Although every estate plan is as unique as the person who creates the plan, there are some common tools and strategies found in the average plan. One of those is a trust agreement. If you elect to incorporate a trust into your estate plan, one of the most important decisions you will need to make is deciding who to appoint as your Trustee. What happens though, if that Trustee is unable, or unwilling, to serve? A Carmel trust administration attorney explains what happens if your designated Trustee cannot serve.
Trust Fundamentals
A trust is a separate legal entity that owns and holds property for the benefit of one or more beneficiaries. A trust is created by a Settlor, also referred to as a Grantor, Trustor, or Maker, who transfers property to a Trustee appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries. All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust, as the name implies, does activate during the Settlor’s lifetime.
What Does the Trustee Do?
Although a Trustee has a wide range of specific duties and responsibilities, the overall job of a Trustee is to manage trust assets and administer the trust according to the terms created by the Settlor. Among the numerous duties and responsibilities of a Trustee are to:
- Manage and protect trust assets
- Abide by the trust terms unless they are impossible, illegal, or unconscionable
- Invest trust funds using the “Prudent Investor Standard”
- Monitor trust investments
- Communicate with trust beneficiaries
- Resolve conflicts among beneficiaries
- Make discretionary decisions
- Distribute trust funds to beneficiaries
- Approve or deny distributions if given discretionary authority
- Keep trust records
- Prepare and pay trust taxes
As you can see, the Trustee plays a critical role in the administration of any trust. In fact, the choice of Trustee often plays a pivotal role in the success, or failure, of a trust. Consequently, if the appointed Trustee is unable to serve it could create a real problem for the administration of the trust.
The Importance of Planning
If the trust is a revocable living trust, and the Settlor is still alive, the Settlor can simply appoint a new Trustee. If, however, the trust is an irrevocable living trust, or the Settlor is no longer alive, then the trust agreement itself should provide the guidance necessary when an appointed Trustee cannot serve. A well-drafted trust agreement will plan for the possibility that the appointed Trustee is unable, or unwilling, to serve by including not just the appointment of a Trustee, but also including at least one successor Trustee. If a successor Trustee was named in the trust agreement, that individual (or entity) will take over the role of Trustee immediately upon the resignation or death of the original Trustee. The same is true if the original Trustee simply declines to serve as the Trustee.
Along with appointing at least one successor Trustee, a properly drafted trust agreement may include a provision with directions for appointing a new Trustee if one is needed. For example, the trust agreement could allow the beneficiaries, by unanimous or majority consent, to appoint a new Trustee.
What Happens If the Trust Agreement Doesn’t Resolve the Problem?
If the trust agreement fails to appoint a successor Trustee, and is silent on the issue of directions for how one is to be appointed, then the only option left is to turn to the courts for guidance. When that happens, a court will likely appoint a local attorney to act as the Trustee for the duration of the trust.
Contact a Carmel Trust Administration Attorney
For more information, please join us for one of our FREE seminars. If you have specific questions about planning for the possibility that your appointed Trustee is unable to serve, contact an experienced Carmel trust administration attorney at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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