posted on July 01, 2012 00:00
Most of us are familiar with how to move a brokerage account or an IRA. Some standard paperwork, a couple of weeks, and it's all set. How a trust can be moved may not be as well known. In this newsletter, we address whether trusts can be moved and if so, how.
Can my trust be moved?
Yes. Generally a trust can be moved from its existing trustee.
Moving a trust requires two things: changing the trustee, either by resignation or removal, and moving the assets.
Which is better, resignation or removal?
The real question is which is more practical. Many trustees are reluctant to resign; however, there are situations where a trustee is willing to resign and that may make the transfer easier than a removal.
How is the trustee removed?
If you are lucky, the trust document addresses how to change trustees and who can serve as a successor trustee. If this is the case, you simply follow those instructions, document appropriately, and effect the change of trustee. Sometimes a document will not address a change of trustee; it is said to be silent on the matter. In this case, the appropriate court, usually chancery or probate court where the trust is located, can be petitioned to make a change of trustee.
Isn't it expensive to go to court?
There is an expense involved in having an attorney handle a petition to the court. The amount will depend on the complexity and time involved. On a straight-forward, uncontested case, the cost is generally reasonable and often, the trust can pay this expense. In this way there are no out-of-pocket costs to the beneficiaries.
Where can it be moved?
Many trust documents will describe who can serve as a successor trustee. Sometimes there are restrictions such as: the trustee must have capital of a given amount; the trustee must manage trust assets of at least a given amount; or, only a corporate trustee may succeed a corporate trustee. If the trust document doesn't describe who can serve, it likely doesn't address how to change trustees either. In this case, your court petition will make a request and it will be up to the judge to approve the successor trustee or not.
What if the trustee I want to use doesn't fit the requirements of the document?
With court approval, you can move to a trustee which doesn't fit the parameters. We had a situation arise in which a document described how to change trustees and the qualifications for a successor trustee. However, there were no longer any firms which met those stated criteria. We made the case that our firm satisfied the spirit of the criteria and were successful in moving the trust.
How much time will it take?
If court approval is not required, the time depends on how long it takes to complete the necessary paperwork. Generally, this is a letter or document signed by one, some, or all of the trust beneficiaries. This then goes to the existing trustee with a letter from the trustee-to-be accepting appointment as successor trustee. Some trusts state a notice period of 30, 60, 90 days etc. Beyond that, it comes down to the time it takes to process the request.
If court approval is required, the timing will depend on how quickly an attorney can prepare a petition, how backlogged the court docket is, and whether anyone contests the change. There are no fixed time schedules. Changes we have made through the courts have been measured in weeks.
What happens once a new trustee is named?
The successor trustee will send instructions to the existing trustee on how and where to send assets. Assets can transfer in-kind or be liquidated and the proceeds sent. If they transfer in-kind, then what is held through one trustee is simply moved to the new trustee. If you had 1000 shares of General Electric at Trustee I and these transferred in kind to Trustee II, that firm would reflect a position of 1000 shares of General Electric. If, by contrast, they are liquidated and the funds transferred, then Trustee I would sell the 1000 shares of General Electric and would send the proceeds by check or wire to Trustee II.
At the time of transfer, the successor trustee will also request copies of recent tax returns and other necessary information from the prior trustee.
The matters discussed here are intended as an alert for our clients and not as legal or tax advice. You are urged to seek tax and accounting counsel for your particular situation before acting upon topics discussed here. At Independence Trust Company, we assist our clients in managing and transferring their wealth. Please contact us with questions or to schedule a meeting. © 2001 Independence Trust Company
Independence Trust Company
P.O. Box 682188, Franklin, TN 37068-2188