After a Living Trust is established as part of someone’s estate plan, the person setting up the Trust (the “Trustor”) usually serves as initial “Trustee”. A Trustee is in charge of the administration of the Trust and the handling of the Trust assets. For that initial Trustee, handling the Trust is pretty much “business as usual”, with the exception that titling of assets is changed into the name of the Trust.
When the Trustor can no longer act as Trustee for himself or herself because of disability, incapacity, or death, then the Successor Trustee (or more than one “Co-Trustee”) named in the Trust document is called upon to take over. Unfortunately, even though the Successor Trustee may be an individual whom the Trustor had great trust and faith in being able to handle the affairs of the Trust, most Trustees have never done this before and really have no idea what to do or how to do it. Many Trustors, as well as Trustees, may even think that the Living Trust will automatically take care of everything, without any work involved by anyone. Of course this is incorrect, particularly following the death of the surviving Trustor/Trustee when a husband and wife are involved.
First, the successor trustee, who is usually a child who has no idea of what is involved in even having a trust because they have not done their own estate-planning and were not privy to the meeting between the attorney who set up the trust and the parents. They will usually have no idea what the terms of the trust say or even mean. Typically, the trust must contain complex legal language, which only an estate-planning attorney will understand. Secondly, the successor trustee may not know what assets the parents (or the trust) owned. They may not understand the law regarding properly transferring the title to the property to the beneficiaries. They also may not know what to do if property was not put into the trust or even understand what the word “probate” means. The inexperienced trustee also may not understand the due process requirements of notifying beneficiaries of the trust or creditors of the parents under Arkansas law. They probably will not know anything about the federal estate tax, gift tax, or generation-skipping transfer tax and the effect those laws have upon the parents’ trust. The bottom line is that there is work to do, and only a professional who has knowledge of federal and state estate planning, probate, income tax, estate tax, gift tax, generation-skipping transfer tax, and trust law will be able to handle the work.
What Could Go Wrong?
Much of an attorney’s work is spent not in designing documents for a client, but in cleaning up messes. In our experience, we have encountered surviving spouses and children who have decided that they do not need legal counsel following the death or incapacity of a Trustor/Trustee. Such circumstances, federal estate tax returns have not been filed in a timely manner, resulting in wasting hundreds of thousands or even millions of dollars, which could have been used to reduce the amount of the federal estate tax. We typically encounter, on a weekly basis, a successor trustee, has improperly distributed assets without first ascertaining in whose name the assets were, so that the title to land was improperly made. When the Trustee later tried to sell the property, they learned that buyer could not obtain title insurance so the sale would fall through. Other actions can result in unreported taxable gifts, botched probate administrations, and deeds not being recorded because the Trustee did not know what they were doing. Recently, we had a matter in which a beneficiary was actually asked to return money and a vehicle because the trustee had acted without legal counsel and simply ran wild, doling out vehicle titles and cash without any concern for (or knowledge of) Arkansas transfer laws. We now have to go back and undo two years’ worth of actions in order to make the transfers correctly. This failure not only has wasted time and money in attorney’s fees but also has definitely hurt the relationship between the one child who was the trustee and the other sibling who was just a beneficiary. Had legal counsel been employed, the mistakes could have been avoided and perhaps the relationship between the two siblings salvaged.
Complementary Trustee Training
Wilson + Miller is offering a complementary Trustee Training Seminar; we encourage you to bring your Successor Trustees with you. Check out all the different discussions we will be reviewing during Trustee Training:
• Important “Do’s” & “Don’ts”
• Checklist of Immediate Actions Upon Disability or Incapacity
• Checklist of Immediate Actions Upon the Death of the First Spouse
• Checklist of Immediate Actions Upon the Death of an Individual (Or the Surviving Spouse)
• Tips on Working Successfully With the Beneficiaries, an Attorney (And Other Professional Advisors)
• Your Trustee Duties
• Your Trustee Powers
• Your Liability as Trustee
• Maintaining Title to Assets, Transacting Business & Paying Expenses
• Investing Trust Assets
• Income & Estate Taxes
• Accounting to the Beneficiaries
• Making Distributions to the Beneficiaries
• Transition to another Trustee
• Termination of the Trust
• Your (And the Beneficiaries’) Own Estate Plan
Call 501-221-7776 for information on our next scheduled Trustee Training.