Debunking Successor-Trustee Myths
A family member acting as successor trustee does not receive compensation.
This is false. The relationship between the trust maker and the successor trustee has no bearing on whether the successor trustee can be compensated for managing, investing, and distributing the trust’s accounts or property according to the trust agreement. To determine if the successor trustee is entitled to compensation, it is important to review the trust document to see if there are any provisions regarding trustee compensation. If the trust does not contain any trustee compensation provisions, you can check your state’s statute to determine if the successor trustee is entitled to compensation and how that compensation is calculated.
A successor trustee can do whatever he or she wants.
This is untrue. Although the successor trustee has a great deal of power when managing the trust’s accounts and property, the successor trustee’s authority is not absolute. As a fiduciary—a legal term used to express a role that requires a higher level of care and is therefore under greater scrutiny—the successor trustee has a duty to administer (manage) the trust solely in the interest of the beneficiaries and to deal with them without bias. Additionally, the trustee cannot use any of the trust’s accounts or property for the trustee’s own personal benefit (unless the trust explicitly allows for self-dealing) or for any purpose not expressly listed in the trust. The trustee also cannot enter into any transaction that would create a conflict of interest between the trustee and the trust or a trust beneficiary. Failure to carry out the trustee’s duties and responsibilities may result in removal of the successor trustee, and the trustee may be required to reimburse the trust for monies that were mismanaged or for any damages that were incurred.
Who manages the other accounts and property I own if my successor trustee is only authorized to manage the property owned by my trust?
As the term implies, a “trustee” is responsible for the accounts and property owned by the trust. Ownership by the trust occurs when the trust maker changes ownership of the accounts and property from the trust maker’s name individually to the name of the trust. However, there are several reasons why certain accounts or pieces of property may not be transferred to the trust.
During your lifetime, you continue to manage accounts or property outside of the trust and in your name only. If you are alive but unable to manage your own affairs, an agent under a financial power of attorney will have the authority to manage those accounts or pieces of property. If you do not have a financial power of attorney, your family may have to go to court and have a guardian or conservator appointed to manage your accounts and property.
At your death, some accounts or property that were in your name only may be subject to the court procedure known as probate. Probate is the court-supervised process of transferring accounts and property from a deceased individual to the appropriate heir or beneficiary. During this process, the court will officially appoint an executor or personal representative who was nominated in your will and give that individual or entity the authority to settle your affairs, manage your accounts and property, and distribute your accounts and property to the people you have named in your will. If you do not have a will, the court will appoint someone to act as executor or administrator based on state law. Your accounts and property will then be given to individuals—typically your parents, siblings, or other blood relatives—based on the state’s rules.
Alternatively, some of your accounts and property will not need to be managed at your death because ownership will transfer automatically. These include accounts or pieces of property owned jointly with right of survivorship and those with a valid beneficiary designation, pay-on-death designation, or transfer-on-death designation.
As successor trustee, what happens if I need help understanding the trust and financial accounts or managing the trust’s accounts and property? Can I hire someone to help me, and do I have to pay for this help myself?
Being a trustee can be time-consuming. Also, depending on the types of accounts or property requiring management, you may need some help navigating the complexities. This is why we, along with the other members of the advisory team, are here to help. Although you are the trustee, you cannot be expected to know everything. As long as you are acting on behalf of the trust and in the best interest of the beneficiaries, the expenses you incur in connection with managing and investing the trust’s accounts and property can be paid by the trust, not by you personally. However, it is important that you act reasonably when hiring someone to assist you, meaning you must use someone who is knowledgeable and skilled in the area in which you are seeking assistance. Additionally, the expenses must be clearly reflected in any trust accountings or records that you are required to provide to the beneficiaries.