Trusts have become an extremely popular estate planning tool over the years. Today, even a relatively simple plan will likely include a basic trust agreement. If your estate includes a trust, you will need to appoint someone to be the Trustee of that trust. What you may not have thought about doing yet, however, is to also appoint a successor Trustee. A Waukegan trust attorney at Hedeker Law, Ltd. explains why appointing a successor Trustee is so important if you have included a trust in your estate plan.
What Is a Trust?
First, it is important to have a firm understanding of what a trust is and how a trust works. A trust is a separate legal entity that owns and holds property for the benefit of one or more beneficiaries. A trust is created by a Settlor, also referred to as a Grantor, Trustor, or Maker, who transfers property to a Trustee appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, as the name implies, does activate during the Settlor’s lifetime.
The Job of Trustee
You must also understand the duties and responsibilities of a Trustee during the administration of the trust. The overall job of a Trustee is to protect and manage trust assets while administering the trust using the trust terms created by the Settlor. The specific duties and responsibilities of a Trustee are many. For example, a Trustee must:
- Manage and protect trust assets
- Abide by the trust terms unless they are impossible, illegal, or unconscionable
- Invest trust funds using the “Prudent Investor Standard”
- Monitor trust investments
- Communicate with trust beneficiaries
- Resolve conflicts among beneficiaries
- Make discretionary decisions
- Distribute trust funds to beneficiaries
- Approve or deny distributions if given discretionary authority
- Keep trust records
- Prepare and pay trust taxes
The importance of the Trustee’s role in the administration of a trust cannot be overstated. In fact, the Trustee often plays a pivotal role in the success, or failure, of a trust.
What Happens If the Trustee Cannot Serve?
Think of the Trustee as the captain of a ship. There are an infinite number of reasons, however, why the Trustee might suddenly be unable to serve, including death, incapacity, poor health, unforeseen conflict, relocation, or the Trustee may just not want the job anymore. If the Trustee cannot serve, for any reason, the ship has lost its captain. Without a Trustee, distributions cannot occur as planned. Important investment decisions cannot be made and/or investment opportunities might be missed. Recordkeeping could fall behind which could create problems with tax authorities. A trust cannot function properly without a Trustee.
If the trust is an irrevocable trust, or you are not alive, or you are incapacitated, naming a new Trustee yourself if the original Trustee cannot serve is not possible. Therefore, if you failed to name a successor Trustee, or at least include instructions for how to choose a successor Trustee, the only option is for a court to appoint a new Trustee. One problem with relying on a court to appoint a new Trustee is that the process of petitioning the court may take time – time in which the trust is without a Trustee. In the interim, the trust could lose assets and opportunities. The other big problem with relying on a court to name a new Trustee is the simple fact that someone you may not even know is now administering your trust. To avoid such an outcome, a successor Trustee should always be named in your trust agreement. In addition, you should include instructions for how to appoint a new Trustee if one is ever needed and you are unable to appoint one yourself.
Contact a Waukegan Trust Attorney
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns regarding the need to appoint a successor Trustee, contact an experienced Waukegan trust attorney at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.