Does a Revocable Trust Became Irrevocable if the Grantors Are Incapacitated?
A revocable or living trust is used to manage the assets of the grantor (trust creator) through his life and after death. A revocable trust becomes irrevocable only upon the death of the grantor. If a grantor becomes incompetent or incapacitated at any period during the life of the trust, the successor trustee may take on the responsibility of managing trust assets and providing for the care of the grantor.
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Definition of Roles
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The grantor is the person who establishes the trust. In most cases, the grantor will also be the trustee of the trust -- the person who carries fiduciary responsibility for managing the trust assets, filing taxes and executing other trust-related business. A trust may also appoint a co-trustee who shares this responsibility with the primary trustee. A successor trustee is the person or entity appointed to assume trustee duties should the primary and co-trustees become incapacitated or die.
Determination of Incompetence
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A revocable trust document will outline the requirements needed before a trustee can be declared incompetent or be removed. In the case of a grantor, this will usually involve letters from two physicians who are involved in the grantor's care. Once the requirements for incompetence have been established, the successor trustee can take over fiduciary responsibility for the trust and the care of the grantor. The trust is not considered legally irrevocable at this point, and will still be considered a grantor trust for tax purposes. Practically speaking, however, the trust cannot be altered until competence is reestablished, so it should be managed as though it were irrevocable.
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Responsibilities of the Successor Trustee
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The successor trustee is charged with the same fiduciary responsibility as the original trustee. He will also be in charge of the grantor's financial affairs and medical care while the latter is incapacitated. It is important that the successor trustee execute these responsibilities according to the wishes of the grantor as outlined in the trust document.
Grantor Recovery
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If a grantor regains the ability to manage her own affairs, the successor trustee steps down and the grantor becomes the primary trustee once again.
Successor Trustee Resignation
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If a successor trustee is unable to perform her duties she has several options, typically outlined in the trust document. In some cases, she may appoint a co-trustee. She might also hire professional help, such as a bank or trust company, to assist in management of the trust. She may resign and pass the trusteeship on to another party along with the fiduciary responsibility for execution of the trust document. These acts do not change whether a trust is revocable or irrevocable.
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References
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