Introduction and Opening Remarks
00:00:00
Francisco Sirvent: Hello, hello. Good afternoon, everybody. Welcome. Today, we are going to talk about the trustee job. My name is Francisco Sirvent, if we haven’t met before. I think I’ve met some of you before. I am the founder of Keystone Law Firm and Lifestyle Planning, where we help families—we take everything off your plate that we can.
Specifically today, we’re going to talk about what the job is for a trustee who is doing the work you’ve assigned to them. If you can’t do the stuff yourself, this is a big job. We’re going to go through as much of it as we can now to help you get a little bit better perspective on what it is you’re handing over, because sometimes we just don’t know.
Before we dive in, though, I do want to point out to everybody that we’ve got more upcoming webinars with more topics posted on our website: keystone.com/events. They’re free to attend, like this one is. You’re welcome to go there and sign up.
Webinar Logistics and Disclaimers
00:13:44
Francisco Sirvent: You’re welcome to send the link to someone else if you think they should know about one of those topics. We also record these and put them on our YouTube channel so you can catch them again. If I move through something too quickly and you want to hear it again, you can listen at youtube.com/keystonelawfirm, and you can see all of our prior topics there as well.
These are intended to be about 30 to 45 minutes long with some time for questions, so you’ll get a lot of details about all of what we do. Speaking of questions, I’m happy to take them. You can send them in by chat—just type them right in there and I’ll get to them as I see them. Towards the end, I’ll open it up and allow you guys to unmute yourself if you want to do live Q&A; I’m happy to do that. I just want to warn you that because this is recorded and will be posted publicly, please don’t share anything that you wouldn’t want known in the public domain.
00:14:46
Francisco Sirvent: If you have a very specific question about your situation that you want to keep private, I’ll give you the information on how to schedule a quick call with me or my partners, Michelle or Alexis, who can help triage what those questions are if you’d like to have a private conversation about it.
Before we dive in, as any good lawyer should know, we have to do all the disclaimers first. All of that lovely little text there basically comes down to a few things. First, this is general information of an educational nature. This is not specific legal, tax, or financial advice for your specific situation. If you need specific advice, please seek that from a qualified professional.
Regarding your successor trustee: Arizona law has a whole section of code called the Arizona Trust Code that spells out what the duties of a trustee are. Those specific duties are there so that there’s no question about what the trustee is supposed to do, because a trustee, by definition, is not taking care of their own money or property.
The Transition of Authority
00:16:11
Francisco Sirvent: Now, you might have a trust in place. If you have a living trust in place right now, you are the trustee of your living trust. I promise that is typically how that’s set up. The difference between that and what I’m talking about here is that with a revocable living trust, while you are the trustee, you are also the primary beneficiary (or you and your spouse, if you’re married). Most importantly, you can make changes to the trust anytime you want. You’re allowed to scrap it and throw it away, change the terms, or pull all your money out of it.
All the legal duties that we’re talking about today are not imposed on you when you’re just acting as your own trustee for your own trust. Okay? If you created the trust, and you’re the trustee and the beneficiary, you can basically do whatever you want because it’s your money. What we’re going to talk about today is what happens when it transitions to the next person in line.
00:17:14
Francisco Sirvent: That might be your spouse, and some duties do apply there, but it certainly applies when it transitions to somebody who’s not your spouse, because at that point, all these legal duties kick in. The reality is, I come across a lot of people who are doing the job of a successor trustee and they came for advice too late.
Part of my job actually involves handling litigation cases around this stuff after someone has passed away and someone else has been acting as successor trustee. A lot of times, we see that the person who was named is not quite doing the job right. In many cases, we’re helping them clean it up, get it done right, and fix whatever needed to be fixed.
A very simple example was not that long ago: the successor trustee just kind of sat on things and didn’t really do much. Then everybody else started getting grumpy and upset, asking what was going on. We were trying to be nice, but it just went on and on for over five years.
Legal Responsibilities and Liability
00:18:27
Francisco Sirvent: The duties that we’re going to talk about today require you to act in a timely manner. You have to be reasonable about the steps you take; you can’t just sit on your hands. The trustee juggles all of this. They are ultimately legally responsible for what happens with the trust assets. The main reason is that they are in charge of money or property that isn’t their own—it is for the benefit of others.
