You may have been named as successor trustee of Mom or Dad’s trust. Do you really know what that entails? Do you know what your obligations are?
As a successor trustee, your primary duty is to preserve and protect the trust assets for the use of the named beneficiaries. To accomplish that objective, you should assemble a team to assist you with your duties as trustee, especially if you have never acted as trustee before. Two key team members are your attorney and accountant.
The first team member with whom you should consult is your attorney. Your attorney can review the trust, outline your duties and responsibilities and prepare the necessary documents to allow you to take over as trustee. Those documents typically would include an acceptance of trust, a certificate or affidavit of trust and if taking over as a disability trustee, the disability certificates.
An acceptance of trust is the document in which you agree to act as trustee and abide by all the terms and conditions of the trust. An affidavit or certificate of trust names you as trustee and states your authority over the trust. If you are taking over as a disability trustee, the disability panel members need to sign disability certificates stating that Mom or Dad are no longer capable of managing their own affairs. The disability panel is usually family members, but may include others.
If you are taking over as death trustee, your attorney will assist you by preparing the creditors notice for publication and by applying for the tax identification number for the trust. Since Mom or Dad had a revocable trust, you must publish in the local paper, a notice to all of Mom or Dad’s creditors that they have four months in which to file a claim against Mom or Dad’s trust. Mom or Dad typically used their social security number for their revocable trust during their lifetime. Their social security number expires with them and the trust then becomes a separate tax entity which must apply for its own tax identification number.
The three most important things to remember when you are acting as trustee is organization, organization, organization. By keeping track of trust records, it makes your job immensely easier. Whenever you make a deposit, make a copy of the check and any documentation of that deposit. When you pay any bills, pay by check not cash, and keep copies of all those bills. You will need to make annual accountings to the trust beneficiaries, usually with the assistance of your accountant. Without the proper records, it can be a nightmare.
In addition to annual accountings, your accountant will prepare tax returns. There will be individual income tax returns for Mom or Dad during their lifetimes and final returns after death. The trust will have its own income tax return as a separate entity after Mom or Dad’s death. The accountant would also prepare the Federal estate tax return if the assets in Mom or Dad’s estate and trust total more than the Federal estate tax exemption amount of $3.5 million in 2009. This exemption amount is scheduled to go down to $1 million in 2011. Currently, there is no estate tax going to be levied for anyone in 2010 no matter how large your estate. These amounts will most likely change before the end of 2009.
Some attorneys will offer to do the accounting and tax returns for the trust. If that is the case, at least get a fee estimate from an accountant for the accountings and tax returns. Even though I am a CPA, with the exception of some family returns, I stopped doing tax returns for my clients years ago. What I found in my own practice is that I could not be as efficient as an accountant when I am only preparing dozens of tax returns per year compared to the hundreds of tax returns per year prepared by an accountant. I would rather have someone who does taxes and accounting on a full-time basis for my clients, rather than do them myself on a part-time basis. In addition, accountants hourly rates are generally less than attorneys. For the accountings and tax returns, why wouldn’t you use an accountant who takes less time, costs less money and has more experience than most attorneys?
You may also want to hire a financial advisor to assist you with the investments of the trust. When I am dealing with successor trustees, I try not to disturb existing relationships. If Mom or Dad had an accountant who has experience preparing trust and estate tax returns, then you would usually use Mom or Dad’s accountant.
Similarly, Mom or Dad had confidence in their financial advisor. Why wouldn’t you continue to use the same advisor? Usually, only in cases where the advisor is obviously taking advantage of Mom or Dad, would I recommend that the trustee choose another advisor. Such situations would include when an advisor names him or herself as beneficiary of Mom or Dad’s accounts or in the case where Dad or Mom is 85 and was sold an annuity with 15 years of surrender charges.
When you are trustee, you can hire advisors and others to assist you with your duties. Feel uncomfortable paying the bills? Hire an accountant to pay the bills. Then you don’t have to keep track of all of the documentation. The key in being a good trustee is to know what you are good at and what you are not and hire others to do what you are not good at. But regardless of whatever you do or have others to do, you still have ultimate responsibility and authority over the trust and for preserving and protecting those assets for the use of the trust beneficiaries.
By: Matthew M. Wallace, CPA JD
Published edited June 21, 2009 in The Times Herald newspaper, Port Huron, Michigan as: I’ve been named a trustee – what do I do now?