An adult child of a client who recently passed away contacted me to discuss what she was to receive from her mother’s estate. She had no idea what mother owned, or what anything was worth. She only knew that our office prepared the documents, and that her mother directed to call us when her time came.
Much to the daughter’s surprise, not only was she one of her mother’s beneficiaries along with her siblings, we informed her that she was named as the successor trustee to the trust.
“What does that mean?” she asked.
It means a great deal of responsibility was coming her way, if she chose to accept the appointment as trustee. Upon the creator of the trust’s death (in this case, the mother), the successor trustee must gather and obtain date of death values for all of the trust assets, protect the assets, invest the assets in a prudent manner during the estate administration, satisfy the claims of any of the deceased’s creditors, ensure that all proper taxes are paid, reserve amounts for administrative expenses, and eventually provide an accounting to all of the trust beneficiaries before making final distribution of the assets in accordance with the will and trust.
It’s a big job.
The trustee usually has the assistance of the attorney’s office, a tax return preparer such as a CPA, and an investment advisor. But not always. Some choose to prepare their own legal documents, their own tax returns, and manage their own investments. Increasingly, these tasks are all performed on-line with usernames and passwords. When this is the case, tracking down all of the information to even know where to begin can be a herculean task.
Even when the deceased engaged a good legal, tax and investment team of professionals, it’s the successor trustee’s duty (or where there is only a will and not a trust then it is the personal representative’s duty) to forward the information to the proper professional so that the tasks at hand get completed competently and timely.
When you name one of your adult children to perform these duties, it is almost unfair of you not to have at least a basic discussion with your adult child as to what your estate consists of, who constitutes your team of advisors, and where bank, brokerage statements, insurance policies, deeds and tax returns might be found.
You should also know that the successor trustee has personal responsibility and liability when carrying out her duties. If, for example, she didn’t act quickly after your demise to meet with the financial advisor and consider which assets pose an investment risk, should the stock market drop twenty percent the other beneficiaries could have a negligence action against her. This is because your assets received a “step-up” in tax cost basis at your demise, eliminating capital gains exposure. Most estate and trust administrations are completed within a year’s time, so it isn’t often prudent to “ride the market” during such a short term.
The prudent thing to do is to invest in stable cash-equivalents to guard against market decline during the few months that the administration is in progress.
The trustee is also responsible for ensuring the assets are properly insured and accounted for. She may have to go so far as to change the locks on the residence to keep others from gaining access and taking valuable (or sentimental) personal property such as jewelry, artwork, furniture and other objects before she has the opportunity to inventory them and determine who would be the rightful beneficiary of each such item.
I had one file where the trustee gave the deceased’s automobile to her son, who then got into a car accident before the title was transferred. No one checked to make sure that the automobile insurance remained in place. The resulting accident caused great distress when the plaintiff sued the estate for damages, subjecting the estate assets to the loss.
The trustee also finds herself personally liable to creditors and taxing authorities. If she has made full distribution of the assets to all of the beneficiaries, and a surprise claim or tax bill surfaces, the trustee must pay the creditor or taxing authority from her own pocket if she can’t get the beneficiaries to refund their portion of the liability.
As you can see, naming anyone, including your adult child, imposes a great amount of responsibility on them. It’s always a good idea to communicate with your loved one explaining the duties, role, and your expectations before naming them in your legal documents.
The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.
© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.