Helping Families Navigate the Financial Challenges of Age Transitions

Category: Estate Planning (Page 3 of 3)

I’m Trustee For My Parents’ Trust – Now What?

So, your parents have a trust, and you’ve just found out that you are the trustee. Do you thank them or did they reward you with the booby prize? A trustee is held to a high standard of accountability and must act in accordance with an established standard of care as outlined below. To fail in one or more of these – called a breach of fiduciary duty – is to invite litigation and sometimes results in broken family relationships where a family member is also the trustee. Professional trustees, like banks with trust departments, or corporate trustees will be given very little leeway if they fail in any of these duties, but untrained family members or individuals who find themselves in this unenviable position are often not excused for lack of knowledge either.

frustrated man
  1. Duty of loyalty. A trustee has a fundamental duty to administer a trust solely in the interests of the beneficiaries. A trustee must not engage in acts of self‐dealing.
  2. Duty of administration. The trustee must administer the trust in accordance with its terms, purposes, and the interests of the beneficiaries. A trustee must act prudently in the administration of a trust and exercise reasonable care, skill, and caution, as well as properly account for receipts and disbursements between principal and income.
  3. Duty to control and protect trust property. The trustee must take reasonable steps to take control of and protect the trust property.
  4. Duty to keep property separate and maintain adequate records. A trustee must keep trust property separate from the trustee’s property and keep and render clear and accurate records with respect to the administration of the trust.
  5. Duty of impartiality. If a trust has two or more beneficiaries, the trustee must act impartially in investing, managing, and distributing the trust property, giving due regard to the beneficiaries’ respective interests.
  6. Duty to enforce and defend claims. A trustee must take reasonable steps to enforce claims of the trust and to defend claims against the trust.
  7. Duly to inform and report. A trustee must keep qualified trust beneficiaries reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.
  8. Duty of prudent investment. A trustee who invests and manages trust property has a duty to “invest and manage trust property as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust.

Much like the position of Executor, the role of Trustee is not to be accepted lightly and can often be a lifetime of responsibility. If you are not comfortable serving in this capacity, discuss this with your parents now so that alternate plans can be made.

Trusts are excellent vehicles for protecting an estate from creditors, transfer taxes, or misbehaving heirs. Their operation may be simple or complex, but it is incumbent upon you to talk to your parents about their trusts, and especially who the parties are if you are in the role of financial caregiver.


Source: American Bankers’ Association.

Brady Bunch Estate Planning: Balancing the Duty of Loyalty

It is a well established principle of trust law that trustees are fiduciaries who owe specific duties to the beneficiaries of a trust. These duties can be grouped into duties of loyalty and duties of care.

But what if a trust has beneficiaries with adverse interests to one another? It is not uncommon for a trust to have two kinds of beneficiaries – a current beneficiary as well as a remainder beneficiary. That is, the current beneficiary may have rights to the income from the trust, and perhaps even discretionary rights to the trust’s assets (also known as the trust principal or corpus); whereas the remainder beneficiary may have rights or equitable interest in what is left in the trust (the remainder) after a period of years or upon the death of the current beneficiary. These adverse interests can test the mettle of most individual or family trustees as both beneficiaries are owed duties of loyalty and care.

The Brady Bunch

Suppose Mike Brady created a trust to take effect at his death. His trust includes the following (summarized) instructions:

  1. At my death, my trustee shall pay to my surviving spouse the net income from my trust for as long as my spouse shall live.
  2. In addition to the net income, my trustee may also pay to my surviving spouse from the trust’s principal, as much as my trustee shall deem necessary to maintain my spouse in [her] accustomed standard of living.
  3. Upon my spouse’s death, my trustee shall distribute my trust to my surviving children (Greg Brady, Peter Brady, and Bobby Brady) in equal shares.

Now supposed that when Mike Brady dies, Carol Brady is appointed to serve as trustee of Mike’s trust. Or, perhaps Mike’s oldest son, Greg, is appointed as trustee. This is not only permitted but done frequently, presumably to avoid paying a professional trustee. The conflicts to the Duty of Loyalty are obvious.

