What will my successor trustee have to do?

A successor trustee’s job starts when you (and your co-settlor, if you have one) resign, become incapacitated or die. The list of things that the successor trustee might do is too lengthy to recite here. This article merely summarizes typical actions.

The successor trustee should do two things before acting – read the trust and consult with counsel — for the purpose of understanding the terms of the trust, ascertaining risks and issues, and learning about the trustee’s fiduciary duties. After reviewing these things, the trustee should then decide whether to accept or decline office. Note that the trustee’s primary job is to do what the trust says, and if the trustee does not want to do what it says, the trustee should not accept office. Also note that the trustee’s duties or power extend only to trust property or assets in which the trust has an interest, but not to assets which fall outside the trust.

If you resign or are incapacitated, the trustee’s job is to manage your trust estate, use the income and principal of the trust estate to pay your bills and otherwise provide for your care and well-being, maintain records of trust activities, and provide reports and accounts to you or others as appropriate.

If you are deceased, the trustee will:

Send out whatever notices to beneficiaries, heirs, creditors, and taxing authorities are required by law or the instrument;
Make arrangements with financial institutions to have his or her name put on trust accounts as trustee;
Record the documents necessary to have his or her name put on trust real property as trustee;
Collect creditor information and pay creditors;
Appraise assets to obtain their new income tax bases;
Prepare and pay the decedent’s final income tax returns and the trust’s tax returns, and make any necessary or desirable tax elections;
If real property is not going to be distributed in kind, ready it for sale and undertake the sale;
Liquidate securities and other assets if they are not going to be distributed in kind;
Attempt to resolve any disputes regarding the interpretation of the trust;
If the trust owns an interest in a business or a business, determine what actions need to be taken with respect to the business;
Distribute tangible personal property and other specific gifts in accordance with the terms of the trust;
Allocate the remaining assets between beneficiaries, and distribute them in accordance with the terms of the trust;
Set up trust accounts for any subtrusts that are being created under the terms of the trust;
Prepare a report and account for the beneficiaries.

Disputes or points of conflict can arise in the trust administration process. The following list is typical, but is anything but exhaustive:

Sometimes a trustee does not provide enough information or timely information, with the result that the beneficiaries become suspicious and resentful;
A beneficiary may have received a gift or loan from the settlor, but it may not be clear from the trust document whether that should be taken into account in making distributions;
A beneficiary may want to receive tangible personal property, a piece of real property, or a business interest as part of his or her share, which may lead to disputes regarding the value of the property or interest;
A beneficiary may want to live in the residence without paying rent, whereas the trustee will likely be obligated to collect rent;
The value of trust assets may decline during administration and the beneficiaries may believe that they are entitled to damages from the trustee as a result.

Ideally, trust administration takes place entirely outside of court. This is, in fact, why most people want to create trusts. However, it may become necessary to involve the court. A trustee or beneficiary may petition the court to resolve disputes, issue instructions for the trustee to follow, approve or object to a trustee’s accounting, replace a trustee, or force distribution, among many other things.