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Hi, this is Keith Davidson at Albertson & Davidson. In this video, I want to discuss whether the successor trustee of a trust has an obligation to declare the trust settlor incompetent.
Let me explain some of those terms before we get started. The settlor is the person who creates the trust. Typically, when people create these revocable living trusts, they’re the settlor, the creator, and the are also the trustee during their lifetime, so they manage those trust assets. Somebody is usually named the successor trustee for when the original trustee either loses capacity or dies.
The question is: if you are named as a successor trustee, and you’re seeing the trust settlor is fading and losing capacity, is there an obligation to step in and take action? This usually happens within families. For example: your father creates a trust, he’s the trustee, and you’re one of three children and named as the successor trustee. You can see that Dad is fading, and starting to lose capacity, and that he is having a hard time managing the finances. Do you, as a successor trustee, have an obligation to step in and take action?
The interesting thing is that from a legal perspective, you don’t have any legal obligation to step in. A successor trustee doesn’t have any duties, responsibilities, or obligations until they agree to act as trustee.
But, then there’s the moral obligation. You know that if the trustee can’t manage finances, he going to cause harm to himself because his finances won’t be properly managed, and he’s also going to cause harm to the other trust beneficiaries receiving these assets after he passes away. And from that perspective, maybe you do have a moral obligation to step in.
The good news: that most trusts usually have a section that tells you what you need to do to have the settlor deemed incompetent. Once you do those things, the settlor is no longer trustee and the successor can step in and start acting.
Many trust documents say you need a letter or declaration from at least one or two treating physicians. And that’s all you need. Once you have that letter from the doctor deeming the settlor incompetent, the successor trustee can step into place. It’s just that simple. You don’t have to go to court to get an incapacity declaration or a conservatorship. Just follow the steps in the trust.
If your trust doesn’t have instructions on how to have the trustee declared incapacitated, then you do have to go to court. This is harder and can be a problem. However, I estimate 90% of trusts have instructions on how to handle the settlor’s incapacity.
So, take a look at your trust. See what it says, and follow those steps. Then, the successor trustee can step in, control and properly manage the assets, and make sure that the trust is stable moving forward.