Successor Trustees for Shared Trust

You must also choose a successor trustee -- someone to act as trustee after both of you have died or become incapacitated. The successor trustee has no power or responsibility if at least one original trustee is alive and capable of managing the trust.

The Successor Trustee's Duties After Both Grantors' Deaths

After both original trustees have died, the successor trustee named in the trust document takes over as trustee. The successor trustee's primary responsibility is to distribute trust property to the beneficiaries named in the trust document. That is usually a straightforward process that can be completed in a few weeks.

The successor trustee may, however, have long-term duties if the trust document creates a child's subtrust for trust property inherited by a young beneficiary (this is explained in Part 6).

The Successor Trustee's Duties If Either Grantor Is Incapacitated

The successor trustee will take over as trustee before both trustees have died if both trustees are unable to manage their affairs. Incapacity is determined by the person named in the trust document for this purpose. (See The Trustee After One Grantor's Death or Incapacity.) In this situation, the successor trustee has broad authority to manage the property in the living trust and use it for both grantors' health care, support and welfare. The law requires him or her to act honestly and prudently. And because the grantors are no longer the trustees, the new trustee must file an annual income tax return for the trust.

Choosing a Successor Trustee

The person or institution you choose as successor trustee will have a crucial role: to distribute trust property to your beneficiaries after you have died. And if you and the other grantor become incapacitated, the successor will manage trust property on your behalf; if you leave property to a young beneficiary in trust, the successor will manage that property until the beneficiary is old enough to handle it alone.

Obviously, when you are giving someone this much power and discretion, you should choose a person 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.

Keep in mind that the successor trustee does not take over until both grantors have died (or become incapacitated). That means that after one grantor's death, the survivor will probably have plenty of time to amend the trust document and name a different successor trustee if he or she wishes.

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.

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. (Children's subtrusts are discussed in Property Management for Young Beneficiaries.)

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 (in the next section of the program) will take over.

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

EXAMPLE: Mildred and James name their only child, Allison, to be successor trustee of their living trust. They name each other as trust beneficiaries and Allison as alternate beneficiary. When James dies, his share of the trust property goes to Mildred. When Mildred dies, Allison uses her authority as trustee to transfer the remaining trust property to herself, the beneficiary.

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 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 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.

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.

Obviously, before you finalize your living trust, you should check with the person 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.

Avoiding Conflicts With Your Will and Other Documents

When you make a living trust with your spouse or partner, the document gives him or her authority to manage trust property if you ever become incapacitated. It's usually a good idea to also appoint your spouse or partner to be your:

  • executor, to distribute property left through your will after your death, and
  • attorney-in-fact in your Durable Power of Attorney for Finances, to manage property not held in trust 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 -- and often, the successor trustee inherits most of the trust property anyway.

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. If the young beneficiary 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

We'll ask you to name an alternate successor trustee, in case your first choice is unable to serve.

If you name two or more successor trustees, the alternate won't become trustee unless none of your original choices can serve.

EXAMPLE: Caroline and Oscar name their two grown children, Eugene and Vanessa, as successor trustees. They name a close friend, Nicole, as alternate successor trustee. After Caroline and Oscar have died, Vanessa is ill and can't serve as trustee. Eugene acts as sole successor trustee. If he is unable to serve or dies, Nicole will 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.