Estate Planning

A Successor Trustee Checklist with Matt Kasper, CFP®, AIF®

April 1, 2024

A Successor Trustee Checklist with Matt Kasper, CFP®, AIF®

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A Successor Trustee Checklist with Matt Kasper, CFP®, AIF® Show Notes

Estate planning can be a complicated issue. It can run smoothly or there can be a lot of pitfalls that you don’t foresee. As Matt Kasper, CFP®, AIF® makes his third appearance on The Guided Retirement Show, he and Dean Barber will go over some key items for successor trustees while discussing the importance of having a solid estate plan and being transparent about your wishes with the next generation.

In this podcast interview, you’ll learn:

  • The two distinct sides of an estate plan
  • Differences between will-based and trust-based plans
  • The roles of co-trustees, successor trustees, corporate trustees, and contingent successor trustees
  • Estate planning is individual

What Happens When Someone Dies and Wealth Transfer Takes Place?

Death and the transfer of assets to the next generation are topics that a lot of people don’t want to talk about. Those discussions are oftentimes uncomfortable, whether you’re planning to pass down your assets or anticipate receiving someone else’s assets. In either case, there are a lot of things that need to be known that some people wait way too long to find out. If you wait too long, it’s easy to rush and make mistakes when making important decisions.

Matt and Dean have seen several instances of that. They want people to understand what needs to happen when someone dies and wealth transfer takes place. You need to begin with the end in mind. Matt, Dean, and our other team members recommend that Modern Wealth clients meet with our team every other year and following major life events to review their estate plan.

That estate plan should outline everything that’s meaningful to you, from how you want to first leave their wealth to their spouse and then to the next generation or charity.

“That individualized design is what we’re really pursuing.” – Matt Kasper, CFP®, AIF®

When Should You Build an Estate Plan?

Dean and Matt both live fairly active lifestyles and don’t plan on retiring anytime soon. But they still know that tomorrow isn’t something to take for granted. The same goes for their family members. Matt and Dean don’t want their families to suddenly be in a bind if they become incapacitated or pass away. So, they have estate plans so that their families are clear about their wishes.

“Once you’ve accumulated a decent amount of wealth—and I’m talking $500,000 or more in net worth—you should start thinking about planning for the next generation and the death of you or your spouse.” – Dean Barber

The Two Clear-Cut Sides of an Estate Plan

There are two distinct sides of the estate plan. There’s the creation of the estate plan and then there’s the active part of it after the grantors of the trust pass away or become incapacitated.

The Creation of an Estate Plan

The structuring of an estate plan begins when a couple talks about the wealth that they’ve accumulated. The couple needs to consider each of these questions.

  • How do we want our wealth to pass to whichever one of us ends up being a surviving spouse and then to the next generation?
  • Should the next generation or surviving spouse have full or limited access?
  • Should money pass to the next generation at the death of the first spouse—leaving the surviving spouse with only enough to live?

Structuring Your Estate Plan

How are you going to structure that? That’s a deep conversation that needs to take place between the grantors of the trust. They’re the ones that are establishing the trust in the first place. It’s important to also talk about the design of the trust with a CFP® Professional. Then, an attorney should be brought up to actually draw up the legal document.

“This is not something where you get a template and fill in names and numbers. If you don’t have a lot, maybe that’s OK. It’s better than nothing. But in most cases with the clients we’re dealing with, that’s not sufficient.” – Dean Barber

The Active Part of an Estate Plan

Dean considers the creation of the estate plan to be the easy part of estate planning because no death or transfer of assets has occurred yet. The active part of estate planning comes after the grantors have passed away.

Once the grantors pass away, the beneficiaries, successor trustees, and health care and financial powers of attorney come into play. All the documents that are part of the trust need to start being used.

Matt and Dean have seen several situations where the grantors have done a great job of communicating with a CFP® Professional and attorney, but they didn’t talk to their kids about what they wanted. Yet, the grantors typically end up naming one of their kids as the successor trustee. That kid oftentimes doesn’t know what a successor trustee, what their obligations are as a successor trustee, what else is involved, or how long it will take.

Avoiding Probate

Let’s say that you have a joint account with your significant other and you’re the only two people on that account. If both of you pass away, it’s going to go into a probate system if you don’t have some type of payable-on-death, transfer-on-death designation that’s attached to that account. It’s critical to designate your beneficiaries in order to avoid probate.

How Responsible Are Your Beneficiaries?

