. The person must be willing to keep track of assets and satisfy the terms of the trust agreement.
- Availability: He or she must be available to handle situations and to cooperate with a trust administration attorney.
Trust Administration and the Successor Trustee
Case law interpreted various duties pertaining to trust administration and trustee duties. Trust administration is more complex than splitting assets or paying taxes. When considering who should be a successor trustee, one point to ponder is, “Who will follow the trust instrument for the benefit of the grantor or beneficiaries? Another major consideration is to avoid the co-trustee trap. Often parents want siblings to work together. More litigation occurs from the pitfall of the co-trustee scenario. Third, work with an attorney who is knowledgeable and practices trust administration. .
Trust Administration and the Attorney
Trust administration requires inventorying, recording, and maintaining assets. Trust administration goes beyond a mere division of assets between beneficiaries. Often trust documents contain specific requirements for incapacity, or death of one spouse, as well as sub trust information If you are a Successor Trustee, call 314-332-0011 for a complimentary consultation with Sheri Tucker. https://www.yourestateally.com/contact-us