Even if they are one of the beneficiaries, if there are other beneficiaries as well, they are legally responsible for managing it for the benefit of those others. That’s why there are a lot of duties regarding how they do their job. In most of life, we manage money for ourselves. If I make a mistake with something, I’m not going to sue myself, right?
00:19:37
Francisco Sirvent: I just chalk that up to a learning lesson. But when you’re managing money or property for someone else, they have the right to hold the trustee personally liable—out of the trustee’s own pocket and personal money—if mistakes are made.
You want to make sure you know what this job is when you’re handing it off to somebody or if you’re named as a successor trustee in somebody’s documents so that you don’t make those mistakes. The last thing you want to do is take on this job, get to the end, make all the distributions, and then have somebody sue you for doing something wrong. Even if it wasn’t intentional, or if it was an accident—”Gosh, I didn’t know”—none of those things are defenses. The trustee would have to pull into their own pocket and pay the trust or the beneficiaries back for what was done incorrectly. It’s a lot to juggle.
Triggers for Successor Trustee Authority
00:20:49
Francisco Sirvent: What we’re really talking about today is not the first stage while the grantor—that’s you—is alive. We’re not talking about that today. That involves setting up your trust, keeping it up to date, and making sure everything is funded correctly. There are a whole bunch of other topics in that stage. What we’re talking about here is that next section.
A successor trustee’s job gets triggered by one of two events: if the trust maker becomes incapacitated or if they pass away. Either one of those is a trigger in most trusts to transfer authority to the successor trustee.
How does the incapacity trigger get decided? It’s usually decided by your treating physician. If you’re in the hospital, it’s going to be the hospital doctor. If you have a long-term care illness, it’s going to be the doctor that is treating you. They just need to prepare a letter that says, “So-and-so can no longer manage their financial affairs.” Generally, that’s sufficient, and then the trustee prepares their own documents to take over control of the trust.
00:22:00
Francisco Sirvent: At death, of course, someone passes away and you have a death certificate. That’s the starting point. We’re going to talk about that date as being a very important date for a number of reasons. I want to point this out for you: if all you walk away from today with is knowing that that date is a very critical date, you will have learned something really valuable that I see a lot of attorneys miss.
So, from that date forward, there are a number of steps that the trustee has to do. I have a book called My Trustee’s Manual that we offer for sale. It’s 130 pages of information that a trustee needs to know to do the job correctly. We are not going to go through the whole thing today, obviously, but we’re going to cover what we can.
The reason it can get confusing is when there’s a family member who is the successor trustee and they are also one of the beneficiaries. The successor trustee is the “bad guy” in a lot of circumstances. They’re the one who has to say, “No, we have to do it this way,” or “No, we can’t speed it up.”
The Four Golden Rules of Trustee Duties
00:23:06
Francisco Sirvent: There are a lot of competing interests that are going to bear down on the successor trustee. As you see on the screen, it could be anything from family conflict among the beneficiaries. For example, there are three kids and two of them want the house, or there are four heirs and several people want that one piece of art or mom’s wedding ring.
The trustee is the one who has to stay very neutral. They have to stay objective. They can’t think about their own interests; they have to defer to the others. That’s tough. They have to figure out where all the assets are, including distressed or digital assets. And of course, if they’re a family member, they’re going through the challenges of grief at the same time they’re trying to be professional and sort through someone else’s life.
00:25:14
Francisco Sirvent: They have to make sure the trust is taken care of even ahead of their own life. If their own personal life gets busy or chaotic and they let the trust linger, they are breaking their duties and the law. They have to make the trust a priority.
These are the “Golden Rules.” There are more than four, but these are the biggest four that encompass the whole thing. These are legally spelled out in Arizona law:
The Duty of Loyalty: They are loyal to the beneficiaries. They aren’t making their own needs or desires from the trust more important than anyone else’s. They can’t say, “I’m going to move into mom and dad’s house for three years while the trust is being administered.” That’s not fair.
