Succession is a concern for this trust owner
Q: My house is held in a trust. My nephew is the successor trustee. He not only is the successor trustee, but he and his sister are each 45% beneficiaries. Another nephew is the final 10% beneficiary.
Only my home is in the trust. What is the risk if my successor trustee dies before I can appoint another successor trustee and reallocate the distribution? My successor trustee has a minor child and is divorced, with shared custody.
A: When it comes to trusts, it’s always good to think about succession, both for the trustee(s) and beneficiaries.
We suspect that the attorney who helped draft the trust would have suggested adding additional successors. So, you’d have a successor trustee and then a successor to the successor trustee. Same with beneficiaries. You’d have the beneficiaries and successor or contingent beneficiaries.
You’ll have to read the trust document to see how the trust was set up.
Homeowners most commonly use a revocable trust to hold title to their real estate. (We recently discussed revocable and irrevocable trusts.) You’d create a trust and then transfer the title from your own name to the name of the trust. At that point, the trust becomes the owner of the home. Generally, you would be the trustor (the person that created the trust). You might also be the trustee (the person that controls the property in the trust). And, you’d also be the beneficiary of the trust (the person that gets the financial benefits from the assets in the trust).
So you start out with three roles: trustor, trustee and beneficiary of the trust. The trust document should list at least one successor trustee and one successor beneficiary. If you become incapable of administering the trust, then the successor trustee can manage the assets of the trust. Upon your death, the named successor beneficiary will inherit what is owned by the trust.
Good trust documents are drawn up in a way that can cover the many contingencies that often come up in life. Including what happens if the successor trustee or successor beneficiary dies before you do.
A well-drawn trust document should name a successor trustee for your nephew. If it doesn’t, you can amend the trust to provide for a successor trustee for your nephew and a successor trustee for whomever you designate as that successor trustee.
If you have a revocable trust, as the beneficiary you have the right to amend the trust and update it to decide who can and serve as trustee and who should be the beneficiary under the trust. You can change the percentages of the successor beneficiaries or add other successor beneficiaries as you see fit.
Before you amend the trust, make sure the terms accurately reflect your intentions. Next, make sure that the title to the home is actually in the name of the trust. It is quite common for people to set up a trust for their home. But, then they forget to transfer the title from their names to the name of the trust.
Check your file for a copy of the deed transferring ownership of the home from your name to the name of the trust. Then, see if you received a filed or recorded copy of that document. If the deed was filed or recorded, your home is in the trust.
Third, when you look over your trust document, make certain the people you’ve designated as trustees and beneficiaries are still the people you want to have in those roles. People marry, die, get sick, move away, and have different needs during their lives. As the years pass, you might be closer to some people than others. You might find that one person might benefit more from owning your home than another.
We’re not suggesting you make any changes. What we want you, and all of our readers, to do is continue to evaluate your financial situation and those that stand to benefit from your generosity.
Contact Ilyce and Sam through her website, Thinkglink.com.