Page 23 - Successor Trustee Handbook

Check with an attorney as to the advisability of executing a “HIPAA
Authorization” and providing it to the next Successor Trustee, in the event
you are unable to act at some time in the future. (See the Chapter, “Transition
to Another Trustee”).

Depending upon the Trust document and, in some cases, whether the
Surviving Spouse exercises a “Disclaimer” election (which must take
place within nine months of death), you may need to establish new parts
of the Trust (also known as “sub-trusts”). First, the decision must be made
as to whether these sub-trusts are required by the document to be
established, or the Surviving Spouse may elect to establish them; at least an
initial discussion of these choices will likely take place at your first attorney
meeting. There are a number of personal, legal and tax (particularly estate
tax) objectives that may be fulfilled by setting up these sub-trusts, commonly
known as the “Survivor’s Trust” (or “A”), “Exemption Trust” (or “Family Trust” or
“B”), and “Marital Trust” (or “C”). The rights of the Surviving Spouse, both as
Trustee and as beneficiary, may differ depending upon each sub-trust’s terms
and this should also be discussed with the attorney before finalizing the
decision whether to establish them. If the decision is made to establish these
sub-trusts, the attorney and/or CPA will need to assist you in determining the
most appropriate allocation of assets (or portions of assets) between these
sub-trusts; the allocation should only be done after reviewing the pros and
cons of the allocation, including the effect upon the future income and capital
gains taxation of the Surviving Spouse and the Surviving Spouse’s ability to
make future Trust changes or make gifts. Once it is determined which assets
or portions of assets are to be allocated to each sub-trust, then asset titles
will need to be changed to reflect ownership by the separate sub-trusts. You
may or may not be named Trustee of each of the sub-trusts, depending upon
the terms of the Trust. If you are Trustee of a sub-trust, the attorney should
review with you how that sub-trust will then work. • In particular, if you are
both the Surviving Spouse and the Trustee of a sub-trust, you must clarify
exactly how and when distributions of income and/or principal may be made
to yourself or to others (see the Chapter, “Making Distributions to the
Beneficiaries”).

NOTE: The Tax Act of 2010 introduced a new provision into the estate tax
laws, referred to as “portability”. This may enable a married couple’s estate to
take advantage of both spouses’ estate tax exemption amounts without
having to set up A, B or C Trusts at the first spouse’s death. However, to take
advantage of portability, an Estate Tax Return must be timely filed after the
first spouse’s death. The Trustee should consult with a qualified attorney or
CPA within 8 months of the first spouse’s death regarding the pros and cons of
electing portability instead of setting up the A, B or C Trusts.

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