What To Expect When You Are Named A Successor Trustee

//What To Expect When You Are Named A Successor Trustee

What To Expect When You Are Named A Successor Trustee

By | 2018-07-02T23:35:42+00:00 March 8th, 2018|

By: Kevin M. Helmich, Esq.
Beggs & Lane, RLLP

Your parents call and tell you that they are nominating you as the “successor trustee” in their estate planning documents. What does that mean? For purposes of this article, I am going to assume that your parents have appointed you as a successor trustee of their “revocable living trust”. A revocable living trust is a common tool used in estate planning. The basic structure is fairly straight forward. Your parents establish a trust during their life, and they transfer all or most of their assets into the trust. Your parents are the initial “trustees” of the trust. This means they are responsible for managing the trust assets. Your parents are the initial “beneficiaries” of the trust. This means that the trust assets are used for their benefit. Finally, your parents retain the right to revoke or amend the trust during their lives.

The benefits of revocable trusts are many, but that is not the focus of this article. Let’s assume you understand the basic concept of a revocable trust, and you know that being appointed as a successor trustee means you will be “in charge of things” when your parents can no longer act as trustee. You want to know what being named as a successor trustee means for you. When will you start serving? What will you need to do?

You could be called upon to serve as trustee in a couple of different situations. One scenario would be that you were called to act as trustee during your parents’ lives. This would happen if your parents became incompetent or resigned as trustees. While your parents are living, they would probably remain the sole beneficiaries of the trust even if you became the trustee. You would administer the trust for your parents’ sole benefit, and remainder beneficiaries (let’s say your siblings) would not have any right to inquire about the trust administration.

The other scenario occurs at your parents’ death. At this time, your parents’ trust would become “irrevocable” and the rights of the remainder beneficiaries would “vest”. Boiled down to its most basic level, a trustee has a duty to administer the trust in a manner consistent with the best interest of the beneficiaries. Since you and your siblings are the beneficiaries of your parents’ trust following their death, you are required to take both your and their interests into account in making decisions about the trust administration. The following is a discussion of the law involved in administering a trust pursuant to Florida law.

The Florida Trust Code is set forth in chapter 736 of the Florida Statutes and governs administrations of trusts in Florida. The duties and powers of the trustee are set forth in Part VIII of the Florida Trust Code, FSA sec. 736.0801, et seq. A trustee has certain “fiduciary duties”. These include a duty of loyalty to the trust beneficiaries (FSA sec. 736.0802), a duty of impartiality with regards to the trust beneficiaries (FSA sec. 736.0803) and a duty to act with reasonable prudence in carrying out your duties as trustee (FSA sec. 736.0803). If you don’t carry out your fiduciary duties properly, then you have potential liability for breach of those duties. The question becomes who is making sure you are carrying out your duties as trustee appropriately? The answer is that any interested person has the right to monitor your activities as trustee. If you breach your duties and an interested party is adversely affected, then that party can bring an action against you to collect damages, remove you as trustee and/or force you to alter your conduct in administering the trust.

In order to allow interested parties to monitor the activities of the trustee, the Florida Trust Code sets forth certain rights of qualified beneficiaries to gather information regarding the trust administration. The trustee’s duties to inform and account to trust beneficiaries are set forth in FSA sec. 736.0813. That statute provides that a trustee must provide annual accountings to trust beneficiaries (FSA sec. 736.0813(1)(d)). It further provides that, “[u]pon reasonable request, the trustee shall provide a qualified beneficiary with relevant information about the assets and liabilities of the trust and the particulars relating to administration.” (FSA sec. 736.0813(1)(e)).

A trustee’s obligation to prepare an annual accounting is a bright line requirement, and I am not going to spend a lot of time discussing what is involved. When you file an accounting, you are basically saying… “Here are the assets that were held by the trust when I took over. Here is what I spent administering the trust. Here is what I distributed to the beneficiaries. Here is the income earned by the trust assets. Here are the changes I have made in the trust investments. Here is what is left in the trust at the end of the day. If you have an objection, let me know.” Your attorney or CPA can help you prepare your annual accountings. The more difficult issue is how to deal with specific requests from beneficiaries made pursuant to FSA sec. 736.0813(1)(e). As you can see, the statutory language is highly subjective in nature. There are many court cases interpreting a trustee’s duties to keep beneficiaries informed.

There are two main terms used in FSA sec. 736.0813(1)(e) upon which you should focus in evaluating specific requests for information. Requests for information must be “reasonable” and must only cover “relevant” information. These are admittedly difficult words to define. Let’s say a trustee was selling a furnished condo. If the beneficiary asked for an inventory of the contents of the condo included in the sale, it would probably be reasonable request. Let’s say, however, the beneficiary wanted to know the number and condition of all pieces of stainless steel utensils and an itemized list of cleaning materials contained under the bathroom sink; that would be unreasonable.

Information requested must also be relevant. Let’s say a trust held a condo that was put onto a short term rental program. Assume your brother ran a local water sports business. He asked you, as trustee, to give him the names and addresses of all those who made reservations to rent the condo. He explained that he wanted to try and sell the renters passes for his business. Good for your brother’s ingenuity, but this request is not relevant to the trust administration. You could refuse to release this information.

A little common sense can go a long way in evaluating requests for information from a beneficiary. I tend to err on the side of full disclosure even if I think the question probably crosses the line. This keeps you out of court. If there is a specific request you find objectionable, or if you feel that you are generally being harassed, you should talk to your attorney.

Another topic is who is a “qualified beneficiary”? A qualified beneficiary is “a living beneficiary who, on the date the beneficiary’s qualification is determined: (a) is a distributee or permissible distributee of trust income or principal…” (FSA sec. 736.0103(16)).

The final point I want to make is that you, as trustee, have the legal authority to make decisions regarding the administration of the trust. The beneficiaries cannot tell you what to do. Instead, you only have to inform the beneficiaries of your actions. If a beneficiary doesn’t like what you are doing, he can go to court and complain to the judge. If you invest in a Janus Fund, and the beneficiary prefers Fidelity, too bad. As long as the Janus Fund you select complies with fiduciary standards, you are acting within your rights as trustee. This doesn’t mean you should ignore the beneficiaries. I believe it is important to listen to the suggestions of the beneficiaries and try to take their desires into account in administering the trust. Still, it is important to remember that the ultimate authority belongs to the trustee, not the beneficiaries.

Trust administration can be very complicated. This article merely scratches the surface. A trustee has many more duties than I have addressed above, and the terms of one trust can be very different from another. We all know that trust agreements can be complicated and difficult to read. It is vitally important to retain an attorney who is familiar with trust administrations to assist you. You will also need a qualified accountant, and you may need a financial advisor. Assembling the proper team of professionals to advise you is the first step you should take when you are called upon to “take charge”.