Many estate plans for married couples, and especially those with children of previous marriages, provide for the assets of the first to die to be held in trust for the lifetime of the surviving spouse. The surviving spouse usually is to receive all of the net income and as much principal as needed for his/her health, education, maintenance and support. In addition, couples usually name each other to be the sole successor trustee of his/her trust.
Most surviving spouses continue managing the predeceased spouse’s trust as if it were part of the marital assets, but in fact, sometimes it isn’t.
YOUR FIDUCIARY RESPONSIBILITY
Individual trustees, even spouses, have the same fiduciary responsibilities as corporate trustees. Accountings must be prepared utilizing the Uniform Principal and Income Act. Investments must be in accordance with the Uniform Prudent Investor Act.
Many individual trustees do not have the training to understand and apply the various rules set forth in Oklahoma statutes and case law. This is understandable. And in most cases, it all works out just fine.
WHEN THINGS DON’T WORK OUT SO WELL
In our litigious society, however, we see an increase in litigation against individual successor trustees. Many of these are widows or widowers who thought they were doing the right thing.
Most don’t know that the trustee is required to consider the remaindermen as well as the income beneficiary.
Even worse is when that litigation begins after the death of the surviving spouse. Explanations and records may not be available.
I WAS NAMED AS INDIVIDUAL SUCCESSOR TRUSTEE. HOW CAN I MAKE SURE THAT I AM DOING EVERYTHING RIGHT?
Below are some suggestions for you as an individual successor trustee to avoid litigation:
1) ENGAGE AN ATTORNEY who understands trust administration to educate you on the various statutes.
2) START A FILE OR A NOTEBOOK to make notes of any decisions you make with regard to trust distributions and why you made those decisions. For example, if you as surviving spouse do not have enough income to pay for your supplemental health insurance, then a distribution from the trust to pay that bill would be appropriate. This is a proper exercise of the trustee’s discretion to provide for the health of the spouse as beneficiary. Any time you as the trustee exercise discretion to distribute trust principal to yourself, note all factors that lead to the decision. Share those notes with your “trust team” e.g. attorney, CPA and investment manager.
3) ENGAGE A CPA who knows trust accounting to assist you.
4) SEEK AN INVESTMENT MANAGER to help you with the requirements of diversification and prudence as well as to establish an investment objective consistent with the needs of the income beneficiary(s) and remaindermen.
5) RELY ON YOUR TRUST TEAM. Almost all trusts contain the power to hire attorneys, accountants, investment experts and agents. This power allows you as the individual trustee to hire the expertise to keep you in full compliance with the terms of the trust as well as any accountings due or tax returns and taxes to pay.
6) KEEP THE ASSETS IN TRUST. A deceased spouse’s individual trust becomes irrevocable on the death of that spouse. Unless the trust agreement leaves the corpus outright to the surviving spouse, do not remove the assets from the trust. We have seen numerous cases over the years where the surviving spouse did so and left the assets to others upon his/her death. The resulting chaos can be very expensive.
If we can be of assistance to you or your family in handling an individual trusteeship, please give us a call.