As people age, they often find they need more assistance in their daily lives, especially with small, everyday tasks such as paying bills. We recently published a blog post describing one way of obtaining assistance with managing assets: naming a trusted child or friend as an authorized user (not co-owner) of that asset. If you have a Revocable Living Trust, there is another option available that you may want to consider as you evaluate your ability to manage your finances. You may choose to resign from the office of trustee of your trust while you are still alive to allow your successor trustee to begin managing your trust assets for your benefit during your lifetime.
A Revocable Living Trust is an ink-and-paper “person” who can own assets. This is beneficial because if an asset is owned by a trust (or if the trust is listed as the beneficiary of the account), that asset is not subject to probate. Since probate is a public, time-intensive, and expensive process, we find that most of our clients prefer to utilize a Revocable Living Trust in their estate planning document suite.
When you create a Revocable Living Trust, you hold three different roles. The first role is the Grantor of the trust (sometimes called the Settlor). The Grantor has the power to create, amend, or revoke the trust. The role of Grantor cannot be transferred. If you have an individual trust, you are the Sole Grantor and alone have the power to create, amend, and revoke the trust. Likewise, if you have a joint trust, each of you are Co-Grantors. As long as one of the Grantors is alive, the trust can be amended or revoked. Once both Grantors are incapacitated or have passed away, the trust becomes irrevocable.
The second role is that of Beneficiary. While you are alive, you are the Primary Lifetime Beneficiary of your trust, which means that the trust exists for your benefit. Anyone acting as Trustee of the trust (whether you or someone else) must use trust resources in your best interest. Only once you have passed (or once both of the Grantors of a joint trust have passed) will your plan of distribution take effect.
The third role is that of Trustee. The Trustee has authority to manage assets that are held by the trust for the benefit of the beneficiary. The Trustee has a duty to follow the trust to the letter. Whoever is the current Trustee must act in accordance with the terms of the trust. This includes using all trust assets for the benefit of the primary lifetime beneficiary. Now, how can resigning the office of Trustee be useful? As people age and it becomes more difficult and troublesome to continue to manage assets, it is relatively common for children to help their parents manage administrative tasks. If you are in a position where you do not want to manage the day-to-day aspects of your finances, and your children are already named as your Successor Trustees and capable of taking on that responsibility, you can
choose to resign as Trustee and have your children serve as Trustees of your Revocable Living Trust while you are still alive. This is an important decision that should be considered carefully, as it grants tremendous responsibility to your children. However, if you choose to resign, you do not give up your other two roles of Grantor and Beneficiary. As Grantor, you retain the right to amend the trust as you please and can at any time dismiss the current Trustee if they are not managing your trust to your satisfaction. Additionally, you retain your role as the Primary Lifetime Beneficiary. The Trustee must manage trust assets for your benefit according to the terms of the trust.
For those without children, or those who would rather have a neutral third party overseeing their trust, there are many professional organizations that can serve as Trustee, including estate planning attorneys at BLG. If you are considering resigning from the office of Trustee of your trust, or exploring other options, we would be happy to meet with you to discuss what tools of estate planning may fit you best. Contact our office if you’re interested in meeting with one of our attorneys, or if you have any questions.