The Duty of Impartiality: You can’t favor any one beneficiary over the others. You have to treat them all in accordance with the trust document and the interest each one gets. Even if they don’t like a specific person, they must treat them with dignity and respect.
00:27:26
Francisco Sirvent: We had a case last year where a trustee was very clearly favoring one beneficiary over the other three. It got so bad we had to file a lawsuit to get them removed. It was based on a bias that the other three were “moochers” and one was the “golden child.” That’s not what the trust documents allow.
The Prudent Investor Rule: This is incredibly complex, but the basic idea is that when the trust is handed over, the trustee has a fresh duty to evaluate if the assets are appropriate. It might have been appropriate while mom or dad was alive because it was their money and their prerogative, but once someone else becomes the successor trustee, they cannot just leave things as they are.
For example, if mom had $500,000 in Honeywell stock because she loved the company, the trustee can’t just say, “Well, that’s what mom wanted.” That is a highly concentrated, risky position. The Prudent Investor Rule says you must manage the assets like a professional. If you don’t and there is a loss, the trustee is personally liable.
The Duty to Inform and Account: Because the successor trustee’s name is on the checks and the titles, they have the authority to act, but they are doing it for the benefit of the beneficiaries. Everything they do, they need to inform the beneficiaries about.
00:30:48
Francisco Sirvent: They must be prepared to give a detailed accounting of every transaction. Sometimes, informing them before you take a big action—like selling a house—can save a trustee’s skin. The duty to account usually comes up at the end when getting ready to make distributions. When we end up in litigation, it’s usually because someone didn’t follow these rules—most commonly the duty to inform and the duty of impartiality.
Categorizing Assets
00:32:03
Francisco Sirvent: As the successor trustee, you’re taking over the financial life of someone else. One of the first things you want to do is categorize everything: bank accounts, real estate, investments, IRAs, life insurance, cars, businesses, etc.
Category 1: Things passing by beneficiary designation or joint ownership with right of survivorship. These go directly to that person and are actually not trust assets. If a checking account was owned jointly, the trustee has no authority over it.
Category 2: Things in the decedent’s name with no beneficiary. This happens with real estate all the time. These are “probate assets.” Depending on the value, you might need a probate to administer these.
Category 3: Things titled to the trust. As the successor trustee, these are the ones you are responsible for.
00:35:41
Francisco Sirvent: Sometimes a person has a “Pour-Over Will” that says, “If there’s anything in my estate, put it in my trust.” It will come to the trust eventually, but until then, you’re only responsible for what is already in the name of the trust. Be very careful about the trust name. If you find inconsistencies in naming across different accounts, get it fixed now if it’s your own trust. If you are a successor trustee, it may require legal work or a court order to fix.
The First 30 Days: The Sprint
00:37:00
Francisco Sirvent: What does the first 30 days look like? This is where a lot of the legwork is done. It usually takes about 20 hours a week to dig in and gather information.
Week 1: Look for important documents (will, trust, deeds, statements). Secure the house—change the locks! You don’t know who has keys, and it’s your responsibility to secure that asset. You might even need a camera or alarm system. Secure their digital life as well. Accessing their email can be a great source of information for finding “paperless” bank accounts.
Week 2: Order death certificates. My standard recommendation is to order 10. They usually cost about $20 each. It’s harder to order them later, so it’s better to have extras. Start notifying banks, financial advisors, the CPA, Social Security, and Medicare. You’re just reporting the death and giving them your contact info.
00:41:14
Francisco Sirvent: * Week 3: Continue notifications. You’ll start getting letters in the mail from companies saying, “We’re sorry for your loss; here is what we need.” Start processing those forms. Review the terms of the trust and the will. You’re looking for who is named as successor trustee (hopefully you) and who the beneficiaries are.
Week 4: Start creating that initial inventory. This is the beginning asset list as of the date of death or incapacity.
00:43:28
Francisco Sirvent: Don’t wait to create this just because you’re missing one piece of information. Create the list and put a placeholder for what you don’t know yet. If someone passed away on March 1st, by the end of April, you should have the statements to show exactly what was in the accounts on that date.
This first 30 days is a sprint. You’re figuring stuff out, gathering mail, making sure urgent bills are paid, and securing access to a trust account.
