Resources
Published in
The Santa Monica Star
January 2025
Incapacity When There Is A Trust
By Lisa C. Alexander, Esq.
Lisa C. Alexander
is an attorney at
Jakle & Alexander, LLP
For further questions, regarding this topic, please contact Lisa at:
(310) 395-6555
What happens when a person with a Trust loses capacity? First, thank goodness the person had a Trust in the first place! The Successor Trustee named in the Trust can take over management of the Trust assets. The Successor Trustee can access money to pay bills and make sure the incapacitated person is cared for.
Logistically, the person named as Successor Trustee should review the Trust for the provisions appliable to incapacity. A typical Trust will say that the person who created the Trust will be deemed incapacitated when a physician (or sometimes two physicians) signs a statement that the person can no longer manage their financial affairs. That is the place to start. Once the steps required under the Trust for determining incapacity and appointment of the Successor Trustee have been taken, the Successor Trustee can take over.
Next, the Successor Trustee must give a legally required notice to the beneficiaries of the Trust. The notice will inform the beneficiaries that the person who created the Trust has become incompetent and, most importantly, must include a copy of the Trust. Going forward, the Successor Trustee must send the beneficiaries annual accountings of the Trust assets, financials and actions of the Successor Trustee. This protects the incapacitated person to ensure there is oversight of the Successor Trustee’s handling of the incapacitated person’s finances.
The Successor Trustee has to locate all the incapacitated person’s assets and take the necessary steps to take control of accounts. And the Successor Trustee needs to take over payment of the incapacitated person’s bills and other debts, and including filing income tax returns and paying taxes owed.
The Successor Trustee should not do all of this alone. The Successor Trustee will be wise and best served by assembling a team of the incapacitated person’s accountant, financial advisor and a lawyer. In almost every Trust, the expenses of the professional advisors are payable from the Trust, not from the Successor Trustee’s own money.
There will likely be significant time devoted by the Successor Trustee in carrying out these duties. Most Trusts have a provision for compensating the Trustee. If the Trust allows it, the Successor Trustee should keep track of their time if they will be paid from the Trust.
The Successor Trustee’s position is one of trust and loyalty. The time taken by the Successor Trustee to care for the incapacitated person is an honor to the person who named them for that reason.