A successor trustee takes over management of your trust when you die or become incapacitated. This person holds significant responsibility for administering trust assets, following your instructions, and protecting beneficiary interests. Choosing the right successor trustee is one of the most important decisions you'll make when creating a trust.
Our friends at Yee Law Group Inc. spend considerable time helping clients understand what successor trustees actually do and who makes a good choice. A trust lawyer can explain the legal duties involved and help you select someone capable of handling the role.
When A Successor Trustee Takes Over
If you create a revocable living trust, you typically serve as trustee during your lifetime. You maintain complete control over trust assets, make investment decisions, and manage property as you always have. Your successor trustee remains in the background with no active role.
The successor steps in under two circumstances. First, if you become incapacitated and unable to manage your affairs, your successor trustee assumes control. Second, after your death, the successor takes over to distribute assets according to your trust instructions.
Some trust documents require medical certification of incapacity before the successor can act. Others use different triggering mechanisms. The transition should be smooth and clear to avoid disputes about when successor authority begins.
Primary Responsibilities
The successor trustee's job involves both administrative and fiduciary duties. They must locate and take control of all trust assets, which requires identifying bank accounts, investment portfolios, real estate, business interests, and personal property owned by the trust.
Asset management comes next. The successor trustee must safeguard property, maintain insurance, pay bills, manage investments, and make decisions about buying or selling assets. They handle trust accounting, tracking all income, expenses, and distributions.
Beneficiary communication is ongoing. The successor trustee keeps beneficiaries informed about trust administration, provides accountings, and responds to reasonable questions. Transparency builds trust and reduces potential conflicts.
Tax compliance requires attention. The successor trustee files final income tax returns for you, obtains a tax identification number for the trust, files trust income tax returns, and handles estate tax returns if required.
Core duties include:
- Inventorying and valuing all trust assets
- Managing and protecting property
- Paying debts, taxes, and administrative expenses
- Keeping detailed financial records
- Distributing assets to beneficiaries as directed
- Providing accountings to beneficiaries
- Acting impartially among multiple beneficiaries
Fiduciary Obligations
Successor trustees are fiduciaries, which means they must act in the beneficiaries' best interests with complete loyalty. This legal standard is higher than ordinary care or good faith.
The duty of loyalty requires trustees to avoid conflicts of interest and self-dealing. They cannot use trust assets for personal benefit, buy trust property for themselves, or make decisions that favor their interests over beneficiaries' interests.
Prudent administration means making reasonable investment decisions, avoiding unnecessary risks, and managing assets as a careful person would manage their own property. According to the American Bar Association, trustees can be held personally liable for losses caused by imprudent management.
Impartiality matters when multiple beneficiaries exist. The successor trustee cannot favor one beneficiary over others unless the trust document specifically allows different treatment. They must balance competing interests fairly.
Managing During Incapacity
When incapacity triggers successor trustee authority, the role focuses on ongoing management rather than distribution. The successor pays your bills, manages investments, maintains property, and handles financial affairs while you're unable to do so.
They might need to sell assets to pay for your care, make decisions about your residence, or coordinate with your healthcare agent. The trust should provide enough flexibility for the successor to meet your changing needs.
If you recover capacity, control typically returns to you as the original trustee. The trust document should address how this transition works to avoid confusion or disputes about who has authority.
Distribution Responsibilities
After your death, the successor trustee shifts focus to distribution. They must follow your trust instructions exactly, even if they disagree with your choices or face pressure from unhappy beneficiaries.
Simple trusts direct the successor to distribute everything promptly to named beneficiaries. Complex trusts might require ongoing management, with distributions over time, discretionary decisions about amounts and timing, or holding assets in continuing trusts for certain beneficiaries.
The successor must balance competing priorities. Beneficiaries want quick distributions, but the trustee needs time to identify assets, pay debts, resolve tax issues, and verify all obligations are met before making final distributions.
Investment Decisions
Successor trustees must make sound investment choices that align with trust purposes and beneficiary needs. This doesn't require professional investment expertise, but it does require reasonable care and attention.
Most states have adopted the Uniform Prudent Investor Act, which emphasizes diversification, risk management appropriate to trust purposes, and overall portfolio performance rather than individual investment success.
Successor trustees can hire investment advisors, accountants, and attorneys to help with complex decisions. In fact, seeking professional help when needed is part of prudent administration. The costs come from trust assets.
Record Keeping Requirements
Detailed records protect both the successor trustee and beneficiaries. Every transaction should be documented with receipts, statements, and clear explanations.
Annual accountings show beneficiaries what the trust owns, what income it generated, what expenses were paid, and what distributions were made. Some states require court filing of these accountings, while others leave it to the trust document's terms.
Good records also protect the successor trustee against later challenges. If beneficiaries question decisions or claim mismanagement, thorough documentation demonstrates proper administration.
Compensation
Successor trustees are entitled to reasonable compensation for their time and effort. Trust documents often specify compensation formulas, such as a percentage of assets or hourly rates.
Family members sometimes serve without compensation as a gesture to the estate, but this isn't required. Professional trustees, including banks and trust companies, always charge fees based on their published fee schedules.
Even family trustees should track their time. What seems like a brief responsibility often consumes hundreds of hours spread over months or years. Fair compensation recognizes this significant commitment.
Common Challenges
Beneficiary conflicts test many successor trustees. Family members might disagree about trust interpretation, distribution timing, or asset sales. The successor must remain neutral while following trust terms, which sometimes means disappointing some beneficiaries.
Complex assets create difficulties. Business interests, real estate requiring management, or unusual investments demand more attention and expertise than simple portfolios. Successor trustees might need to hire specialists to properly handle these assets.
Timeframe pressures come from multiple directions. Beneficiaries want quick distributions. Tax deadlines require prompt attention. Property maintenance cannot wait. Successor trustees must manage competing demands while maintaining accuracy and compliance.
Choosing Your Successor Trustee
The right successor trustee combines trustworthiness, organizational ability, financial competence, and availability. They need enough knowledge to manage assets or wisdom to hire appropriate help.
Family members understand your values and care about beneficiaries but might lack financial expertise or struggle with family dynamics. Professional trustees bring experience and objectivity but cost more and lack personal connections.
Some people name co-trustees to combine family involvement with professional expertise. This works when co-trustees cooperate but creates deadlock if they disagree about important decisions.
Preparing Your Successor
Don't wait until incapacity or death to educate your successor trustee. Discuss your trust structure, explain where documents are located, introduce them to your advisors, and review your wishes about asset management and distribution.
This preparation reduces stress and mistakes when the successor actually takes over. They'll step into the role with confidence rather than scrambling to understand basic trust mechanics during a difficult time.
Moving Forward
Successor trustee selection deserves careful thought and clear communication. The person you choose will implement your legacy, protect your assets, and serve your beneficiaries when you cannot do so yourself.
We help clients evaluate potential successor trustees and structure trust provisions that give these important fiduciaries the authority and guidance they need. Your successor trustee carries significant responsibility, and proper planning provides them with the tools and clarity necessary to succeed. Take time to choose wisely and prepare thoroughly so your trust accomplishes exactly what you intend.
