Duties of Trustees
Duties and Responsibilities of Trustees
1. Overview of the Duties and Responsibilities of a Trustee of a Revocable Living Trust
If you have been named as a trustee or successor trustee for someone’s revocable living trust, you may want to know what you are supposed to do. Successor trustees can relax a bit, because you have no duties and responsibilities until the incapacity or death of the grantor or settlor (trustmaker) of the trust. You will only begin to act when the trustmaker becomes unable to manage his or her own financial affairs due to incapacity, or when he or she dies. If you have been named as a current trustee or co-trustee, you may already be acting in that capacity and need to be aware of your duties and responsibilities as trustee.
In either case, it is important that you understand your duties and responsibilities. These FAQs will help. We will start with some explanations and definitions.
If you are a trustee, or a beneficiary, of a trust and you need the assistance of an experienced trust lawyer or estate planning attorney in northeast Florida, please call us toll free at 1-866-510-9099.
2. What is a trust?
A trust is a legal entity, and is treated under the law as a “person” that can “own” assets. The trust document looks much like a last will and testament. Lke a will, a revocable living trust includes instructions to the person or persons you have named as your successor trustees – those persons whom you want to handle your final affairs and whom you want to receive your assets after you die. There are different kinds of legal trusts for which you may have been named a successor trustee: a testamentary trust (created in a will after someone dies); an irrevocable trust established either during the lifetime of the trust maker or through a will(usually cannot be changed); and revocable living trusts. A revocable living trust is established during the trustmaker’s lifetime, and usually becomes irrevocable upon the death or incapacity of the trustmaker.
Today, many people use a revocable living trust instead of a last will and testament in their estate plan because the revocable living trust, if properly funded (assets are retitled to the trust) avoids court interference at death (probate) and at incapacity (court supervised guardianship). It is also flexible. As long as you are alive and competent, you can change the revocable living trust document, control all investments and other assets, add or remove assets, decide when and how much to distribute out of the trust, even cancel or revoke it.
3. How does a revocable living trust work?
For a revocable living trust to work properly, you must transfer your assets into it. Titles must be changed from your “individual” name to the name of your revocable living trust. Because your name is no longer on the titles, there is no reason for the Florida probate court to be involved if you become incapacitated or when you die. This makes it very easy for the person or persons (a trustee or successor trustee) that you have chosen to step in and manage your financial affairs during your incapacity and at your death. Your successor trustee, in the event of your incapacity, does not have the potential limitations experienced by someone you have named as your power of attorney, i.e., a third party’s refusal to honor the durable power of attorney. The third party has no choice but to work with your successor trustee(s) because that person is the “legal owner” of the assets titled to the trust, even though you remain the “beneficial owner” of those assets.
If you would like to explore how a revocable trust can help you control your estate planning, and avoid probate, please call us toll free at 1-866-510-9099.
4. Who are the people involved with a revocable living trust?
The grantor (also called settlor, trustor, creator or trustmaker) is the person who established the revocable living trust. Married couples who set up one revocable living trust together are co-grantors of their joint revocable living trust. Only the grantor(s) can make changes to his or her revocable trust.
The trustee manages the assets that are in the revocable living trust. Many people choose to be their own trustee and continue to manage their affairs for as long as they are able. Married couples are often co-trustees, so that when one dies or becomes incapacitated, the surviving spouse can continue to handle their finances with no other actions or steps required, including Florida probate court interference.
A successor trustee is named to step in and manage the revocable trust when the trustee is no longer able to continue (usually due to incapacity or death). Typically, several successor trustees are named in succession in case one or more cannot act. Sometimes two or more adult children are named to act together. Sometimes a corporate trustee (bank or trust company) is named. Sometimes it is a combination of the two.
The beneficiaries are the persons or organizations who will receive the benefit of the trust assets after the grantor dies.
5. As a Successor Trustee, what do I need to know now?
The grantor should make you familiar with the revocable living trust and its provisions. You need to know where the original trust document, trust assets, insurance policies (medical, life, disability, long term care) and other important papers are located. However, don’t be offended if the grantor does not want to show you values of the trust assets; some people are very private about their finances. This would be a good time to make sure appropriate titles and beneficiary designations have been changed to the revocable living trust. (Some assets, like annuities and IRAs, will list the revocable trust as a primary or contingent beneficiary.)
You also need to know who the trustees are currently, who are the successor trustees, the order in which you are slated to act as a trustee, and if you will be acting alone as the sole trustee or with someone else as co-trustees.
6. What responsibilities will I have as a trustee?
The most important thing to remember when you step in as trustee is that the trust assets are not your assets. You are safeguarding them for others: for the grantor (if living), the grantor’s spouse, and for the beneficiaries, who will receive them after the grantor dies.
