Life circumstances often require that we rise to the occasion when duty calls. One of these circumstances occurs when a loved one passes and it is time to assume the duty of successor trustee of a family trust. If this is your call of duty, I congratulate you for being entrusted with this important responsibility.
I also caution you that being a successor trustee involves an area of law called trust administration. This is an area of legal importance and that carries a risk of legal liability if important steps are missed or if actions are taken without proper care.
Important Legal Requirements For Florida Successor Trustees
Florida Trust Law and Essential Requirements
If you’re a new trustee, my first bit of advice is DO NOT try to go it alone. Most trusts provide, and the Florida trust law allows, a successor trustee to hire expert legal counsel as well as tax and financial experts. I do encourage this, because as I always say, you simply don’t know what you don’t know. With that said, there are a few more basic steps to consider.
1. Determine if Trust Bills Need to Be Paid
If a house was held within the trust, the mortgage may need to be paid. Likewise, property taxes, insurance, utility bills, vehicle payments and other miscellaneous living expenses may require payment and typically may be paid from the trust.
2. Notify Trust Beneficiaries
Florida trust law requires that beneficiaries receive a notice of trust and that they are entitled to a copy of the trust. It will be up to the trustee to determine who the trust beneficiaries are; however, if the trust was written in legalese, you may need to consult your trust attorney.
3. Inventory Trust Assets
Gathering a record of the assets held by the trust is very important. Often, trustees are not clear about what it means to determine whether the trust holds the assets. This is a question of whether the Florida trust was funded properly by titling the assets in the name of the trust. The titling of assets may have been direct or may have been by designating the trust as beneficiary of a certain assets such as a life insurance policy or IRA.
4. Determine if Probate of Any Assets is Required
For assets that were not properly titled in the name of the trust, a Florida probate administration may be required to either place that asset in the trust or otherwise to transfer the asset to a designated beneficiary outside of the trust. Whether an asset goes to the trust (or not) will most often depend upon the Florida last will and testament.
5. Do a Preliminary Accounting and Maintain Good Records
It is the function of the trustee to safeguard and manage the trust assets. Part of this function is to do an accounting of, not only the assets held in trust, but also the value and balances of any financial accounts held within or otherwise directed to the trust. Accounts held in trust may be simple checking and savings accounts, or may be other investment accounts such as stock trading accounts, mutual funds or CDs. Most of the time, financial accounts such as IRAs and 401ks are not titled in the trust, but may designate the trust as beneficiary of that account and are thus directed to the trust.
Maintaining excellent records is essential and this includes balancing the checkbook and keeping a good record of expenditures. Failure to properly account for expenditures or using the trust funds for improper purposes could result in the trustee being deemed liable to the beneficiaries for misappropriation of Trust assets.
Common Pitfalls for Florida Successor Trustees
Neglecting to Get Trust Administration Advice [Common Problem Areas]
Common Problems for Successor Trustees Usually Result From Neglecting to Get Professional Advice Concerning A Few Common Areas of Trust Administration As Follows:
At the risk of overemphasizing this point, the following common problems of successor trustees usually relate to a failure to get professional guidance. Typically, professionals would advise caution in the following areas.
- Transferring Assets Out of the Trust
- Handling Estate Debts
- Handling Payment for Estate Expenses and Trustee Fees
- Distributing Assets at the Request of Family Members
1. Transferring assets out of a revocable living trust without proper guidance can create problems for successor trustees.
Assets are often transferred out of a trust for Medicaid planning or asset protection purposes and this usually occurs during the life of the “settlor” of the trust. As you might imagine, this can also result in disputes and complications with other beneficiaries down the road.
Generally, the rule is that a successor trustee of a Florida trust has absolute discretion to utilize the trust assets for the best interest of the settlor. The backlash here is that the successor trustee isn’t you, and thus the successor trustee may be held to scrutiny by the other trust beneficiaries for actions taken concerning the trust assets even if measures were taken in order to take care of you. This can become a very complex process for a successor trustee.
For example, it may become necessary to transfer assets out of the trust estate in order to reduce the estate for Medicaid planning. To whom these assets will be transferred can become a key questions, particularly if a spouse is no longer alive. Sometimes a trustee will transfer assets to themselves individually and although this may be permissible under certain circumstances, it may be looked at with scrutiny at a later date by other trust beneficiaries.
2. Handling estate debts is another complicated area for a successor trustee.
A common example, is where the settlor had leveraged the trust assets for loans and the question of whether, in a diminishing estate, it is wise to let the creditor have the asset? Again, although the successor trustee has absolute discretion to allow it, this decision may be second guessed later.
3. Estate expenses and trustee fees can become tricky with generally the latter being a bit more complicated.
Expenses are usually pretty straightforward unless the object of the expense is a non-trust asset. Then the question will become whether it was proper to pay the expense from the trust. A well drafted trust and other documents such as a durable power of attorney usually prevents this confusion. Trustee fees are allowed by state law and range from about 1% to 3% of the trust assets. They must be reasonable given the circumstances and thus 3% may be reasonable for a large and complicated estate requiring years of administration and 1% may be unreasonable for a simpler estate. Again, these are very fact specific and the successor trustee should consider the response of the other trust beneficiaries down the road.
4. The issue of distributing assets to family members is a common one that is stressful and creates potential legal problems.
Similarly, sometimes the settlor as offered an item of personal property to a beneficiary and they wish to claim it while the settlor is still living. Again, documentation is key and if possible, getting such gifts in writing from the settlor is always preferred.
For all of the above, documentation is key for the successor trustee as is always providing a reason for transfers, payments, gifts etc., so these actions can be explained and justified later in the event of an inquiry by other beneficiaries.
As I’ve mentioned, serving as a trustee or other fiduciary in an estate is an important and esteemed role and following these simple tips can keep you from needless scrutiny from loved ones and their lawyers.
Steve Gibbs, Esq.