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Importance of Successor Fiduciaries

Importance of Successor Fiduciaries
First Choice

The surviving spouse or life partner is the usual choice to serve as an executor or trustee for married and unmarried couples. Single persons often select a relative or a friend.

For couples, the spouse or partner may be best informed about assets to be administered.  In addition, they are the most knowledgably about discretionary decisions to be made if the settlor is incapacitated. 

Marital harmony also plays a factor for most.  However, the trust responsibilities may be overwhelming for a grieving spouse or partner.

Conflicts may also arise in second marriage situations where the fiduciary is called upon to make decisions regarding the administration and distribution of family assets to the fiduciary’s and the decedent spouse’s children.

Single or Joint Fiduciaries

A rule of thumb is to use a single successor fiduciary absent  special circumstances. 

With some family dynamics, the client desire several trustees to serve at the same time.  Co-trustees provide a check and balance in decisions making. 

The location of co-trustees in different cities is not a disqualifier with modern communications.  Also, one trustee can delegate to the other authority to act on its behalf. The co-trustee has a fiduciary responsibility to participate in trustee’s functions.

The disadvantage of co-trustees is that decision making could be paralyzed with disagreement.  With two trustees, court guidance may be sought.  This is avoidable by the trustee provisions in the trust vesting one co-fiduciary with the controlling vote in the event of a deadlock.  Counsel must also consider adverse estate, gift, or income tax to the controlling fiduciary.

With more than two trustees, a majority of trustees rule absent different terms in the of the trust, controls trust decisions. 

Successor Fiduciaries

Provide the last successor trustee is authorized to appoint a successor trustee; the qualified beneficiary appoints a trustee, or a majority of the beneficiaries appoint a trustee.The trust should expressly provide that any 

successor Trustee is not liable for any acts or omissions of any predecessor Trustee.  

Most trust companies will require this language and also a provision that states the successor is under no duty to ascertain whether any predecessor has properly carried out its duties.  

An alternative is to provide a court of competent jurisdiction will appoint the trustee when the trustworthiness factor is not found by the client with beneficiaries.  A single trustee can make prompt and decisive decisions.

Trustee Committee

A trust funded with significant property or overseeing an impaired beneficiary may justify a trustee committee.  Some grantors prefer to have the committee comprised of family advisors, i.e. lawyer, accountant, financial advisor, social worker in case of impaired beneficiary.  

Unless a term negates compensation, all trustees are entitled to reasonable compensation and reimbursement of expenses.

Some schools of estate planners advocate multiple trustees for testamentary trusts, in which a spouse from a second marriage is the lifetime beneficiary.  Elements of this school believe in multiple trustees whenever the Grantor is incapacitated or following the Grantor's death, particularly if there is an "interested Trustee" serving.

Another approach to protect testamentary funds for legacy to the deceased spouse blood line is to require a prenuptial agreement if the surviving spouse remarries.  

In addition, the grantor can limit the surviving spouse’s access to principal.  A total return unitrust income trust balances the interest of both the lifetime and residuary beneficiaries in normal economic times.  Total return unitrusts are governed by Va. Code § 55-277.4:1 et seq. 

Resignation of Trustees

The trust provisions should clearly give any Trustee the right to resign. 

The resignation, however, should not be effective immediately and should be delayed until a successor Trustee is named and assumes its responsibilities