One of the most important decisions you’ll make when creating an estate plan is deciding who will serve as your successor trustee. Many people designate a family member or close friend who knows them well without considering whether this person is capable of fulfilling the duties of a trustee.
Successor trustees must assume a wide range of financial, tax and administrative responsibilities, many of which go beyond the knowledge and capabilities of the average person. Therefore, it’s important to understand exactly what you’re asking someone to do when designating him or her as your trustee — and more importantly, whether this person can handle the often complex and time-consuming responsibilities involved.
Ensuring Smooth Asset Distribution
The main job of a successor trustee is to ensure that your assets are distributed to your heirs in accordance with your wishes as stated in your last will and testament or other trust documents. However, your trustee may also have to handle a number of other details related to estate settlement, including the following:
- Appraise and arrange for the sale of real estate assets.
- Prepare fiduciary and personal tax returns and ensure that taxes are paid.
- Pay any outstanding bills and settle accounts with creditors.
- Close credit card accounts and other credit lines.
- Contact and maintain ongoing communication with your beneficiaries.
- Manage trust assets on behalf of beneficiaries.
Duties That Must Be Met
From a legal standpoint, a successor trustee must meet various duties, including the following:
- Duty to administer the trust by its terms.
- Duty to communicate and give proper notice.
- Duty to invest prudently.
- Duty of loyalty, impartiality and confidentiality.
- Duty to give proper notice.
- Duty of skill and care.
- Duty to pay, enforce and defend claims.
- Duty not to commingle funds or delegate.
Your successor trustee will have a fiduciary duty to administer your estate for the benefit of your beneficiaries. If he or she does not fulfill this duty, your trustee could be held personally liable for any damages that may result. Many trustees aren’t aware of this potential liability before they agree to take on this role.
For example, if your trustee were to make an investment that isn’t appropriate and ends up losing money, he or she could end up having to reimburse your estate out of his or her own pocket. If your trustee doesn’t have the funds to do so, your beneficiaries will suffer the consequences.
Choosing a Corporate Trustee
If you’d rather not place this responsibility on a family member or close friend, or if you don’t know anyone who is able or willing to serve as your successor trustee, you might be better off designating a corporate trustee. This is especially true if you have a large estate and complicated trust arrangements.
Corporate trustee services are provided by trust companies and bank trust departments that specialize in providing professional estate settlement services. A corporate trustee is a neutral third party who won’t be influenced by family or relationships that can sometimes make objectivity difficult.
There are other potential benefits of naming a corporate trustee. For example, a corporate trustee:
- Has valuable experience in the areas of estate settlement and investment management, which could boost investment returns.
- Is subject to federal and state regulations and must serve in a fiduciary capacity.
- May have an extensive network of other financial professionals he or she can tap if needed, such as insurance professionals, CPAs and estate planning attorneys.
- Can usually offer a wide range of other professional services, including offering financial, tax and investment advice.
Corporate trustees charge a fee for their services that usually ranges from 1% to 2.5% of the assets in the estate annually. While this might be quite large in the case of a sizable estate, it could end up being a small price to pay given the potential benefits to your heirs.
Please contact us if you have more questions about choosing a successor trustee. We can help you decide which type of trustee is best for your situation and recommend a corporate trustee if that’s the route you decide to take.