Estate Planning and Administration: You have been appointed as Successor Trustee, what are your duties?
When it comes to revocable trusts, the grantor (mom or dad) often nominates a family member to succeed him or her as trustee (son or daughter). Ordinarily, a family member (child) will say “yes” to this request and think nothing about it until the time comes to act.
If you are the successor trustee while mom and/or dad is still alive and incapacitated, there are some very important issues to consider and remember.
There is a tendency to treat the matter casually. After all, this is just mom or dad, and you are just writing checks for them, right? Wrong. When you take on the duties of being a trustee, you are a fiduciary in the same sense that a bank is for you. This means detailed record keeping, to the penny.
Never transfer money from the trust into your own personal account. Write checks directly from the trust account to the creditors or vendors. Keep track on a leger as to what the expenditures are for, and save the receipts. While this seems unnecessarily complicated, it won’t down the line if someone challenges your expenditures of mom or dad’s money.
Save all of the paperwork, either in paper form or as PDFs. Do not rely upon electronic bank statements as those are removed after a period of time from the account. Financial institutions only have those transactions on-line for 6 months to a year. After that, you will have to pay to have the items reproduced.
When purchasing items for mom or dad, do not mix their items in with your own at the store. Have their items rung up separately so there is a separate receipt. Using a check or credit card is best. Don’t use cash. You want to make a paper trail that shows all expenditures.
Do not “loan” yourself money out of the trust account. This is true even if in prior years when they were not incapacitated, mom or dad advanced/loaned you money regularly. You are now acting as the bank, not the son or daughter.
If you do not understand what it is that you are supposed to do, get help. Call an attorney and make a 30 minute appointment. The advice you receive will be invaluable in moving forward.
During mom or dad’s incapacity, you will still have to file income tax returns for them on an annual basis. After their death, you will have to file income tax returns for the trust. Do not rely upon your own best guess as to how this is done. Hire an accountant to complete this task for you so that it is done correctly.
Why be so careful? First, it is your legal duty to do so. Next, it is not uncommon for other family members (your siblings) to ignore the financial implications of mom or dad’s incapacity. They will be overjoyed that you are doing this and that they do not have to. No news, will be good news.
Things will change, however, after mom or dad pass away. Then they will want to know where all of the money went. How could there be so little left? They remember when there were several hundred thousand dollars in mom or dad’s trust. How could it be gone? They will ask, “what did you do with it?”
This is when all of the documentation so carefully maintained will come in the handiest. You will be in a position to stop all of the complaining by giving each sibling a copy of the accountings for each of the years you have handled the trust.
Without this information, you will be open to charges of breach of fiduciary duty that can be filed in Probate court. Without documentation, you may end up on the hook for repayment of some of the money into the trust for division among the siblings as their “inheritance”.
A little extra advise, time and effort now, will save you many headaches and heartaches in the future.