Responsibilities of a Successor Trustee

So, you’ve been appointed successor Trustee of a Trust… Lucky you!

Written by Lisa Amaral | SVP, Business Development Officer of Trust Services

The nomination of the successor Trustee of a Trust, be it an individual or corporate Trustee, is a role to be neither designated nor accepted without careful consideration. A successor Trustee plays a crucial role in the administration of a Trust and may face disgruntled family members, complex taxation issues, and even personal liability. The purpose of this article, should you find yourself in such a role, is to provide information and best practices to facilitate the smoothest possible course of administration.

Many people are surprised to learn that most of a successor Trustee’s duties do NOT begin until they formally step into the role of acting Trustee. Still, there are important tasks and responsibilities that can apply even years before that transition occurs. Understanding these in advance can help prevent future conflict and protect the interests of the trust maker and beneficiaries.

While laws may vary by state and by the terms of a specific trust document, the following overview reflects the most common principles governing successor Trustees before they assume full authority.

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The Successor Trustee Has No Active Authority Before the Triggering Event

In most revocable living trusts, the original Trustee – usually the Trust’s creator (the “grantor” or “settlor”) retains full control until a specific event occurs.

This event is commonly:

• The incapacity of the original Trustee
• The death of the original Trustee
• The resignation or removal of the acting Trustee

Until one of these events takes place, the successor Trustee has no legal power to:

• Manage Trust assets
• Access Trust accounts
• Make distributions
• Sign on behalf of the trust
• Overrule decisions of the current Trustee

This means the successor Trustee remains “on deck,” without active management responsibilities.

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The Successor Trustee’s Primary Pre-Appointment Duty: Be Available and Willing

Although they have no fiduciary authority yet, a successor Trustee does carry one important duty:

• To remain prepared and available to serve when required.

This may include:

• Confirming their willingness to serve
• Communicating availability to the trustmaker or acting Trustee
• Ensuring they can be reached quickly in an emergency
• Understanding that declining to serve should be communicated promptly

A successor Trustee should not accept the appointment casually. Even before becoming acting Trustee, they should realistically assess whether they have the time, organizational skills, expertise and judgment to perform the role when needed.

Consider also the age of the successor Trustee relative to yours. Is there a risk of outliving your successor Trustee? Will your successor Trustee be competent in ten years – possibly more? One of the advantages of a corporate Trustee is that they do not age, lose capacity, pass away, relocate, etc. While your Trust Officer may change over time, the company has Trust powers in perpetuity.

 

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Limited Access to Information is Often Permissible (or Even Encouraged)

Before taking over, many successor Trustees are given partial or conditional access to information so they can understand what they may eventually be responsible for. This is usually optional and not a legal requirement but can be helpful.

Examples of appropriate pre-appointment information sharing include:

• Reviewing the trust document
• Understanding the trustmaker’s wishes and long-term plans
• Becoming familiar with major assets held in the trust
• Meeting the trustmaker’s lawyer or financial advisor

However, the successor Trustee should not demand information or insert themselves into trust administration prematurely, unless the trust document authorizes it or there is evidence of wrongdoing by the current Trustee.

Oregon Pacific Bank’s trust department feels it is important to meet annually with ‘future business clients’ to ensure that all assets are vested correctly. It is important to ensure that bank and brokerage accounts are in the name of the Trust and qualified retirement accounts, pensions and life insurance policies have the proper beneficiary designations.

 

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No Fiduciary Duty to Beneficiaries – Yet

A true fiduciary duty arises only after the successor Trustee becomes the acting Trustee. Before then:

• They are not responsible for protecting beneficiaries’ interests
• They do not owe formal duties of loyalty or impartiality
• They cannot be held liable for trust mismanagement by the current Trustee

 

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A Successor Trustee May Be Asked to Provide Practical Assistance

While they have no legal authority, a successor Trustee may voluntarily assist the current Trustee or Trustmaker with tasks such as:

• Gathering documents
• Understanding account locations
• Preparing for a future transition
• Attending estate-planning meetings if invited

These activities do not confer authority, but they can make the eventual transition significantly smoother.

Oregon Pacific Bank’s Trust Department sees itself as a valuable resource for our ‘future business’ clients. We are often called upon to consult on amending a trust or considering the tax consequences of a specific transaction etc. The more involvement we have the better our understanding of the client’s intentions and wishes.

 

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The Successor Trustee Should Avoid Overstepping

One of the biggest risks for a successor Trustee is acting too early. Acting without authority can create legal, financial, and interpersonal problems.

A successor Trustee should not:

• Sign checks or documents as Trustee before the triggering event
• Attempt to direct investment decisions
• Make promises to beneficiaries
• Treat the trust as partly under their control
• Access confidential information not voluntarily provided by the trustmaker

Overstepping can even expose the successor Trustee to potential personal liability.

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They May Have a Duty to Accept the Role Promptly When Triggered

Once the triggering event occurs, many trust provisions – and often state law – require a successor Trustee to:

• Step in without unnecessary delay
• Secure Trust Property
• Obtain proof of authority (e.g., death certificates, physician’s letters)
• Begin official trust administration

The groundwork they lay before this moment can determine how well the transition unfolds – especially in the event of an emergency.

It is Oregon Pacific Bank’s practice to meet with future business trust clients at least once annually to update our notes to the extent that we are prepared to act at a moment’s notice – including after hours. We like to know precisely how to get to the residence. Is it in a gated community? Do we know the gate code? Are there pets requiring immediate attention? Is there a home security system?

 

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Best Practices for Successor Trustees Before Acting

Even though formal duties have not yet begun, successor Trustees can set themselves up for success by:

• Reading the Trust Document – Understanding the rules, distribution instructions, and succession provisions is essential.
• Understanding Asset Categories – Without controlling assets, they can familiarize themselves with:
  • Real estate
  • Investment accounts
  • Business interests
  • Insurance and retirement plans
  • Trust-owned personal property

• Talking with the Trustmaker – If appropriate, discuss:
  • Their expectations
  • Their values and priorities
  • Where do they envision themselves as super seniors? In-home care? Assisted living?
  • Special concerns about beneficiaries
  • Professional advisors involved in the estate plan
  • Have they made their final arrangements?

• Preparing for Recordkeeping and Administration – Though not required yet, it’s helpful to understand:
  • How to maintain financial records
  • What annual reporting might be required
  • Which attorneys, CPAs, or advisors may be involved

A corporate Trustee, or bank trust department, is equipped with a powerful trust accounting system. Assets are inventoried and market values are actively tracked. Income and expenses are accounted for chronologically daily and to the penny. The cost basis/acquisition dates/tax lots/gains and losses of marketable securities are traced. Statements are generated monthly, quarterly or annually for the client and/or beneficiaries. Tax ledgers are readily available during the tax season simplifying the preparation of tax returns.

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Conclusion

Before becoming the acting Trustee, a successor Trustee essentially serves as a designated but inactive fiduciary. They have no present authority to manage trust assets, no fiduciary duty to beneficiaries, and no legal responsibilities for trust administration. Their role is primarily one of preparedness: understanding the trust, staying in communication with the trustmaker (when appropriate), and positioning themselves for a smooth transition.

Consider the benefits of a professional Trustee vs. entrusting responsibility to or overburdening a friend or family member. A bank trust department has the staff, experience and depth of resources necessary to administer a Trust according to its terms and without bias or any sort of emotional agenda.