By Philip J. Kavesh, Attorney
Over the last 40 years, our law firm has administered over 4,000 Living Trusts after the trustmaker has become ill, disabled or passed away. And here’s the little-known truth we’ve uncovered…
It Doesn’t Matter If You’ve Got
the World’s Greatest Living Trust Vehicle
If It Isn’t Driven Properly!
When you set up your Living Trust, you’re in charge as the initial Trustee. But when you can no longer act, the Successor Trustee you’ve named (who could be your spouse or children) jumps behind the steering wheel of your trust vehicle and drives it, usually under critical circumstances and with no driving lessons or prior experience. So, imagine how easily your Trustee can crash it! Keep in mind that this can happen while you’re still alive, and ill or disabled, when you most need your trust to work properly to take care of you!
Now let us share with you the 10 Biggest Mistakes we’ve seen Successor Trustees make - - so hopefully we will prevent them from making these mistakes too! (Which is why you may want to forward this article to your Successor Trustee and others you know who have a Living Trust.)
MISTAKE #1: Not Taking Your Role as Successor Trustee Seriously.
As Successor Trustee, you step into the shoes of the trustmaker and have a number of fiduciary duties to the trustmaker and his or her beneficiaries that you are obligated to carry out properly. You are not an “absolute ruler” and cannot merely do whatever you please. As Successor Trustee, you must follow the terms of the trust and the law. Please be assured it is not that difficult to serve as Trustee if you exercise good, common sense and follow the advice of professionals, such as your legal counsel, accountant, and/or financial advisor (be aware their reasonable fees may be paid from the trust). However, if you step beyond your bounds and handle matters improperly, you may be held personally liable, out of your own pocket, so take your role seriously!
MISTAKE #2: Not Securing All Trust Assets ASAP.
You need to take immediate legal control over all of the trust’s and trustmaker’s assets (even personal items in the home). It is usually not that hard to do, but be careful. Do not immediately start cashing out or selling assets, or making investments or distributions to beneficiaries. You need to first consider what the trust terms say and the future needs for cash to pay estate and trust expenses.
MISTAKE #3: Making Decisions and Taking Actions Too Hastily
Don’t get me wrong, we always want to complete a trust administration and get it behind you as soon as possible (and you should know that’s what our firm is incentivized to do, since we are compensated on a flat, fixed-fee basis). But, when it comes to individual decisions and actions, it’s best to act conservatively, prudently and reasonably, rather than quickly, rashly and too aggressively. Resist third-party pressure to do something “now”. The pros and cons should first be discussed with professional advisors and documentation kept to memorialize why and how decisions and actions were made. This protects everyone involved, including you as Successor Trustee!
MISTAKE #4: Commingling Trust Funds with Your Own Assets.
This one should be obvious, but many times it is violated with the best of intentions. For example, cash might be “temporarily parked” in your own personal account and you forget later to transfer it to a trust account; during the meantime, you may unintentionally but wrongly spend it for your own personal purposes or expenses. Or, although you may be entitled to Trustee fees for your time and services, you cannot merely take your fees in any amount and at any time you want (which not only violates your fiduciary duty to the beneficiaries but also may expose you to additional income taxes). You need to consult with your professional advisors first, before using trust cash for yourself.
MISTAKE #5: Making Loans to Others.
You may be tempted to do this, again with the best of intentions, because a beneficiary may need money right away. You should first consult with an attorney, considering alternatives such as an advance distribution of part of their inheritance (so you don’t have to worry about chasing down the person to pay it back). Plus, you need to project the future need for liquid funds to pay trust expenses and make distributions to others. If you do make a loan, be sure to document it properly in case you or the beneficiaries have to collect it later!
MISTAKE #6: Not Maintaining Civil and Cordial Communications with Beneficiaries.
This is a BIG No-No, the one that probably gets a Successor Trustee in more hot water than any other mistake. It’s imperative that you keep beneficiaries reasonably informed of the administration’s status and remain civil and courteous at all times, particularly when they ask questions or make demands, even if they seem unreasonable. This may be challenging when you, from time to time, may feel emotional or under stress. But, if you don’t deal properly with beneficiaries, they may “lawyer up” and then you will face even greater anxiety and problems! By the way, the need for polite conversation also applies to your communications with professional advisors.
MISTAKE #7: Ignoring Beneficiaries (or Others).
This one goes hand-in-hand with the previous mistake. You cannot simply ignore phone calls, emails and other forms of correspondence from beneficiaries or their legal counsel (or from your own attorney!). You may not like dealing with them or may worry that you are in some sort of trouble and want to avoid conflict. However, responding promptly, fully and truthfully to questions and requests will often result in resolving potential troubles or issues before they arise. On the other hand, the failure to respond may cause others to suspect you’re hiding something and they’ll “lawyer up”, which isn’t good for anyone!
MISTAKE #8: Dealing Directly with Tax Authorities.
Income tax and property tax issues often come up during an administration, but can usually be handled relatively easily, if you get out of the way and let your professionals take care of them. When you, without the appropriate knowledge and experience, try to deal directly with the IRS or the County Tax Assessor, it’s not likely to end well. Have a qualified professional do it for you.
MISTAKE #9: Procrastinating!
Unlike fine wine, a trust administration does not get better (or easier) with age, over time. Follow through on reasonable requests by your attorney, CPA and financial advisor. This is especially true when you may be asked to gather pertinent asset or appraisal information. Do so well in advance of deadlines, so you and your professional advisors are not jammed up at the last minute - - that’s how other mistakes get made!
MISTAKE #10: Not Consulting a Qualified Estate Planning Attorney.
Lots of attorneys may dabble in the field of estate planning, but aren’t familiar with the intricacies of Living Trust documents or their proper administration after the trustmaker has passed away. One of the benefits of our firm’s Free Service Package, to which all of our clients are entitled, is a FREE initial attorney consultation with the Successor Trustee, to get you on the right path from the start. Simply call us when the time comes for you to step in as Successor Trustee.
Oh, One Other Tip
Here’s another FREE item you may want to take advantage of now, even well before the trustmaker becomes ill, disabled or passes away. Our firm periodically holds a special seminar presentation called, “The ABC’s of Successfully Acting as Successor Trustee”. If you’re the trustmaker, we highly recommend that you bring your Successor Trustee with you. Simply check out the Seminar Schedule for more details and to register. We hope to see you there!