Ask the Expert- Get Simple Answers to Your Elder Law Questions

The following question was submitted by a Virginia resident and answered by Evan H. Farr, CELA.

For our weekly “Ask the Expert” FAQ, subscribe to our bi-weekly newsletter.

Q: My mother is 80 yrs old and I advised her to create a trust. In my mother’s trust, I was named as a Second Successor. My sister and brother were named Successor Co-Trustees. What does it mean to be a Second Successor Trustee?

A: To answer your question requires that I first address the question of what is a trust and what is a trustee.  A trust is an arrangement in which one person (the trustee) holds the property of another (the Trust creator, also called the Settlor or the Grantor) for the benefit of a third party (the beneficiary).  A trustee may be either an individual or a corporation.  The original trustee is the person who initially manages the trust assets for the benefit of the trust beneficiaries, as provided by the terms of the document that created the trust.  It is very important to understand that trustees and beneficiaries are completely different from a legal standpoint – the trustee manages the property for the benefit of the beneficiaries.  A trustee cannot simply use the trust assets for the benefit of himself or herself – the trustee must manage and use the assets for the benefit of all the beneficiaries of the trust as specified in the trust document.  Many people get confused about this because the trustee(s) and the beneficiaries are often the same people, but this does not mean that they serve the same function.  

When someone creates a trust, it is good practice to name not just an initial trustee or co-trustees, but also substitute trustees (call successor trustees) to take over as trustee and to continue to manage the trust and its assets in the event that something happens to the original trustee or co-trustees.

Trustees have what is called a fiduciary duty, which is a legal obligation to the beneficiaries of the trust, to follow the terms stated in the document that created the trust.  There may also be State statutes dealing with the duties of a trustee.

Once the original trustee is unable or unwilling to act, the successor trustee(s) will take over. In this situation it sounds as though your mother is the current trustee and your brother and sister are first in line to act as successor co-trustees once your mother is no longer able or willing to manage the trust.  You say you are named as the “second successor trustee.” This might mean that you take over as trustee only if both of your siblings become unable or unwilling to act as trustees, or it might mean that you come in as a co-trustee if one of them is unable or unwilling to act as a co-trustee.   What it means depends entirely on the wording of your mother’s trust, which should clearly spell out under what circumstances you become a trustee.

Unless and until you actually become a trustee, you have no duty or obligations whatsoever with regard to the trust.  

Going a bit beyond the question you asked, it is also important to understand what type of trust your mother has.  Most likely she signed a revocable living trust. The revocable living trust is a very useful and popular estate planning tool, recommended by tens of thousands of attorneys across the U.S. and used as the central estate planning document by millions of Americans.  The primary benefit of the revocable living trust is that assets properly funded into such a trust are protected from the expenses and complexities of probate.  However, what most people don’t realize is that assets in a revocable living trust are NOT protected from lawsuits or from the catastrophic expenses associated with nursing home long-term care. For an 80-year old such as your mother, a more appropriate trust is probably the Living Trust Plus(TM) Asset Protection Trust, which would protect your mother’s assets from lawsuits, auto accidents, creditor attacks, medical expenses, and — most importantly — from the catastrophic expenses often incurred in connection with nursing home care.   

Even though the Living Trust Plus(TM) is irrevocable, your mother would retain a high degree of control over her trust assets because:
•    she has the right to live in and use your real estate;
•    she has the right to change trustees; and
•    she can be the trustee if desired;
•    she has  the right to receive all of the trust income;
•    she has the right to change beneficiaries.
•  Additionally, as is the case with all non-charitable irrevocable trusts, the Living Trust Plus(TM) can be modified, or even terminated, upon the agreement of all “interested parties” — which are typically the trust creator, the trustee, and all trust beneficiaries.

For more information about the Living Trust Plus(TM), please visit http://www.livingtrustplus.com.
 
- Evan H. Farr, CELA
 

Speak Your Mind

*


+ 9 = 13