For example, if Carol Brady is trustee, it stands to reason that she would want to maximize current income from the trust while minimizing principal growth. Likewise, if Greg is trustee, he would want to maximize his ultimate share of the trust by investing for growth rather than income. In addition, asking either party to objectively define “accustomed standard of living” puts them both in awkward, if not conflicting positions. Should Alice’s services as a live-in housekeeper continue to be paid after everyone has moved on? Carol could certainly argue that the expense met the accustomed standard of living test, but would Greg require Carol to pay for it herself, or would he deny it saying it wasn’t necessary any longer?

Perhaps when Mike and Carol were in the attorney’s office, their response to these hypothetical situations was typical. “Oh our kids would never argue over this.”

It is possible to be loyal to both beneficiaries even if there are adverse interests. However, doing so requires a great deal of objectivity, scrutiny, and immunity to emotional persuasion. A wise trustee will establish clear expectations and open communication early in the relationship to avoid favoring one beneficiary over the other and risk breaching the duty of loyalty.

How often should legal documents be reviewed?

Once a legal document is completed and signed, it is often carefully laid to rest in a safe deposit box or file drawer and comes out again only when a party dies or a conflict arises.

Prudent persons periodically review and update their legal documents. Just how often depends, of course, on the document and which circumstances have changed. The following list sets forth some events that may require the updating of a legal document.

Life Events

● Marriage.
● Dissolution of a marriage (divorce).
● Death of a spouse.
● Disability of a spouse or child.
● A substantial change in estate size.
● A move to another state.
● Death of executor, trustee or guardian.
● Birth or adoption.
● Serious illness of family member.
● Change in business interest.
● Retirement.
● Change in health.
● Change in insurability for life insurance.
● Acquisition of property in another state.
● Changes in tax, property or probate and trust law.
● A change in beneficiary attitudes.
● Financial responsibility of a child.

If there is any question as to the effect of a change in circumstances on your will, trust, buy-sell agreement, asset titles and beneficiary designations, etc., contact the appropriate member of your team and have it reviewed before a crisis arises.

The Case Files – Episode 1: “Fool me once, shame on you…”

Wealth and Honor is a website dedicated to helping families navigate the financial challenges of age transitions. The site now has a YouTube Channel to host “edutainment” videos featuring non-legal commentary on actual court cases involving will disputes, elder financial abuse, estate litigation, fiduciary liability, and other issues of aging, death, and wealth.

Court transcripts are condensed into a factual summary with popular sitcom characters providing faces to the actual characters of the case, followed by a non-legal commentary of lessons to learn and missteps to avoid.

https://youtu.be/6gBLpiWQX9c
The Case Files Trailer

The first episode covers the case of Lintz vs Lintz, a 2014 case decided in the California Appeals Court, that includes claims of breach of fiduciary duty, elder financial abuse, undue influence, among other claims. Viewers are encouraged to first watch a presentation of commonly used terms before watching the case episodes.

For a full text of the court transcript, click here.

Uniform Law Commission Approves the Uniform Electronic Wills Act

Recently the Uniform Law Commissioners approved five new acts, including the The Uniform Electronic Wills Act.  According to the ULC:

This Act permits testators to execute an electronic will and allows probate courts to give electronic wills legal effect.  Most documents that were traditionally printed on paper can now be created, transferred, signed, and recorded in electronic form.  Since 2000 the Uniform Electronic Transactions Act (UETA) and a similar federal law, E-SIGN have provided that a transaction is not invalid solely because the terms of the contract are in an electronic format.  But UETA and E-SIGN both contain an express exception for wills, which, because the testator is deceased at the time the document must be interpreted, are subject to special execution requirements to ensure validity and must still be executed on paper in most states.  Under the new Electronic Wills Act, the testator’s electronic signature must be witnessed contemporaneously (or notarized contemporaneously in states that allow notarized wills) and the document must be stored in a tamper-evident file.  States will have the option to include language that allows remote witnessing.  The act will also address recognition of electronic wills executed under the law of another state.  For a generation that is used to banking, communicating, and transacting business online, the Uniform Electronic Wills Act will allow online estate planning while maintaining safeguards to help prevent fraud and coercion.

Source: ULC News – Uniform Law Commission

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