What happens when a trustee dies?
When the trustee of an irrevocable trust passes away, the role normally shifts to a co-trustee or successor trustee. In Kelly-Anne’s case, the trust did not have a co-trustee, the successor trustee predeceased her uncle and a new successor was never named.
With a trust, the trustee has legal control of the assets in the account. But, in Kelly-Anne’s case, now that her uncle has died, no one has control over the assets — so the bank must freeze the account until a new trustee is named. Once the bank freezes the account, no money can be withdrawn from it, although sometimes money can still be deposited.
When all the trustees of an irrevocable trust have passed away, a new one will need to be named. Often, the trust will include instructions as to how this is to be done. If it doesn’t, as is the case for Kelly-Anne’s trust, then the personal representative of Kelly-Anne’s uncle can name a successor. The beneficiaries of the trust can also petition the probate court to appoint a new trustee.
In this case, her uncle’s wife — his personal representative — has elected to allow Kelly-Anne to petition the court. During this process, the court will likely appoint Kelly-Anne as the interim trustee, since she’s already the beneficiary.
However, in a situation where there are multiple beneficiaries, this can create tension over who should be named interim trustee and the court may end up appointing a temporary third-party trustee.
Once Kelly-Anne is named temporary trustee, she should be able to unlock the account by providing the bank with the trust documents and court order.
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Start saving smarter today!How to avoid future issues with a trust
If you’re the beneficiary of an irrevocable trust, be sure to update it with any life changes — whether you have a new address or need to name a new successor trustee. Had Kelly-Anne’s family done this, the account wouldn’t have been locked and access to those funds wouldn’t have been interrupted.
Irrevocable trusts are typically complex, so it’s worth working with a trust or estate attorney from the get-go. It also makes sense to review the trust periodically with an attorney to ensure that it’s up to date.
An attorney can also keep you informed of any new rules that apply to your irrevocable trust. For example, in 2024, the IRS put in new rules about the tax treatment of irrevocable trusts.
Having a relationship with an attorney can help ensure you name a new successor trustee so you won’t find yourself in a situation like Kelly-Anne, where your account is locked without a successor trustee in place.
While in Kelly-Anne’s case, fixing this issue is relatively straightforward, it could have been much more complicated (and stressful) if the trust had multiple beneficiaries.
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