Name Successor Trustees (Plural!) for Your Trust

Today I want to share with you a brief “estate planning gone wrong” story. The story is real, but of course the names have been changed. If you are not up-to-speed on basic trust terminology, please read “What’s the Point of a Trust?” first.

Here’s the basic sequence of events:

Hank and Wanda (a married couple) had their attorney, Adam, create a trust for them.
Hank was named as trustee of the trust.
Adam was named as successor trustee.
Hank and Wanda were co-beneficiaries of the trust, with their adult children named as secondary beneficiaries.
Hank and Wanda moved essentially all of their assets into the trust. (Retirement accounts, which cannot go into the trust, made up only a very small portion of their assets.)
Adam died before Hank or Wanda. The trust was not modified to add a new successor trustee.
Hank died.

The result: the trust had no trustee — nobody who was authorized to make decisions about how to use the assets. Wanda was beneficiary of the trust, but because she was not the trustee, she had no control over the assets. This resulted in two problems:

Wanda could not spend from the money that she naturally thought of as “her” money.
There was nobody who could make any portfolio management decisions.

Wanda petitioned the applicable court to appoint a new trustee for the trust, and the court eventually did so. But the process took several months. And in the meantime, there was very little other than her monthly Social Security check that she had access to.

Fortunately, her adult children were able to step in and provide some needed funds. And, fortunately, the portfolio being left on autopilot did not result in any bad outcome. But you can easily imagine situations where either of those two problems could have resulted in very real damage to Wanda’s well-being.

Why wasn’t Wanda named as co-trustee along with Hank? Frankly, I don’t know. There are various cases in which it would make sense for only one of two spouses to be named as a trustee (e.g., the other spouse has a gambling problem or cannot be trusted to make sound financial decisions for some reason). I could not see any obvious reason in this case, but maybe the husband and the attorney really did have a good reason.

Regardless, this is an easily avoided situation. Make sure your trust has multiple successor trustees. Even if you like the idea of naming a family member or a trusted individual professional as the trustee, naming a business entity, such as a well-established law firm that’s likely to outlive any one person, as a final successor trustee can prevent the situation described here.

In addition, estate plans should be updated periodically. In the example above, the situation would have been avoided if the couple had reviewed their estate plan after the first attorney’s death, as they (or the attorney doing the review) would have realized that the trust no longer had a successor trustee.

What is the Best Age to Claim Social Security?

Read the answers to this question and several other Social Security questions in my latest book:

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less

Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

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