The Next Six Months: Administration
00:45:30
Francisco Sirvent: The next six months are more spread out. We have to wait for certain statutes of limitations to pass. You’re finishing the inventory and valuation. If you need appraisals for real estate or businesses, you should be arranging those now. Your list should be detailed: “Chase checking account ending in 1234,” not just “bank account.”
You are going to send this inventory to all of the trust beneficiaries. They are entitled to know what you know. If you find more money than you thought, you can’t keep it a secret.
00:48:42
Francisco Sirvent: You’ll be collecting bills and reviewing their credit report to see what’s out there—mortgages, medical bills, etc. Best practice is to tell the beneficiaries as soon as you find a significant debt.
You also need to plan for tax returns. The decedent’s final tax return must still be filed. You’ll likely need a CPA to help with that, as well as a Form 1041 (fiduciary tax return) for the trust itself. Make sure your CPA has experience with fiduciary returns—they are different from individual returns.
00:50:51
Francisco Sirvent: During this time, a “Notice to Creditors” is published. This is a legal document that gives creditors four months to file a claim. If they don’t file within that window, they lose their right to do so. Once that four-month window closes, you know exactly what the total list of valid bills is. Now you can start planning distributions.
Final Distributions and Closure
00:52:04
Francisco Sirvent: This usually happens between months six and twelve. You’re confirming that all debts and expenses are paid. You’re deciding who gets what. If it’s all cash, it’s easy. If someone wants the car or the house as part of their share, it gets more complicated.
Crucial Step: Get written approval from all beneficiaries before you send any checks. They must agree that this is the final amount they are entitled to. If you can’t get everyone to agree, you can seek approval from the court. Once approved, you make final distributions and file a notice of trust closure.
00:55:27
Francisco Sirvent: Sometimes you’ll hold back a small reserve (say $10,000) for final taxes or unexpected expenses before the final, final closure. If the trust is ongoing (e.g., for kids), you’ll distribute the assets from the main trust into the new sub-trusts.
Trust Accounting Standards
00:56:50
Francisco Sirvent: I want to spend the last bit of time on trustee accounting. A trust accounting is very different from standard accounting principles. It is required under the Arizona Trust Code. The general principle is:
Beginning Balance (as of date of death/incapacity)
Plus Receipts (money coming in, like life insurance or rent)
Minus Disbursements (bills, expenses, distributions)
Plus/Minus Gains and Losses (changes in investment value)
Equals Ending Balance
This must reconcile perfectly with the bank and brokerage statements. If you’re a successor trustee for 15 years and only kept a handwritten list, it’s a mess. We have a case like that right now where the court will likely hold the person liable. You must keep records meticulously.
Reviewing a Sample Accounting
00:59:23
Francisco Sirvent: Let me show you a sample accounting for a trust worth about $700,000. This is an 18-page document. It shows the summary of pluses and minuses on page one. Page two shows the “Property on Hand at Beginning,” listing cash, stocks, and mutual funds with their values as of the start date.
It then tracks additional property received, dividends, and interest. It tracks gains and losses on specific assets. It lists all disbursements—custodian fees, accounting fees, and attorney fees. Finally, it shows the “Property on Hand at Close.” You would attach the actual bank and brokerage statements as proof for the beneficiaries so they know you aren’t just making numbers up.
Closing Remarks and Upcoming Events
01:04:39
Francisco Sirvent: That was a lot, but that’s what I wanted to cover. Any questions? If you have a trust managed by Keystone, we’ve likely told you this before, but I hope this is a good reminder.
Our firm does offer to act as a successor trustee for clients where we have drafted the trust. If you want a family member to stay in the role but they need a guide, we offer that service as well to make sure they do every step correctly.
Our next webinar is on May 7th, a Thursday at noon. The title is “Why Your Perfect Asset Allocation is Still Leaking Money to the IRS.” This is investment and tax strategy related. Karmi Gutman, CFP, will be teaching that one. It covers how the location of different investments can blow up your tax bill if not handled correctly. You can sign up at keystone.com/events.
I’ll open the floor now for chat or audio questions. Otherwise, have a wonderful weekend and thank you for being here!
01:24:16 [Transcription Ends]
