If a relative or friend has named you to be the successor trustee of their trust (or to be the personal representative of their estate, if they have only a Will), you may feel honored by their confidence in you but uncertain – and perhaps uneasy – about the responsibilities that go with it.
A trustee is what the law calls a “fiduciary.” A fiduciary is a person who is responsible for taking care of something that belongs to someone else. Under the law, fiduciaries owe legally enforceable duties to the people on whose behalf they handle property. Any time you act in your capacity as trustee, your fiduciary duties come first.
In order for you to have a good feel for your duties, it’s important that you understand what a “trust” is. A trust is a legal relationship that results when a person (often called a trustmaker, trustor, settlor or grantor) makes an agreement with a trustee to handle property for the benefit of a person. (A common form of trust used in estate planning is a “revocable living trust.”) The agreement is normally set out in a written document called the “trust instrument” or “trust agreement.”
What is a “Successor Trustee”? A successor trustee is the person or institution that takes over the management of trust property when the original trustee (who, in most cases, was also the person who created the trust) has died or become incapacitated.
The fact that you have been named as a successor trustee in someone’s trust instrument does not obligate you to accept that position. You should consider very carefully your decision to accept the job of trustee. Once you accept the position, you accept all that goes with it. It is a position of great honor, and it involves great responsibility.
The law does not demand perfection from you. However, it does demand absolute loyalty, absolute honesty, and complete and accurate disclosure, even if that disclosure could cast you in an uncomfortably negative light.
How to Sign Documents. Whenever you sign any document on behalf of the trust, always sign as “[Your Name], Trustee.” It must be absolutely clear that you are obligating the trust and not yourself. If you do this (assuming you were acting within the scope of your authority as trustee when you signed a document), you will not be personally liable for any obligation under that document.
Sources of Your Authority as Trustee. Your authority comes first and foremost from the trust instrument, and your duties and powers as described there are your primary instructions. You should read the trust instrument with care, and from time to time read it again. The trust instrument may contain specific provisions that take precedence over the general rules that apply to trusts.
The second source of your authority comes from state law. Various provisions of state law cover things that are not specifically spelled out in the trust instrument. The Uniform Trustees Powers Act, the Uniform Prudent Investor Act, the Uniform Principal and Income Act, and the Uniform Probate Code hold particular relevance to your role as a trustee.
The third source of your authority is found in the court decisions relating to trusts. This is known as “common law.” The common law of Arizona is found primarily in the opinions of the Arizona Supreme Court and Court of Appeals: those courts may follow decisions from other jurisdictions as well.
You need to keep all three of these sources of authority in mind as you carry out your duties as trustee. You also need to remember that Treasury Regulations, the Internal Revenue Code, and court decisions that interpret the Code will dictate what you can or should do in many circumstances.
Hoopes, Adams & Alexander’s “Successor Trustee Handbook,” from which this brief article is adapted, is available free of charge at: www.halaw.com/handbook.
Attorney Ronald P. Adams is a partner in the Chandler, Arizona law firm of Hoopes, Adams & Alexander, PLC, serving Arizona companies and individuals in the East Valley and the greater Phoenix area. Phoenix-area families, high net worth individuals and business and property owners have long counted on the skill, creativity and responsiveness of Ron Adams in addressing their legal needs and objectives. Acknowledged by his peers as one of the East Valley's leading estate planning and business planning attorneys, Ron Adams believes that educating you about your many options is critical to the creation of a truly effective estate plan. He offers extensive knowledge and experience regarding the legal complexities, delays and greatly increased costs associated with the lack of proper planning.
His principal goals are to:
- guide you and your loved ones through the estate planning process;
- ensure that you are able to care for yourself and family members while you are
alive and well and in the event of disability; and
- give you confidence in knowing you will leave your estate to whom you want,
when you want and in the way you want.