Cheri L. Elson and Allen G. Drescher, Retired
21 S. 2nd St. ● Ashland ● Oregon ● 97520

How to Choose a Successor Trustee

Choosing a Successor Trustee is not something to take lightly.  When an estate plan is centered around a revocable living Trust, the bulk of one’s assets are owned by the Trust and, therefore, under the control of the Trustee.  As long as you are capable (have legal capacity) of managing your own affairs, you are the Trustee, and continue to control your assets.  If you become incapacitated, the Successor Trustee manages the assets in the Trust for your benefit.  At your death, the Successor Trustee is charged with managing or distributing the Trust Estate in accordance to the directions you provided in the Trust.

Whom you name as Successor Trustee depends greatly on your current situation and will most likely change over time.  In fact, it is one of the most often-changed part of an estate plan.  For instance, if young children are involved, the Successor Trustee should someone who will manage the money for the children in the same way you would, and who will ensure it is used for the children’s best interests. 

The older we become, however, the more likely it is that someone will need to step in to assist us with our own finances.  While adult children may be fine paying final expenses and closing up the estate, it is not a given that they are the best choice to take care of your finances if you are unable to manage them on your own.  Family dynamics should be taken into consideration when deciding if children will be named as Successor Trustees or not.  If siblings do not get along, naming them as Successor Co-Trustees could be disastrous.  Or, the children may be lovely and wonderful and not so good with money.  In this case, placing them in charge of your finances would seem less than ideal.

When deciding on a Successor Trustee, it is important to take into account all these factors.  Often, it is a family member tasked with this job; however, it does not have to be and should not be unless there is a family member truly able and willing to do the work.  If there is no one appropriate within the circle of family or friends, an outside, neutral party may be the best choice.  A professional fiduciary can be a perfect solution in this instance.  As an estate planning attorney since 2001, I have seen time and time again where this is the better choice over the relative or friend.  What’s most important is having an in-depth conversation with your estate planning attorney to ensure that all potential issues are addressed and all options investigated.

Trust Options for Couples

Married couples and Registered Domestic Partners have options when creating revocable living trusts. One option is the simple Probate Avoidance Trust, with the other option being an A/B Trust. 

Probate Avoidance Trust

At the death of the first spouse (or partner), this Trust continues for the benefit of the survivor, becoming irrevocable only at the survivor’s death.  

It is important to understand the survivor’s ability to change the terms of the Trust after the first death.  Because the Trust remains revocable, the survivor has complete control over the disposition of the entire estate at their death.  As a result, the survivor could exclude the children, heirs, or other intended beneficiaries of the decedent.

Another potential disadvantage of the simple Trust has to do with estate taxes.  All Trust property passes to the survivor and if, at their death, the estate is over either the state estate tax exemption amount (currently $1,000,000), or the federal estate tax exemption amount (currently $11,400,000), an estate tax will be imposed.  However, this can be addressed in a variety of ways, including the use of a Disclaimer Trust written into the main Trust.  The main advantage to Disclaimer Trusts is that a decision to utilize it is not necessary until after the first death.  However, disclaiming must occur within 9 months of the date of death, and so conversations about whether or not to disclaim must be had sooner rather than later after the first death.

A/B Trust

This type of Trust calls for a mandatory split of the Trust assets into two new Trusts at the first death, one of which (the A Trust) remains fully amendable by the survivor, the other of which (the B Trust) is “born” an irrevocable Trust.  

Historically, A/B Trusts were used to keep the decedent’s estate from ever being subjected to an estate tax, with the B Trust set up for the benefit of the survivor, and then out to the other beneficiaries at the survivor’s death.  However, I now find that the simple Trust with the Disclaimer Trust language works better for most clients, giving them more flexibility and time to decide if they want (or need) to engage in estate tax planning.  

I utilize A/B Trust most often when working with blended families, as a way for the decedent to retain control over their half of the estate after death.  While the survivor typically receives all of the net income from the B Trust, extra provisions are likely added restricting the survivor’s access the principal of the B Trust and it is important to understand how these limitations may affect the survivor’s lifestyle.  Because the B Trust is irrevocable, the decedent knows their estate will ultimately be distributed to their intended beneficiaries.Whichever type of Trust is ultimately chosen, it is important to understand that as circumstances change, amendments may be necessary.  There is nothing wrong with this; in fact, I believe it is the mark of a good estate plan.

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