If you’re just trying to give an outright gift to your beneficiaries, make sure you’re really thinking about how much money you’re leaving behind and who you want to receive it. Do you fully trust your children and/or grandchildren to be responsible with your money?

If that’s the case, think about what controls and protections that you could put in place possibly in place so that your wealth isn’t wasted by your loved ones. There are plenty of cases that could warrant some of those protective components.

You Never Know When You Could Start to Experience Cognitive Decline

Another thing that isn’t fun to think about but is critical to plan for is the possibility of cognitive decline. Dementia is something that a lot of people might not think about until one of their family members is dealing with it. And if you begin experiencing cognitive decline, you’ll likely need assistance with making financial and/or health care decisions.

Pitfalls of Will-Based Plans

It’s important to realize that a will by itself is just one document. That is a letter of instruction to a judge if something ends up inside of a probate system. A will-based plan isn’t complete without those other documents. Having a will-based plan means you’re getting everything in good order so nothing ends up in probate. If something does, you have that safety net.

“If I have dementia, who is going to look over my finances, my health, and so forth? Those are very important documents, both in will-based and trust-based plans.” – Matt Kasper, CFP®, AIF®

The Pain of Probate

One common pitfall of will-based plans is not understanding the proper titling, proper beneficiary designations. Again, if all you have is a will and you don’t have proper beneficiary designations or proper transfer on death instructions on real estate, automobiles, etc., that then that all goes into the probate court. With probate, the judge and attorney must be paid a percentage of the total value of the estate to read the will and confirm how the person’s assets will be distributed.

“It’s very costly and it drags out. It could be nine months, 12 months, or even a longer process for that to happen. If you’re going to do a will-based plan, you better make sure that you’ve got all the beneficiary designations and the TOD on every single asset.” – Dean Barber

Proper Titling Your Assets Is Key to Avoid Family In-Fighting

It can become complicated if you start buying a new car every few years or change banks and didn’t properly title that new account, or moved your IRA from one place to another. There are some specific rules with 401(k)s and IRAs that can be very complex.

For example, let’s say that your partner passes away and you want your two children to receive your 401(k) equally. But a few years later, you remarried and then you suddenly passed away not too long after that. After you got remarried, your children tried to collect the 401(k) money, but couldn’t because their parent’s new partner had never signed off on spousal consent for them to collect it.

Even if you have a trust-based plan, you can have the same complications because you need to make sure everything’s funded appropriately in the in the trust.

Making Sure You’re Working with a Good Attorney

Early on in Dean’s career, one of his clients went to an attorney to draw up a trust. Dean told his client that everything needed to be retitled, but this attorney said not to worry about that because anything missed will be put into the trust after the client couple dies thanks to a pour-over will. Well, that pour-over will must go through probate.

So, the attorney had drawn up a trust to avoid probate, but the assets that weren’t properly titled were still going to go through probate. The attorney that the client paid to draw up the trust was going to get paid again thanks to having to go through probate.

Two Advantages of a Trust-Based Plan

Now, let’s cover some specifics trust-based plans. Dean thinks trust-based plans have two distinct important advantages compared to will-based plans. The trust-based plan is designed to automatically avoid probate if all your accounts are titled in the trust. It also has the capability to carry out your wishes if you become incapable of making those decisions.

Let’s go back to the dementia example. If somebody gets dementia and doesn’t have a trust in place that says how they want their power of attorney to act on their behalf, that power of attorney could rob that person blind.

“A trust-based plan is not just for when you’ve passed on. It’s also for when you’re incapable of making decisions.” – Dean Barber

Co-Trustees and Successor Trustees

If you’re married and have a trust-based plan, you’re co-trustees. So, if you or your partner become incapacitated, there’s a co-trustee that can act on the incapacitated partner’s behalf. If you and your partner become incapacitated, that’s where a successor trustee comes in. A successor trustee can be a child, another family member, friend, etc.

It’s the successor trustee’s responsibility to make decisions on the incapacitated couple’s behalf and carry out the wishes of the trust. The successor trustee also has a big job upon the death of the couple to carry out their wishes and distribute their estate.

Common Issues with Successor Trustees

A successor trustee is bound by fiduciary rule, which means they always needs to put the interest of the trust itself ahead of their own interests. They’re required to follow the law on this. There can be a lot of complications with naming a child as a successor trustee if they’re not educated about that and what it is that the grantor of the trust wants to happen upon their death.

