Page 5 - Successor Trustee Handbook

BRIEF OVERVIEW OF HOW A LIVING TRUST WORKS

First, you should become familiar with certain Trust terminology. There are three parties,
or groups of individuals, involved with the administration of a Trust.

First, there is the person who originally set up the Trust to handle his or her affairs. This
person is referred to as the “Trust Maker”, “Trustor”, “Settlor” or “Grantor.” Throughout this
Manual, we will use the term “Trustor”. Many times a joint Trust will be set up for both
husband and wife, both Trustors. The role of you, as Successor Trustee, is to follow the
wishes and intentions of the Trustor(s) as expressed in the Trust document.

Second, there is the manager of the Trust referred to as the “Trustee". When the Trust is
set up, the Trustor(s) usually act as the initial Trustee(s). Once the initial Trustee becomes
too ill, disabled, incapacitated, dies, or for any other reason is unable or unwilling to act,
then the “Successor Trustee” named in the Trust document takes over. Sometimes, there
may be “Co-Trustees” named; in other words, two individuals may be specified to act
together. Trustees may be either individuals or professional organizations such as banks
and trust companies.

Finally, the third party (or parties) to a Trust are the people who will benefit from Trust
income and/or principal distributions, commonly referred to as the “inheritors”, but known
in legal terminology as “beneficiaries”. Beneficiaries can fall into several categories:
“primary” (or “current”) beneficiaries, presently entitled to distributions or to whom
distributions may be made in the discretion of the Trustee (including the Trustor while he
or she is alive); “secondary” (or “contingent”) beneficiaries, who replace the primary
beneficiaries should they pass away (such as a grandchild succeeding to a child’s share);
and “remainder” beneficiaries, who inherit only when all of the above beneficiaries are
deceased (sometimes these may be distant relatives known as “heirs at law” or
charitable organizations).

A Revocable Living Trust-centered estate plan (which may include such other legal
documents as a Pour-Over Will, Durable Power of Attorney for Property, Married Couple
Property Agreement, Advance Health Care Directives, and HIPAA Authorization) is
generally intended to:

Distribute the Trustor’s assets to the right people, in the correct amounts, at
the designated times and in the appropriate manner for each of them,
without the delays and expenses of Probate Court involvement.

Manage the Trustor’s assets for him or her in the event of his or her disability
or incapacity, and to manage those assets for the people who will later
inherit them (until such time as they are distributed after the Trustor’s death),
again, without the need for court involvement.

2