A Successor Trustee should be exactly that – someone who will take over management of your Trust should you ever need and definitely someone whom you trust. When considering who you might want to choose, there are both practical and emotional considerations.
The practical considerations are easier to think about in terms of what this person does not need to be. They don’t need to be an expert in investing – financial advisors can be hired. They need not be an accounting or real estate expert as dedicated accountants and real estate professionals often have better advice. A Successor Trustee should be smart enough to ask for help and willing to take on the responsibility of oversight and decision making.
Trustees have a “fiduciary responsibility” which means that they should demonstrate a high level of attention and care or they could be personally liable for harm caused. For instance, a Trustee who does not have a method for recording income and expenses will be presumed to “have lost” monies if unaccounted for. Beneficiaries of a trust can bring a claim for mismanagement or breach of duty.
Many trusts will have clauses that exonerate trustees from general liabilities, for instance if the market has a major decline and the portfolio value decreases. But inadvertent neglect, such as not consulting with a financial advisor or keeping track of income and expenses could lead to potential liability.
A Trustee should be of an age and energy level to take on the tasks and duties necessary to effectuate the terms of the trust. The administration of a trust after one’s death is usually a finite process (unless ongoing sub trusts will be funded and maintained long term). The administration of a trust during the trustor’s incapacity, especially if long term, can be challenging and time consuming. Often it is hard to predict in advance what role a Successor Trustee will play, and for how long they will be needed. Having more than one Successor Trustee named in the document allows for flexibility in the event that unanticipated needs arise – whether for the Trustor or the named Trustees.
Trustees may be paid from the trust assets and even though many start by saying they don’t want to take fees, we do recommend that Trustees keep track of their time and expenses. Fees earned by a Trustee are taxable income. Trustees who are also beneficiaries in the trust receive their gift inheritance income tax free but they do pay income taxes on fees earned. None the less, Trustees can choose to accept or decline fees. Each case differs and these are examples of issues which we can advise the Successor Trustees.
No matter who is hired as a Successor Trustee, they should realize they are not expected or required to do everything on their own. They can hire, delegate, consult, and/or resign should they choose. Being clear with a Successor Trustee that they can get help or delegate is often useful information and makes both the grantor and the Trustee feel better. We can provide resources to help Trustees fulfill their duties and meet their obligations, reducing their liability and helping them to be more efficient. If you would like to consult with an attorney at Johnston, Kinney & Zulaica LLP on any of these issues or estate planning in general, please call 415-527-0788 or email us for an appointment.