“Think about that. Are you even aware that you are that successor trustee? That would be the obvious question. And if you are, what do you need to be doing?” – Matt Kasper, CFP®, AIF®

If you are a successor trustee, Matt and Dean encourage you to communicate with the grantors of the trustee that are making you responsible for this type of position. You need to have complete clarity about their goals. What did they envision with the trust and how did they want everyone to be supported from their wealth with the design that they had in place?

“There will always be a successor trustee on a trust-based plan. They are going to act like they were the original grantor of trust and carry out those wishes to their finality.” – Dean Barber

Do You Have Multiple Children?

The main problem that Dean has seen with naming a child as a successor trustee comes when there are multiple children. Oftentimes, they’ll inherit the assets when they are in their 50s, 60s, and sometimes in their 70s. One adult child gets named as the successor trustee, and they have to follow the fiduciary rule and letter of the law laid out in the trust. But the other siblings could get upset if they weren’t aware of the grantors’ wishes.

“The successor trustee is entitled to a fee for settling the estate as well. There can be an awful lot of not-so-friendly family dynamics that I’ve seen destroy relationships of siblings.” – Dean Barber

Corporate Trustees

A successor trustee can be effective if they simply carry out the grantors’ wishes and the rest of the family was already aware of their wishes. But hopefully you can see how family in-fighting can surface.

This is where a corporate trustee can be effective. A corporate trustee is a non-natural person named in the trust that settles the estate. It’s the corporate trustee’s responsibility to read the trust and explain what it says to the grantors’ beneficiaries. That way, all the beneficiaries can do is accept it and they don’t fight with each other about it.

Corporate trustees do come with a fee, but for some people, that might be well worth the cost of preventing family in-fighting. That fee only comes into play once the corporate trustee becomes the successor trustee. It’s just when the original grantors are incapable of making decisions or after they’ve passed away.

Contingent Successor Trustees

In an instance where you might want to name a child as a successor trustee, you can name a contingent successor trustee as the corporate trustee. That way, if the child feels it’s too much of a responsibility and becomes overwhelmed, they can step aside so that the corporate trustee takes over as the contingent successor, trustee.

Estate Planning Is Individual

The bottom line is that estate plans are very individual. Everyone has different assets, wishes, and family dynamics. If you have blended families, it’s really crucial that everyone is putting in a lot of thought and time into what they want to have happen in their respective estate plans.

How Has Recent Legislation Changed Estate Planning?

It’s also important to revisit your estate plan every couple of years and after big life events to make sure that your wishes are still accurate. If not, make sure to communicate what changes you’re making to your beneficiaries.

There can also be regulation and rule changes to account for as you’re reviewing your estate plan. Take the SECURE Act and SECURE 2.0, for example. A lot of people don’t understand that IRAs and 401(k)s are part of your estate. But oftentimes in a trust-based plan, 401(k)s and IRAs aren’t in the trust because there are adverse tax consequences for having the trust become the beneficiary of your IRA or your 401(k). The SECURE Act and SECURE Act 2.0 have made that more complicated.

“You may have assets that aren’t actually going to make it to the trust share for tax purposes, but they’re still part of the estate. The successor trustee and beneficiaries need to understand the rules of how to distribute those retirement account assets.” – Dean Barber

Being Proactive

It’s important to understand the challenge that comes to the beneficiaries. How do they get control over something that can be rather challenging and overwhelming? Keep in mind that this is coming at a time of grief due to a loved one becoming incapacitated or passing away. If an estate plan hasn’t been designed, a lot more pressure potentially gets put on their shoulders. It’s critical to be proactive rather than reactive with estate planning.

Getting Support from a Wealth Management Team

We don’t want you or your family to feel any additional pressure while you’re grieving a loss in the family or someone becoming incapacitated. What does your estate plan need to do for you?

Our team at Modern Wealth is here to help you and your loved ones figure that out. Rather than trying to do this all on your own as a successor trustee (or grantors who are choosing a successor trustee), make sure that you’re working with a wealth management team that includes CFP® Professionals, estate planning specialists, and CPAs. That team should work together to make sure that you don’t miss anything when it comes to estate planning.

If you have any questions about what we’ve covered or about your specific estate planning needs, start a conversation with our team below.

Schedule a Meeting

Estate planning is a key financial planning pillar. Let’s make sure that you have a plan that helps give you more confidence that you’re doing the right things with your money, freedom from financial stress, and time to spend doing the things you love.

Resources Mentioned in This Article

Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management, LLC, an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management, LLC, does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.