As a Successor Trustee, you step into the Trustee role when the original Trustee dies or becomes incapacitated. Here are some important actions to take when your parent named you as a Successor Trustee in their planning, upon their death.
When your parent dies and you become Trustee, you will need to immediately step in and handle many items. It is best to be prepared in advance. This is not a comprehensive list, but it will get you started.
First Things First
You will need to take care of yourself, and get into the right frame of mind to assume this responsibility. Most actions can wait a while, and you don’t want to act too quickly and make bad decisions. You can contact immediate family, close friends, and the parent’s employer (even if your parent already retired, there may be some benefits available.) You may need to make funeral arrangements. Locate important papers, including the Living Trust and other estate planning documents, along with recent tax returns, insurance policies, deeds, annuities, etc. This may take several weeks. You may also want to change the mailing address to your own home. The change of address is valid only for a limited time so you should notify senders of the new address.
Acting Under the Trust Agreement
Within a few weeks after your parent dies, you should make an appointment with a qualified estate planning and administration law firm to review your parent’s documents, discuss possible federal estate taxes, consider estate planning, and determine the need for a probate administration. If probate is needed, there will be additional responsibilities as Executor, and you may have that role as well.
You should have the lawyer prepare a “Trust Certification” that verifies your authority as the current Trustee of the Trust. That will be helpful as you deal with banks, and investment companies. If you’re not the first Successor Trustee named, the prior Trustee may need to resign first if you’re going to be assuming responsibility.
Communication with the Trust beneficiaries will be critical. Start early, and notify the beneficiaries quickly.
Assume Control Over Assets
You may need to limit access to prevent “beneficiary raids,” by changing door locks or installing security alarms and safeguarding valuables. Notify credit card companies, utility companies, the mortgage holder, and other creditors about your parent’s death. Generally you can have a grace period and they will waive late charges while you get the finances in order. Make certain that homeowner’s insurance will remain in force, with you named as the new Trustee.
Notify life insurance companies about your parent’s death to start the death benefit claim process. You should also manage the trust assets safely (no risky investments) and pay bills on time while keeping complete records of all transactions. Don’t withdraw or rollover IRAs, annuities or 401k’s without first getting advice from your attorney, accountant and/or financial advisor. Taking withdrawals could incur unnecessary taxes that beneficiaries could complain about (or even sue you). For IRAs there may be a required withdrawal of a portion of the account for the year of death, too.
As Trustee you can get assistance from responsible professionals such as a lawyer and CPA, and pay their reasonable fees from the Trust.
Make a list of the various assets. You may want to get appraisals of the trust assets as of the date of death, for both real estate and valuable personal property. These appraisals will help when it comes time to divide assets among beneficiaries or establishing sub-trusts. Even if there is no estate tax return due, the appraisals can establish future tax basis and save capital gains taxes later.
Take Care and Make Good Decisions
As Trustee, you are required to make decisions the best interests of the beneficiaries, not necessarily for your own best interest. Generally, think twice and don’t act too quickly. However, don’t let the trust administration drag, especially if you are required to make a final distribution. The beneficiaries will be expecting their inheritance, and you need to act expeditiously to finalize the trust distribution and turn over assets to beneficiaries if the trust requires. Other trusts may continue for many years, so make sure you get off to a good start and get the right help along the way.