An important part of owning a business is a well-thought-out succession plan.
A key component of the succession plan is determining who takes over when the current owner is no longer in charge. The succession plan instills confidence that the business will be able to continue operating, even if the founder or CEO is no longer calling the shots. This makes sense for businesses, but it also applies to your estate plan.
While you are alive, and mentally and physically capable, you are the CEO of your estate. You oversee all the decisions that are made for the assets you accumulate throughout your life. If you have created a revocable living trust, this means you are the grantor and the trustee of your trust. The grantor is the person who creates the trust and all its rules, and the trustee is responsible for carrying out these rules. During your lifetime, you will find essentially no big difference exists between being a trustee versus being an individual owner of your assets.
When creating a trust, people focus heavily on the beneficiaries – they want to determine who will receive the assets and how those assets will be distributed to them – but another person who will play a major role in making sure your wishes are carried out must be considered – this is the successor trustee.
The successor trustee is a crucial component to your succession plan. You are naming the next person responsible for carrying out the rules and provisions created by the grantor. For many people, the easy choice is to name their children for this responsibility. This makes sense because you love and trust your children, and you feel confident they will honor your wishes. While this is a good choice on the surface, it is important to understand that a significant amount of work and responsibility that the grantor likely has not considered will fall on the shoulders of the successor trustee.
Successor trustees are responsible for many things – managing the assets of the trust, maintaining the trust accounting of everything that comes in and out of the trust, overseeing distributions to the beneficiaries, and filing required tax returns. This creates a serious amount of liability that most beneficiaries would prefer not to be responsible for – especially if they have siblings or family members who are also beneficiaries. Putting big brother in charge of the purse strings can cause conflict, even for family members who have healthy relationships.
This is why I suggest a trust company to serve as the successor trustee for most of the families I assist. For a reasonable fee, a trust company will take on the legal liabilities and responsibilities for carrying out the provisions of the trust, without encumbering the beneficiaries with additional work.
The successor trustee you name in your trust is very important. It is worth it to take some time to research your options, so you can find a company or individual that you feel will work best with your family when you are gone.
Financial Enhancement Group is an SEC Registered Investment Advisor.
