Trustee Succession

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 12, 2023

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What Is Trustee Succession?

Trustee succession refers to the process of replacing an existing trustee with a new trustee, ensuring the ongoing administration and management of the trust. This can occur when a trustee resigns, becomes incapacitated, or passes away.

Planning for trustee succession is crucial to ensure the continued administration of the trust, protect trust assets, and fulfill the trust's purposes for the benefit of its beneficiaries.

Legal Framework Governing Trustee Succession

Trust Agreement Provisions

The trust agreement typically outlines the procedures for trustee succession, including the methods of appointing a successor trustee and any qualifications or criteria that the successor trustee must meet.

State Laws and Regulations

State laws may also govern trustee succession and provide additional requirements or procedures that must be followed. Trustee succession laws can vary from state to state, making it essential for trustees to be familiar with the applicable regulations.

Methods of Trustee Succession

Appointment by the Settlor

In some cases, the settlor (the person who created the trust) may have designated a successor trustee in the trust agreement. This is a common method of trustee succession planning, providing clarity and certainty regarding the trust's future administration.

Appointment by Co-trustees or Beneficiaries

If the trust agreement allows, co-trustees or beneficiaries may have the authority to appoint a successor trustee. This method can give the trust's stakeholders greater control over the selection of the new trustee, ensuring that their interests are protected.

Appointment by a Trust Protector

A trust protector is an individual or entity appointed by the settlor to oversee the trust and make specific decisions, such as appointing or removing trustees. If the trust agreement grants this authority, a trust protector can appoint a successor trustee.

Appointment by a Court

If the trust agreement does not provide a method for appointing a successor trustee or if the designated method fails, a court may have the authority to appoint a new trustee.

This typically occurs when there is a dispute among beneficiaries or when other appointment methods are unsuccessful.

Factors to Consider When Choosing a Successor Trustee

Qualifications and Experience

A suitable successor trustee should have the necessary qualifications and experience to administer the trust effectively. This may include knowledge of trust law, financial management skills, and experience in dealing with trust assets and beneficiaries.

Trustworthiness and Integrity

The successor trustee should be a person of high integrity and trustworthiness, as they will be responsible for managing the trust's assets on behalf of the beneficiaries and ensuring the trust's continued success.

Availability and Commitment

A successor trustee should be willing and able to commit the time and effort required to administer the trust effectively. This may involve regular communication with beneficiaries, managing trust assets, and fulfilling legal and reporting obligations.

Potential Conflicts of Interest

It is essential to consider any potential conflicts of interest that could arise between the successor trustee and the trust's beneficiaries or assets. A trustee with a conflict of interest may not be able to act impartially or fulfill their fiduciary duties effectively.

Factors to Consider When Choosing a Successor Trustee

Preparing for Trustee Succession

Documenting Trust Administration Procedures

To ensure a smooth transition to a successor trustee, the current trustee should document the trust's administration procedures, including asset management strategies, distribution policies, and reporting requirements.

Ensuring Proper Record-Keeping

Accurate and up-to-date records of trust administration are crucial for a smooth trustee succession. These records should include financial statements, tax filings, beneficiary information, and correspondence related to the trust.

Communicating With Beneficiaries and Co-trustees

Open communication with beneficiaries and co-trustees is essential during the trustee succession process. Keeping all parties informed about the succession plan can help maintain trust and facilitate a smooth transition.

Providing Access to Trust Assets and Records

The current trustee should ensure that the successor trustee has access to the trust's assets and records, making it easier for the new trustee to take over the trust administration.

Preparing for Trustee Succession

Transitioning to a Successor Trustee

Notifying Relevant Parties

When a trustee succession occurs, it is important to notify all relevant parties, including beneficiaries, co-trustees, and any professional advisors involved with the trust.

Transferring Trust Assets and Records

The outgoing trustee must transfer all trust assets, records, and relevant documentation to the successor trustee to ensure a seamless transition.

Assisting With the Transition Process

The outgoing trustee may provide assistance to the successor trustee during the transition, such as explaining the trust's administration, providing guidance on trust assets, and offering support in understanding the trust agreement.

Obtaining a Release of Liability

The outgoing trustee should obtain a release of liability from the beneficiaries and co-trustees to protect themselves from future claims related to their tenure as trustee. This release may be in the form of a written agreement or a court order.

Best Practices for Trustee Succession

Periodic Review of Succession Plan

It is essential to review the trust's succession plan periodically to ensure that it remains up-to-date and reflects the trust's current circumstances and objectives.

Regular Communication With Successor Trustee

Maintaining regular communication with the designated successor trustee can help ensure that they are prepared to take over the trust administration when needed and are familiar with the trust's objectives, assets, and beneficiaries.

Maintaining Updated Trust Documents

Keeping the trust agreement and other trust documents up-to-date can help ensure that the trustee succession process is clear, efficient, and in line with the trust's objectives.

Conclusion

Trustee succession planning is crucial for the continued administration and success of a trust. Various methods can be used to appoint a successor trustee, and numerous factors should be considered when choosing a suitable candidate.

Proper preparation, communication, and record-keeping can help facilitate a smooth transition to a successor trustee.

Effective trustee succession planning ensures that the trust can continue to fulfill its purposes and protect the interests of its beneficiaries, even when the current trustee is no longer able to serve.

By following best practices for trustee succession planning and working closely with the successor trustee, the current trustee can help safeguard the trust's assets and promote the continued administration and success of the trust for the benefit of its beneficiaries.

Trustee Succession FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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