Married relatives of mine wrote a trust several decades ago. The husband and wife were the trustors, and my husband and I were named the successor trustees. One of them died and I became a trustee, and a few years later the second one died and my husband became trustee. The trust provided that we were to receive the income (interest and dividends) from the trust, not the principle, until the second of us died, at which time the principle was to be distributed to my children.
Nice, huh? Over the years I’ve managed the assets and grown the total nicely for my kids, while still receiving a modest sum from the income. Then a decade or so ago my husband died and I became the sole surviving trustee. The trust did not name any further successors, and it did not list the ability to name further trustees in my list of trustee powers.
When my husband died, I had my attorney approach the court to see if I could name an additional successor trustee, whose only task would be to distribute the assets, and was told that no I couldn’t, and that upon my death the court could name one. But who is supposed to do that? And what’s to assure that some judge doesn’t appoint someone incompetent, or someone who’ll take a fat percentage of the assets as his fee.
Any suggestions for steps I can take at this point?
And what’s to assure that some judge doesn’t appoint someone incompetent, or someone who’ll take a fat percentage of the assets as his fee.
As the beneficiaries of the trust, that someone(s) would be your children.
They would have a vested interest in making sure that the court acts according to the trust as well as in their interest. That might require them to employ their own attorney or, as you seem to suggest, simply complete beneficiary paperwork to dissolve the trust upon your passing (i.e. another trustee should not be needed at that time).
Any suggestions for steps I can take at this point?
Other than making sure your children are aware of the details of the trust, I don’t think so. What are you trying to accomplish by having another trustee? Are your children minors? If not, then why are you trying to keep them from inheriting these asset upon your passing?
…The trust provided that we were to receive the income (interest and dividends) from the trust, not the principle, until the second of us died, at which time the principle was to be distributed to my children.
…When my husband died, I had my attorney approach the court to see if I could name an additional successor trustee, whose only task would be to distribute the assets, and was told that no I couldn’t, and that upon my death the court could name one. But who is supposed to do that? And what’s to assure that some judge doesn’t appoint someone incompetent, or someone who’ll take a fat percentage of the assets as his fee.
Any suggestions for steps I can take at this point?
It sounds like there’s not much you can do at this point. What you lawyer found out sounds right. What should happen at your death is this: Your children will get a lawyer to petition the court to appoint one (or more) of them as the successor trustee, whose job it will be to liquidate the trust by transferring the assets to them, or selling the assets and distributing cash, whichever. They would do this by giving the custodian(s) a formal letter of instructions, probably with a copy of your death certificate and a copy of the trust agreement to document that the trust is terminated. And the lawyer should probably draft the letter.
They could probably accomplish that step without actually becoming a successor trustee, since the trust terminates at your death. However, there does have to be someone acting with the powers of the trustee, to file the final tax returns for the trust.
Most states have trust codes that permit beneficiaries to appoint a successor trustee without having to involve court (unless of course the trust requires going to court). In addition, most state trust codes permit interested persons - trustee and all qualified beneficiaries i.e., the current beneficiaries (you) and the presumptive remaindermen (the kids) to enter into a nonjudicial settlement agreement to appoint a successor trustee.
My FIL passed listing his wife as trustee. However, she died 15 years earlier. Their children, the only beneficiaries, jointly petitioned the court to name one of them the new trustee. That person became the new trustee.
Our experience in CA.
our minor son was injured and received a minor settlement, his mother was trustee. She wanted to invest his money in something returning more than a savings account and obtained permission to invest in CD’s or something similarly risky.
In both cases the courts worked with us. Also in both cases, all involved parties agreed.
I didn’t see you answer what state governs the trust. For reference, here is the Uniform Trust Code provision that has been adopted by many states (you need to check your state to see if they have a similar law):
704(c) A vacancy in a trusteeship of a noncharitable trust that is required to be filled
must be filled in the following order of priority:
(1) by a person designated in the terms of the trust to act as successor trustee;
(2) by a person appointed by unanimous agreement of the qualified beneficiaries; or
(3) by a person appointed by the court.
Qualified beneficiaries is a defined group. Basically, it is all current beneficiaries and all “presumptive remaindermen” (people who would take if the people above them passed away and the trust terminated).
So, if you are in a “UTC state”, you don’t need to go to court.
The trust originated in California. None of the beneficiaries do, if that matters.
Thanks for your responses! I’ll bring them to my attorney. My family are all in agreement and will cooperate in getting this solved, so at least that won’t be a problem. I should have taken care of this when I became the sole surviving trustee a decade ago.
California doesn’t have the best laws on this. Consult with your attorney.
(a) If the trust has no trustee or if the trust instrument
requires a vacancy in the office of a cotrustee to be filled, the
vacancy shall be filled as provided in this section.
(b) If the trust instrument provides a practical method of
appointing a trustee or names the person to fill the vacancy, the
vacancy shall be filled as provided in the trust instrument.
(c) If the vacancy in the office of trustee is not filled as provided in subdivision (b), the vacancy may be filled by a trust company that has agreed to accept the trust on agreement of all adult beneficiaries who are receiving or are entitled to receive income under the trust or to receive a distribution of principal if the trust were terminated at the time the agreement is made. If a
beneficiary has a conservator, the conservator may agree to the
successor trustee on behalf of the conservatee without obtaining
court approval. Without limiting the power of the beneficiary to
agree to the successor trustee, if the beneficiary has designated an
attorney in fact who has the power under the power of attorney to
agree to the successor trustee, the attorney in fact may agree to the
successor trustee.
(d) If the vacancy in the office of trustee is not filled as provided in subdivision (b) or (c), on petition of any interested person or any person named as trustee in the trust instrument, the court may, in its discretion, appoint a trustee to fill the vacancy.
If the trust provides for more than one trustee, the court may, in
its discretion, appoint the original number or any lesser number of
trustees. In selecting a trustee, the court shall give consideration
to any nomination by the beneficiaries who are 14 years of age or
older.
So, similar to the UTC, the “qualified beneficiaries” can appoint a successor, but it looks like you need to appoint a “trust company”. If the trust will be terminating and distributing, it might be hard to find a trust company who wants to step in. Perhaps, if the assets are with a corporate trustee already, they would be willing? If no trust company steps in, then you may need to go to court.
Drat. I thought this trust would be easy and inexpensive to terminate when I die. I’ll see what my attorney says. Ideally I can get one or more of my kids appointed trustee before I either croak or become incompetent. I’m approaching 85, so I’d better get busy.
If you are still the trustee, arguably the administrative law has changed to the state you live in (the administrative situs of the trust has shifted with you), and your state law may now apply to certain things like trustee succession instead of California. That law may be better. Your attorney should know.