When considering who will serve as the successor trustee to your revocable living trust, it’s likely that you’ll first think about who will be serving upon your demise. This jumps over the important but often overlooked office of disability trustee.
Your disability trustee, by definition, will manage your trust assets during a period of disability. That period may be short term, such as if you have an extended hospital stay, afterwards you take back the office of trustee; or the period could be long term, as in a situation where you contract dementia or Alzheimer’s disease and could therefore last from the initial period of disability until your death.
When accepting the office, your disability trustee will likely be thrust into managing your investments, paying your bills, deciding which of your assets are best used to do so, and may even bear the responsibility of selling your home if it becomes necessary or prudent due to prolonged illness.
This means that your successor trustee will need to know what assets you own, who your financial, tax and legal advisors are, and be responsible in making timely decisions.
Before we delve into these various aspects, let’s first consider whether your revocable trust adequately defines just when you should no longer act as your own trustee, bringing in your disability trustee.
Many revocable trusts simply make a conclusory statement indicating who your successor trustee will be without defining exactly when it is that you are to be considered disabled. My unique estate planning process, The Family Estate & Legacy Program™ takes care of these issues by clearly defining disability inside your trust document.
It should come as no surprise that “disabled” is a subjective term, subject to interpretation. Consequently, of the trusts that do define the term, many rely on a physician’s statement. A physician qualified in determining mental capacity, usually a neurologist, is called upon to issue an opinion as to whether whomever is acting as trustee has the requisite capacity to carry out the normal day to day activities.
Kevin, a son of one of my longtime client, Jerry, called my office. “Craig, we have a problem,” Kevin began, “I’m down from Michigan and when I arrived at Dad’s condo there was a pile of unopened mail. Bank and brokerage statements, unpaid bills and all sorts of things. I asked Dad if it was okay for me to go through it, and I found that he had written a $10,000 check to the housekeeper! He clearly made out and signed the check, but when I asked him about it he had no recollection.”
I suggested that Kevin take Jerry to a neurologist. The doctor later confirmed Stage 3 Alzheimer’s disease. We then proceeded to initiate The Family Estate & Legacy Transitional Event Sequence™ replacing Jerry as his own trustee with Kevin, who was named his successor disability trustee.
When you become a financial danger to yourself, then it’s time for your disability trustee to step in. The problem is that most of us won’t admit when we’re not making wise choices any longer, and are often unwilling to give up the reigns. Compound this with physicians who are fearful of liability and are becoming less likely to sign any document that would remove a patient from acting as trustee, and you have a potential stalemate situation.
One effective means of dealing with this situation is to name a disability committee whose purpose is to remove any trustee from acting. While the committee would certainly want a physician’s opinion as to the trustee’s condition, such a statement is not necessary. A majority vote of the committee could remove the acting trustee.
Sometimes trustees won’t agree to visit with a physician for an assessment. The trust document could address this situation by deeming the trustee incompetent if he won’t agree to a checkup. There are all sorts of ways to deal with this problem, and it’s preferable if you and your attorney discuss these issues ahead of time and include appropriate language so that you or any trustee that follows you won’t become a financial danger to yourself or to the other trust beneficiaries.
Occasionally a client will express concern that the parties who he names on a disability panel will remove him unnecessarily. I have a few responses: First, hopefully you name individuals who love you and who you trust, or some combination. You can include your attorney, CPA or financial advisor with your spouse and children, for example. Second, you are always in control of your trust. If you are improperly removed as your own trustee, then you can always amend the trust and name yourself in that office again. Third, I offer anecdotal evidence that in my 27 years of practice I am unaware of any committee that removed a client as his own trustee too early, although I can point to several instances of the removal coming a bit too late.
In short, take the time to discuss who may serve as your disability trustee with your estate planning attorney. Don’t skip over this most important office without much thought.