As you perform your duties as a successor trustee, you may find yourself in need of advice not just from lawyers but from other professionals as well.
You’ll probably need to know the value of trust assets, either to divide them as the trust directs (for example, 50% each to two children) or for tax purposes. (If the new owner sells an assets, he or she will need to know the date-of-death value to calculate the capital gain on the sale.)
It’s easy to know the value of a bank account—it’s on the bank statement. But what is a house, or a painting, or a baseball card collection really worth on the open market? For an answer to that question, you’ll probably need a professional appraisal.
Look for a licensed appraiser. To satisfy the IRS, an appraiser must have an appraisal designation from a professional appraisers organization or meet state requirements for education and experience. The appraiser must also regular appraise property for clients and have expertise in the particular kind of asset. In other words, don’t hire a baseball card expert to appraise your mother’s diamond ring.
You’ll probably have to file final state and federal income tax returns for the deceased person. You may also have to file state and federal income tax returns for the trust itself, if it receives more than a minimal amount of income after the death. It’s a good idea to get expert help with preparing these returns, even if you usually do your own tax returns.
A federal estate tax return could be required, but only if the deceased person left a very large amount of property: for deaths in 2012, more than $5.12 million. Fewer than 1% of estates will actually owe federal estate tax, however. Some states also collect their own estate tax, and some of those affect estates of $1 million or less. Check your state’s rules.
If a federal or state estate tax is due, by all means get an expert—a CPA or lawyer who has prepared a lot of these returns—to do it. These are extremely complicated returns, not do-it-yourself projects.
If you are in charge of an ongoing trust—for example, a trust for children—you’ll need to invest trust assets. Complicated rules, set by each state, govern how trustees can invest, and you’ll want advice to make sure you’re following them.
If you get help with investing, make sure you have both trust in the person’s character and confidence in his or her financial acumen. Talk to a few people before you pick someone, and ask as many questions as you can think of about the adviser’s experience, preferred investment strategies, and compensation. Ask to talk to other clients who have had assets and goals similar to yours.
There are many kinds of investment experts in the world—so many that it can become quite confusing to figure out what each type does. The main types are:
Certified financial planners. These folks have passed a difficult exam, gained practical experience, and been awarded a credential from the nonprofit Certified financial Planner Board of Standards. They are required to take continuing education classes to keep up with new developments.
Personal financial specialists. These people are both certified public accountants and certified financial planners. That means they have a lot of experience, have passed a comprehensive exam, and must take continuing education courses.
Chartered financial consultants. These people are usually life insurance agents and others in the financial industry. They have experience and have passed an exam, but this isn’t as strong a credential as a certified financial planner or personal financial specialist.
Paying an Investment Adviser
There are three ways to compensate an investment adviser: fee-only, commission, or a hybrid of the two.
Fee-only advisers simply charge for their advice; their compensation doesn’t depend on how you invest or how well the investments do. Many people prefer this because they are confident that the adviser won’t be tempted to give advice in part because it would result in a larger fee.
Other advisers collect a commission on investment purchases you make with trust money—for example, investing funds in a particular mutual fund. Advisers who use this model say that it serves both them and their customers well, because if the investments don’t perform well, customers will go elsewhere.
Finally, some advisers charge a commission on some services and offer others for a flat fee. For example, they might write up an investment plan for you for a flat amount, but charge a commission on some investment purchases.