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Choosing the Successor Trustee of an Individual Trust

The person or institution you choose as successor trustee will have a crucial role: to manage your trust property (if you become incapacitated) or distribute it to your beneficiaries (after your death).

Obviously, when you are giving someone this much power and discretion, you should choose someone with good common sense whom you trust completely. If you don't know anyone who fits this description, think twice about establishing a living trust. Most people pick an adult son or daughter, other relative or close friend.

In most situations, the successor trustee will not need extensive experience in financial management; common sense, dependability and complete honesty are usually enough. A successor trustee who may have long-term responsibility over a young beneficiary's trust property needs more management and financial skills than a successor trustee whose only job is to distribute trust property. The successor trustee does have authority, however, under the terms of the trust document, to get any reasonably necessary professional help -- from an accountant, lawyer or tax preparer, perhaps -- and pay for it out of trust assets.

One Trustee or More?

Usually, it makes sense to name just one person as successor trustee, to avoid any possibility of conflicts. But it's legal and may be desirable to name more than one person. For example, you might name two or more of your children if you don't expect any disagreements between them and you think one of them might feel hurt and left out if not named.

Having more than one successor trustee is especially likely to cause serious problems if the successor trustees are in charge of the property you have left to a young beneficiary in a child's subtrust. The trustees may have to manage a young beneficiary's property for many years and will have many decisions to make about how to spend the money -- greatly increasing the potential for conflict.

If you appoint cotrustees, you'll have to decide how they'll have authority to act -- that is, whether each one can act independently or if they must all agree before they can act. Obviously, it's easy to let each act without waiting for formal, written consent from the others. You may, however, prefer to have them all formally agree before taking action on behalf of the trust.

If you name more than one successor trustee and one of them can't serve, the others will serve. If none of them can serve, the alternate you name (later in this section of the program) will take over.

It's perfectly legal to name a beneficiary of the trust (someone who will receive trust property after your death) as successor trustee. In fact, it's common.

EXAMPLE: Mildred names her only child, Allison, as both sole beneficiary of her living trust and successor trustee of the living trust. When Mildred dies, Allison uses her authority as trustee to transfer the trust property to herself.

The successor trustee does not have to live in the same state as you do. But if you are choosing between someone local and someone far away, think about how convenient it will be for the person you choose to distribute the living trust property after your death. Someone close by will probably have an easier job, especially with real estate transfers. But for transfers of property such as securities and bank accounts, it usually won't make much difference where the successor trustee lives.

Institutions as Successor Trustees

Normally, your first choice as successor trustee should be a flesh-and-blood person, not the trust department of a bank or other institution. Institutional trustees charge hefty fees, which come out of the trust property and leave less for your family and friends. And most aren't even interested in "small" living trusts -- ones that contain less than several hundred thousand dollars worth of property.

But if there's no close relative or friend you think is capable of serving as your successor trustee, probably your best bet is to consider naming a private trust services company as successor trustee. Typically, their fees are pricey, but less than a bank's, and your affairs will probably receive more personal attention.

For a very large living trust, another possibility is to name both a person and an institution as cosuccessor trustees. The bank or trust services company can do most of the paperwork, and the person can keep an eye on things and approve all transactions.

Obviously, before you finalize your living trust, you must check with the person or institution you've chosen to be your successor trustee. You want to be sure your choice is willing to serve.

If you don't, you may well create problems down the line. The person you've chosen may not want to serve, for a variety of reasons. And even if the person would be willing, if he or she doesn't know of his or her responsibilities, transfer of trust property after your death could be delayed.

If you choose an institution, you must check out the minimum size of trust it will accept and the fees it charges for management, and make arrangements for how the institution will take over as trustee at your death.

Avoiding Conflicts With Your Will and Other Documents

Your living trust gives your successor trustee the authority to manage trust property if you become incapacitated. To avoid conflicts, it's a good idea to name your successor to two other posts:

  • In your will, appoint your successor trustee to be executor, to be responsible for distributing property that doesn't pass through your living trust.
  • In your durable power of attorney for finances, appoint your successor trustee to be your attorney-in-fact, to have authority to make financial and property management decisions for property (except trust property) if you become incapacitated.

Payment of the Successor Trustee

Typically, the successor trustee of a simple probate-avoidance living trust isn't paid. This is because, in most cases, the successor trustee's only job is to distribute the trust property to beneficiaries soon after the grantor's death. Often, the successor trustee inherits most of the trust property.

An exception is a successor trustee who manages the property in a child's subtrust. In that case, the successor trustee is entitled, under the terms of the trust document, to "reasonable compensation." The successor trustee decides what is reasonable and takes it from the trust property left to the young beneficiary.

Allowing the successor trustee to set the amount of the payment can work well, as long as your successor trustee is completely trustworthy. A young beneficiary who feels the trustee's fees are much too high, he or she will have to go to court to challenge them.

Naming an Alternate Successor Trustee

The program asks you to name an alternate, in case your first choice as successor trustee is unable to serve.

If you named more than one successor trustee, the alternate won't become trustee unless none of your original choices can serve.

EXAMPLE: Caroline names her two children, Eugene and Vanessa, as successor trustees. She names a close friend, Nicole, as alternate successor trustee. When Caroline dies, Vanessa is ill and can't serve as trustee, so Eugene acts as sole successor trustee. If he becomes unable to serve, Nicole would take over.

If no one you named in the trust document can serve, the last trustee to serve has the power to appoint, in writing, another successor trustee.

EXAMPLE: To continue the previous example, if Nicole were ill and didn't have the energy to serve as successor trustee, she could appoint someone else to serve as trustee.