As a trustee, you have certain duties and responsibilities. For example:
- You must follow the instructions in the revocable trust document.
- You cannot mix, or commingle, trust assets with your own. You must keep separate checking accounts and investments and be able to account for them.
- You cannot use trust assets for your own benefit (unless the trust authorizes it).
- You must treat trust beneficiaries the same; you cannot favor one over another (unless the trust says you can).
- Trust assets must be invested in a prudent (conservative) manner (the “prudent investor rule”), in a way that will result in reasonable growth with minimum risk.
- You are responsible for keeping accurate trust accounting records, filing tax returns and reporting to the beneficiaries as the trust requires, or as the Florida Trust Code requires.
7. Do I have to do all of this myself?
No, you can have professionals help you, especially with the trust accounting and investing to satisfy the prudent investor rule. You will also probably need to consult with an experienced estates and trusts attorney from time to time. However, as trustee, you are ultimately responsible to the beneficiaries for prudent management of the trust assets.
If you would like additional information, or a consultation to determine how to handle your trustee responsibilities, please call The Coleman Law Firm at 904-448-1969 or toll free at 866-510-9099, or email us at Info@TheColemanLawFirm.net .
8. How will I know if the grantor is incapacitated?
Usually the living trust document contains instructions for determining the grantor’s incapacity. The revocable living trust may require one or more doctors to certify the grantor is not physically or mentally able to handle his or her financial affairs.
9. What do I do if the grantor is incapacitated? Initial considerations.
If all assets have been transferred to the living trust, you will be able to step in as successor trustee and manage the grantor’s financial affairs quickly and easily, with no Florida probate court interference through a court supervised guardianship. If there are assets that were intended to be transferred to the revocable living trust, but have not, anyone who has the grantor’s durable power of attorney has the legal authority to transfer those assets to the revocable living trust.
First, make sure the grantor is receiving quality care in a supportive environment. Give copies of health care documents (designation of health care surrogate, medical power of attorney, living will, etc.) to the attending physician. If someone has been appointed to make health care decisions other than you, make sure he or she has been notified. You may need to notify the grantor’s employer, friends and relatives.
Next, find and review the trust document. (Hopefully, you already know where it is.) Notify any co-trustees as soon as possible. Also, notify the estates and trusts attorney who prepared the revocable trust document; he or she can be very helpful if you have questions. You may want to meet with the estate planning attorney to review the revocable trust and your responsibilities. The estate planning attorney can also prepare a certificate of trust, a shortened version of the trust that proves you have legal authority to act as the successor trustee.
You will want to become familiar with the grantor’s insurance (medical and long term care, if any) and understand the benefits and limitations. Assuming the insurance will cover a certain procedure or facility could be a costly mistake.
Have the doctor(s) document the incapacity as required in the trust document. Banks and others may ask to see this and a certificate of trust (sometimes referred to as an “affidavit of successor trustee”) before they let you transact business on behalf of the living trust.
10. What do I do if the grantor is incapacitated? Additional considerations.
If there are minors, other dependents, or pets, you will need to provide for their care. The living trust may have specific instructions. If the grantor’s incapacity is expected to be lengthy, a guardian (of the person, not a guardian of the property) may need to be appointed by the Florida probate court. The Florida estates and trusts attorney can help you with this procedure if it is necessary.
Become familiar with the trustmaker’s finances. You need to know what are the assets are owned by the trust, where the assets are located and the current values of the assets. You will also need to know the grantor’s sources and amounts of income, when it is paid, and the grantor’s regular ongoing expenses. You will want to develop a budget so that you can take appropriate actions to assure that financial resources are available when needed.
If you cannot readily find this information, others (family members, banker, employer, accountant) may be able to help you. Last year’s tax returns will be helpful. If you discover any other assets that were left out of the revocable living trust, the estates and trusts attorney can help you determine if they need to be put into the trust and can then assist you in the funding process.
Apply for disability benefits through the grantor’s employer, social security, private insurance and veteran’s services. Notify the bank and other professionals that you are now the trustee for this person. Put together a team of professionals (attorney, accountant, banker, insurance and financial advisors) to help you. Be sure to consult with them before you sell any assets.
Now you can start to transact the business activities necessary to manage the trust assets, and provide for the financial support of the trustmaker, or others who are beneficiaries of the trust. You can receive and deposit funds, pay bills and, in general, use the person’s assets to take care of him or her and any dependents until recovery or death.
