Today I want to talk about what happens when you become the successor trustee of a living trust. Recently I have been getting numerous calls from successor trustees wondering what they are supposed to do now that they are the trustee of a trust. A successor trustee is the person managing the trust. In a living trust situation this is normally whoever sets up the trust, meaning if you set up a trust, then you would be the trustee originally. Once you pass away, you would have to nominate a successor trustee. Let me give you an example.
I had a call the other day from a gentleman who is now the successor trustee of a living trust. His friend had set up a living trust before he passed away and named the guy that called me the beneficiary of the trust, as well as the successor trustee. As the beneficiary, he was the one that was going to benefit from the trust and the one that was going to get all the assets from the trust now that his friend had passed away. He was calling me to ask me, “What do I do? How do I handle this?” and that’s why I wanted to talk about this today. This example is a very simple example, but a lot of times, it’s not this simple because there’s more than one beneficiary of the trust.
When you set up a living trust and you are the trustee, the beneficiaries are the people that benefit from the trust. If we are talking about a living trust, whoever sets it up is the primary beneficiary but must nominate secondary beneficiaries for when they pass away. For example, if I set up a trust I would be the primary beneficiary of the trust during my lifetime. When I pass away, I would tell the trust who gets my stuff. In this example, I would say my son gets everything so he would be the beneficiary of the trust. If I said that he was not also the successor trustee and I nominated somebody else to be the person that manages the trust and distributes all the assets to him, the trustee is a fiduciary and they have a fiduciary duty, which is a heightened duty, to the beneficiaries of a trust.
If you are a successor trustee, please exercise caution and make sure that you are doing everything above board on behalf of the beneficiaries. You should keep an accounting of all the money and what you do and pay with it because the beneficiaries have the right to ask for an accounting to see what you’ve done with all the money. They also have the right to sue you if you do not do what you’re supposed to do. The cause of action, if they sue you, would be breach of fiduciary duty. The message I’m trying to convey is that as a trustee you have a fiduciary duty to the beneficiaries of the trust, so make sure that you’re doing what you need to do in order to distribute the trust appropriately. Your primary job is to do whatever the trust says you are supposed to do.
In my very simple example from earlier, the gentleman that called me was the trustee and the beneficiary. In this case he actually has less potential issues because he won’t be suing himself, which puts him in a much better position. The only thing that he needs to worry about is making sure that the person that set up the living trust’s actual heirs at law, meaning their family and blood relatives, don’t come after him and say, “The decedent wasn’t in their right mind when they set up the trust, so the trust is invalid.” That is what the gentleman that called me needs to worry about, because in his case the man that passed away left a sister and two nephews. I told the gentlemen that he needs to make sure that he provides notice to those heirs that there was a trust, he’s the successor trustee, he’s the beneficiary, and that if they have any issue with it they have to bring a claim within 120 days from the notice. There is a statute, NRS164.021, that talks about this. If you send all the heirs at law notice after the person passes away, then they only have 120 days to contest the trust. That is what I told this guy to do. I said, “You’ve got to send the notice to protect yourself. Once the 120 days passes and nobody says anything, you can go ahead and take the assets of the trust.”
If you are a successor trustee you’re going to want to contact a CPA because there will be a final tax return on behalf of the estate that most likely will be due. You will want to be able to anticipate that and know what the costs are going to be so that when you’re distributing the estate, you put aside some money for that. Otherwise it is pretty simple.
To sum it up, be careful if you’re a trustee of a trust. Number one, you have a fiduciary duty to the beneficiaries so make sure that you provide proper accountings of all the money in the trust. Number two, if you are the beneficiary of a trust and you have any concern that heirs at law of the decedent would come after you or say that the trust wasn’t valid because the decedent didn’t mean to do it then you’re going to want to send that 120 day notice. Number three, transfer the assets in the trust to the beneficiaries. Using my first example with the gentleman whose friend passed away to explain this, the only thing that trust owned was a condo and bank accounts. I told him that he is going to have to title the condo into his name from the name of the trust. He has the authority to do that because he is the successor trustee. The only thing that is going to cost him money when he does that is deeding the property into his own name, as he is going to have to pay the transfer taxes. The trust was nominated as the beneficiary of the bank accounts, so he already has authority to take that money since he is the trustee of the trust. He must provide a copy of the trust and he will be able to have access to those funds. His situation is relatively easy.
Of course, things can get extremely complicated depending on what the assets of the trust are, who the beneficiaries of the trust are, and if there is anybody being disinherited. As always, if you want to talk more about this, you are a successor trustee, or you are thinking of setting up a living trust, visit our Website for more information.
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