What Happens to a Trust When the Trustee Dies?

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A trust is a very common estate planning tool used to pass property to others and to also avoid the probate process. You can use a trust to pass property during your life, known as an “inter vivos” trust, or upon your death using what is called a “testamentary” trust. Some inter vivos trusts can be changed or terminated during your life. These types of trusts are called “revocable” trusts, whereas the ones that cannot be amended are called “irrevocable” trusts.

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The person who creates the trust — the “settlor” or “grantor” — typically appoints someone to administer the inter vivos trust during the grantor’s life and after the grantor’s death. This person is called the “trustee.” While it may be expected that a trustee will outlive the person who creates the trust, what happens when the trustee dies? What happens to that trust?

What Does a Trustee Do?

Trustees have a fiduciary responsibility to handle the trust “prudently,” which means that they must handle the trust property as a reasonable person would handle it if it were their own. The specific rules that establish the responsibilities for trustees are called the “Rules of Prudence” or the “Prudent Investor” rules. Every state has its own Prudent Investor rules for trustees.

In handling the property in a trust, the trustee has two primary objectives that they have to fulfill:

  • Adhere to the grantor’s intent. The terms of a trust are simply the grantor’s directions to the trustee on what to do with the property in the trust. For example, a trust might provide:
    • Distribute $10,000 to each of the grantor’s children every year
    • Keep the family business within the family
    • Provide income to my spouse for life, then give everything to the Humane Society
    • Only invest the trust property in environmentally conscious companies

When the trustee invests the trust property and makes distributions, they are obligated to follow the intentions of the grantor.

  • Benefit the beneficiaries. Notwithstanding the terms of the trust, the purpose of every trust is for beneficiaries to benefit. As a result, the trustee is equally obligated to make sound investments that earn income for the named beneficiaries and grow the assets in the trust.

Sometimes these two fiduciary obligations can contradict each other, leaving the trustee with a legal dilemma. This is why it is so important to choose the right person as your trustee for your trust.

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What Happens If the Trustee Dies Before the Grantor Dies?

Assuming you have chosen a capable person to serve as your trustee, you can feel confident that your trust is going to be handled in a way that satisfies your intent for the trust but also benefits those whom you named as beneficiaries. But what happens if your trustee dies before you do? Now you have a trust with no trustee. 

There is a simple remedy for the trust if the trustee dies before the grantor. Because the grantor is still alive when the trustee dies, the grantor can simply appoint another trustee to take the place of the trustee who died. That person would immediately step into the role of trustee and become responsible for all the fiduciary duties of the former trustee. 

The trust cannot operate without a trustee, so even if the grantor does not or cannot find someone willing to serve as trustee, the court will appoint a successor trustee for the trust. The court may look to a spouse, relative, or someone who is named as a beneficiary and has an interest in the trust. However, more important than the trustee being related to the grantor or having an interest in the trust is the fact that the person is capable of managing the trust. 

What Happens If The Trustee Dies after the Grantor Dies?

If the grantor dies and then the trustee dies after the grantor, obviously the grantor cannot name a new trustee. Once the grantor dies, the trust becomes irrevocable and cannot be changed.

In this case, if the grantor is dead and there is no one to serve as trustee, once again the court will appoint a successor trustee to carry out the administration of the trust. Likewise, the court may choose a spouse or relative, but it is not required.

One disadvantage of having the court appoint a trustee is that the court could appoint anyone it determines to be fit. It may choose someone outside of the family who has no interest in the trust and has no knowledge of the grantor, what they were like, and what they intended upon death other than what is written in the terms of the trust. 

How Can You Avoid Having the Court Appoint a Trustee If the Trustee Dies after the Grantor?

There is only one way to avoid having the court appoint a trustee if the trustee dies after the grantor dies, and that is for the grantor to choose an alternative or successor trustee during life, when the grantor drafts the original trust. This can be accomplished in one of three ways:

The grantor appoints a successor trustee in the trust

A successor trustee is someone the grantor names in the trust who will take over the responsibility of administering the trust according to its terms when the original trustee dies. Until the original trustee dies, the successor trustee has no responsibilities or duty to act under the trust.

The grantor appoints co-trustees in the original trust

When a trust has co-trustees, this means that there is more than one trustee serving in that role at the same time. Co-trustees could each be responsible for all of the duties and responsibilities required by the trust. Then, if one of the co-trustees dies, the other co-trustee simply takes over full and sole responsibility for the trust. 

Alternatively, the grantor also could charge each co-trustee with specific duties under the trust that match each co-trustee’s specific expertise. However, if one of the co-trustees dies after the grantor dies, then the court will have to appoint a successor trustee to replace the deceased co-trustee due to the specifications and limitations of each trustee’s responsibilities. 

Without authorization by the grantor, which is now impossible, the surviving co-trustee cannot exceed the duties that the grantor originally charged them with unless it is included in the terms of the trust.

The grantor appoints a “trust protector”

A “trust protector” is someone you can appoint to serve as an advisor to the trustee or a “tie-breaker” in cases where the co-trustees are unable to decide on something. You can easily make the trust protector a successor trustee if your original trustee dies. Unlike a named successor trustee, however, the trustee could already be active in the trust and its decision-making. As with any trustee, you can limit the responsibilities of the trust protector as you see fit.

Naming either a successor trustee, co-trustees, or a trust protector when you originally draft your trust is the best way to avoid the difficulty and delay of having the court appoint a trustee to carry out the unfinished business of the trust when your sole trustee dies.

The Death of Your Trustee Is Not the Death of Your Trust

If you plan to create a valid trust, you must have a trustee. If you don’t name a trustee in your trust, the court will appoint one for you. 

Likewise, if you only name a single trustee and that trustee dies, your trust will need another trustee appointed. If you are alive when your original trustee dies, you can easily appoint a new one. However, if you are already deceased when your trustee dies, the court is not going to terminate your trust for the lack of a trustee. Instead, the court will appoint a new trustee for you. 

The best way to assure that your original trustee and any successor trustees are trustees that you would want to have administering your estate is to name the successor trustees when you draft the original trust.

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