10. What do I do if the grantor is incapacitated? (Part 2)

If there are minors or other dependents, you will need to look after their care. The trust may have specific instructions. If the grantor’s incapacity is expected to be lengthy, a guardian (of the person, not assets) may need to be appointed by the court. The attorney can help you with this.

Become familiar with the finances. You need to know what the assets are, where they are located and their current values. You also need to know where the income comes from, how much it is and when it is paid, as well as regular ongoing expenses. You may need to put together a budget.

If you cannot readily find this information, others (family members, banker, employer, accountant) may be able to help you. Last year’s tax returns may be helpful. Also, if you discover any assets that were left out of the trust, the attorney can help you determine if they need to be put into the trust and can then assist you.

Apply for disability benefits through the grantor’s employer, social security, private insurance and veteran’s services. Notify the bank and other professionals that you are now the trustee for this person. Put together a team of professionals (attorney, accountant, banker, insurance and financial advisors) to help you. Be sure to consult with them before you sell any assets.

Now you can start to transact any necessary business. You can receive and deposit funds, pay bills and, in general, use the person’s assets to take care of him or her and any dependents until recovery or death.

You’ll need to keep careful records of medical expenses and file claims promptly. Keep a ledger of income received and bills paid. An accountant can show you how to set up these records properly. The trust may require you to send accountings to the beneficiaries. Also, don’t forget income taxes (due April 15) and property taxes.

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9. What do I do if the grantor is incapacitated? (Part 1)

If all assets have been transferred to the trust, you will be able to step in as trustee and manage the grantor’s financial affairs quickly and easily, with no court interference.

First, make sure the grantor is receiving quality care in a supportive environment. Give copies of health care documents (medical power of attorney, living will, etc.) to the physician. If someone has been appointed to make health care decisions, make sure he or she has been notified. Offer to help notify the grantor’s employer, friends and relatives.

Next, find and review the trust document. (Hopefully, you already know where it is.) Notify any co-trustees as soon as possible. Also, notify the attorney who prepared the trust document; he or she can be very helpful if you have questions. You may want to meet with the attorney to review the trust and your responsibilities. The attorney can also prepare a certificate of trust, a shortened version of the trust that also proves you have legal authority to act.

You will want to become familiar with the grantor’s insurance (medical and long term care, if any) and understand the benefits and limitations. Assuming the insurance will cover a certain procedure or facility could be a costly mistake.

Have the doctor(s) document the incapacity as required in the trust document. Banks and others may ask to see this and a certificate of trust before they let you transact business.

cont…

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6. What responsibilities will I have as a trustee?

The most important thing to remember when you step in as trustee is that these are not your assets. You are safeguarding them for others: for the grantor (if living) and for the beneficiaries, who will receive them after the grantor dies.

As a trustee, you have certain responsibilities. For example:

• You must follow the instructions in the trust document.

• You cannot mix trust assets with your own. You must keep separate checking accounts and investments.

• You cannot use trust assets for your own benefit (unless the trust authorizes it).

• You must treat trust beneficiaries the same; you cannot favor one over another (unless the trust says you can).

• Trust assets must be invested in a prudent (conservative) manner, in a way that will result in reasonable growth with minimum risk.

• You are responsible for keeping accurate records, filing tax returns and reporting to the beneficiaries as the trust requires.

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5. What do I need to know now?

The grantor should make you familiar with the trust and its provisions. You need to know where the trust document, trust assets, insurance policies (medical, life, disability, long term care) and other important papers are located. However, don’t be offended if the grantor does not want to show you values of the trust assets; some people are very private about their finances. This would be a good time to make sure appropriate titles and beneficiary designations have been changed to the trust. (Some assets, like annuities and IRAs, will list the trust as a contingent beneficiary.)

You also need to know who the trustees are, who successor trustees are, the order in which you are slated to act, and if you will be acting alone or with someone else.

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4. Who are the people involved with a living trust?

The grantor (also called settlor, trustor, creator or trustmaker) is the person whose trust it is. Married couples who set up one trust together are co-grantors of their trust. Only the grantor(s) can make changes to his or her trust.

The trustee manages the assets that are in the trust. Many people choose to be their own trustee and continue to manage their affairs for as long as they are able. Married couples are often co-trustees, so that when one dies or becomes incapacitated, the surviving spouse can continue to handle their finances with no other actions or steps required, including court interference.

A successor trustee is named to step in and manage the trust when the trustee is no longer able to continue (usually due to incapacity or death). Typically, several are named in succession in case one or more cannot act. Sometimes two or more adult children are named to act together. Sometimes a corporate trustee (bank or trust company) is named. Sometimes it is a combination of the two.

The beneficiaries are the persons or organizations who will receive the trust assets after the grantor dies.

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3. How does a living trust work?

For a living trust to work properly, you must transfer your assets into it. Titles must be changed from your “individual” name to the name of your trust. Because your name is no longer on the titles, there is no reason for the court to get involved if you become incapacitated or when you die. This makes it very easy for someone (a trustee or successor trustee) to step in and manage your financial affairs.

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2. What is a trust?

A trust is a legal entity that can “own” assets. The document looks much like a will. And, like a will, a trust includes instructions for whom you want to handle your final affairs and whom you want to receive your assets after you die. There are different kinds of trusts: testamentary (created in a will after someone dies); irrevocable (usually cannot be changed); and revocable living trusts.

Today, many people use a revocable living trust instead of a will in their estate plan because it avoids court interference at death (probate) and at incapacity. It is also flexible. As long as you are alive and competent, you can change the trust document, add or remove assets, even cancel it.

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1. Overview

If you have been named as a trustee or successor trustee for someone’s living trust, you may be wondering what you are supposed to do. Successor trustees can relax a bit, because you don’t do anything right now. You will only begin to act when the person becomes unable to manage his or her financial affairs due to incapacity, or when he or she dies. If you have been named as a trustee, you may already be acting in that capacity.

In either case, it is important that you understand your duties and responsibilities. These FAQs will help. Let’s start with some explanations.

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