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 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. A certificate of trust names you as trustee and states your authority over the trust. If properly drafted, the certificate of trust is the only document you need to have for banks, investment advisors and others to show 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 also assist you by preparing the creditors notice for publication. 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.
Your attorney or accountant can also help with applying for the tax identification number for the trust. Mom or Dad’s social security number was used by the trust during Mom or Dad’s lifetime. Social security numbers expire with their owners. The trust becomes a separate tax entity upon the death of a trustmaker, after which the trust 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 $5 million in 2012. This exemption amount is scheduled to go down to $1 million in 2013.
Some attorneys will offer to do the accountings and tax returns for the trust. If that is the case, at least get a fee estimate from an accountant. 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 accountings and taxes 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, it often makes more sense to use an accountant who takes less time, costs less money and has more experience than most attorneys.
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 why not use Mom or Dad’s accountant who is familiar with Mom or Dad’s finances?
You may also want to hire a financial advisor to assist you with the investments of the trust. Mom or Dad had confidence in their financial advisor. Usually, only in cases where the advisor took advantage of Mom or Dad, would I recommend that the trustee choose another advisor. For example, I have seen advisors who name themselves as beneficiaries of their clients’ accounts or advisors who sell an annuities with 15 years of surrender charges to 85 year olds. There are also many annuity and insurance peddlers out there masquerading as financial advisors.
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. Do what you are good at and hire others to do the rest.
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 March 4, 2012 in The Times Herald newspaper, Port Huron, Michigan as: Marshaling your forces A good trustee needs strong team of advisors