Successor trustees are often unprepared for the duties thrust upon them when a parent passes. A successor trustee’s duties include, among other things, marshaling trust assets, debts, notifying beneficiaries and maintaining a detailed log of all actions and dollars spent. The successor trustee is also typically charged with distributing trust gifts to beneficiaries in a timely manner and providing an accurate, annual accounting of trust expenditures.
Successor trustees owe trust beneficiaries the highest legal duty possible, which is referred to as a fiduciary duty. This means that successor trustees must prudently manage the trust for the sole benefit of the beneficiaries and always act in their best interests. Failing to do so, may result in breach of fiduciary duty that could result in personal liability for the trustee.
Some common problem that arise in this context that could result in a trustee being personally liable for a breach of fiduciary duty include:
- Neglecting to make required distributions to the beneficiaries.
- Neglecting to provide an accounting of trust activity.
- Mismanaging trust property.
- Making poor investment decisions or failing to invest at all.
- Paying taxes late or incurring other avoidable fees or penalties.
- Showing one beneficiary preferential treatment.
- Self-dealing or avoiding conflicts of interest.
- Stealing or embezzling trust property.
Trustees are required to keep accurate records and make sure that they detail the work they have performed on behalf of the trust.
Below is a list of the critical steps that a successor trustee must take to ensure proper trust administration:
- Initial Tasks
- Allow family grieving time and facilitate final arrangements.
- Order death certificates and gather trust-related documents.
- Accept the Trusteeship
- Engage attorney and CPA experienced in trust administration. If multiple states are involved, multiple advisors may be required.
- Execute acceptance of trusteeship / certificate or affidavit of incumbency.
- Obtain EIN for each trust that is now irrevocable.
- Publish a notice to creditors for unknown creditors and mail a notice to creditors to known creditors.
- Send notice of irrevocability to beneficiaries.
- Take Control of Trust Assets and Grantor Liabilities
- Notify credit bureaus of death.
- Forward Grantor’s mail with the U.S. Postal Service.
- Ascertain assets and liabilities by reviewing the Grantor’s mail, the Grantor’s personal files, personal and business records, and online accounts. Assume formal control.
- Contact insurers to continue or acquire adequate property and casualty insurance for real and personal property.
- Submit appropriate claims to accounts, policies, and other assets for which the trust is a beneficiary upon death.
- As to the Grantor’s assets that are not held in the name of the trust and that are not payable to one or more designated beneficiaries, arrange for a probate of the pour-over Will.
- Develop Trust-Administration Plan
- Work with CPA, attorney, and financial advisors to create a plan of action and a clear division of duties with respect to asset discovery and collection, appraisals, investment management, business management, tax returns (1040, 1041, 709, 706, etc.), ascertaining and satisfying liabilities, property maintenance, expense payments, sale or maintenance of trust assets, record maintenance, and compliance with the directives of the trust instrument.
- Create a budget for the trust and a timeline for trust decisions and actions. Analyze cash-flow needs for the payment of ongoing expenses, taxes and other liabilities, and beneficiary distributions.
- In accordance with the requirements of the trust instrument and statutory law, provide the beneficiaries with a copy of the trust provisions affecting them. To the extent appropriate, inform them of the initial trust inventory, the anticipated timeline for trust administration and distributions, and the overall process for the trust’s administration.
These are not the only steps you will need to take as a successor trustee, but the above list is great start. One of the most important steps is contacting an Orange County Estate Planning Attorney for assistance. At the Law Office of Jonathan D. Alexander, we take the time to educate our successor trustee clients about their new responsibilities and obligations to ensure that they understand what is required of them and how to discharge their duties effectively and in compliance with the trust document and the law.
If you have been named as a successor trustee and need assistance, please call us today at (949) 334-7823 for a consultation.
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