You’ll need to keep careful records of medical expenses and file claims promptly. Keep a ledger of income received and bills paid. An accountant can show you how to set up these records properly. The revocable trust document may require you to send trust accountings to the trust beneficiaries. Also, don’t forget income taxes (due April 15) and property taxes.
11. What happens if the grantor recovers capacity?
You go back to being a co-trustee or successor trustee and the grantor resumes taking care of his or her own financial affairs. It’s very easy, and there is no Florida probate court involvement.
12. What do I do when the grantor dies? Initial considerations.
You will have essentially the same duties as an executor named in a will would have. But if all titles and beneficiary designations have been changed to the grantor’s revocable trust, the Florida probate court will not be involved. That means you will be able to act on your schedule instead of the probate court’s.
The trustee is responsible for seeing that everything is done properly and in a timely manner. You may be able to do much of this yourself, but an estates and trusts attorney, corporate trustee and/or accountant can give you valuable guidance and assistance. Here’s an overview of what needs to be done.
Inform the family of your position and offer to assist with the funeral. Read the living trust document and look for specific instructions. Notify a co-trustee as soon as possible.
Make an appointment with an experienced estates and trusts attorney to go over the revocable trust document, trust assets and your responsibilities as soon as possible. Do not sell or distribute any trust assets before you meet with the estates and trusts attorney.
If you need the assistance of an experienced trusts and estates attorney in the Jacksonville, Florida area, please call us toll free at 1-866-510-9099.
Before the meeting, make a preliminary list of the trust assets and their estimated values. You’ll need exact values later, but this will help the estates and trusts attorney know if a federal estate tax return will need to be filed (due no later than nine months after the grantor’s death). If there is a surviving spouse or if the trust has a tax planning provision, the estates and trusts attorney may need to do some tax planning right away. The living trust, which is now irrevocable, may also need its own tax identification number from the Internal Revenue Service.
Collect all death benefits (social security, life insurance, retirement plans, associations) and put them in an interest bearing account until assets are distributed. If the surviving spouse or other trust beneficiary needs money to live on, you can probably make some partial distributions. But do not make any distributions until after you have determined there is enough money to pay all expenses, including federal estate and income taxes.
13. What do I do when the grantor dies? Additional considerations.
Notify the bank, brokerage firm and others of the grantor’s death and that you are now trustee. They will probably want to see a certified death certificate (order at least 12), a certificate of trust and your personal identification.
To finalize the list of trusts assets, you will need exact values as of the date of the grantor’s death. Some trust assets will need to be appraised. A trust estate sale may need to be held to dispose of household goods and personal effects.
Keep careful records of final medical and funeral expenses, and file medical claims promptly. Keep a ledger of bills and income received. Contact an accountant and an estates and trusts attorney to prepare final income and federal estate tax returns, if required. Verify and pay all bills and taxes. Make a final accounting of trust assets and bills paid, and give it to the trust beneficiaries.
If the trust assets are to be fully distributed, you will divide the cash and transfer titles according to the instructions in the trust document. That’s it…you’re finished and the trust is dissolved.
If the trust assets are to stay in a trust (for minors, for a surviving spouse, for tax purposes or if the trust beneficiaries will receive their inheritances in installments), each testamentary trust will need a new tax identification number, and proper bookkeeping and reporting procedures will need to be established. The estates and trust attorney, and an experienced accountant should be consulted to ensure these matters are properly handled.
14. Should I be paid for all this work?
Yes, trustees are entitled to reasonable compensation for their services. The trust document should give guidelines, or you can consult the Florida Trust Code to determine reasonable compensation.
15. What if the responsibilities are too much for me?
Consider hiring an experienced estates and trusts attorney, bookkeeper, accountant or corporate trustee to help you. (A corporate trustee can manage the investments and do the recordkeeping.) If you feel you cannot handle any of the responsibilities due to work, family demands or any other reason, you can resign and let the next successor trustee step in. If no other successor trustee has been named, or none is willing or able to serve, a corporate trustee can usually be named.
16. What Does The Trustee Do At Incapacity?
- Oversees care of ill person
- Understands insurance benefits and limitations
- Looks after care of any minors and dependents
- Applies for disability benefits
- Puts together team of advisors
- Notifies bank and others
- Transacts necessary business
- Keeps accurate records and accounting
17. What Does The Trustee Do At Death?
- Contacts estates and trusts attorney to review trust and process
- Keeps beneficiaries informed
- Puts together team of advisors
- Inventories assets, determines current values
- Makes partial distributions if needed
- Collects benefits, keeps records, files tax returns
- Pays bills, does final accounting
- Distributes assets to beneficiaries as trust directs
If you need the assistance of an experienced estates and trusts lawyer in Jacksonville, Florida, please call us toll free at 1-866-510-9099.