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SENIOR ADVOCATE

By Liza Horvath

 

Fire that Trustee

 

When I was being interviewed for a potential trustee appointment and read an online review of the person I would be replacing, it was clear why the beneficiary was in the market for a new trustee. The posted review presented a trustee that was unresponsive to the beneficiary’s requests, yielded her trustee authority like a weapon and generally made promises that were not kept. As most of us know, experience is a great teacher. After the paperwork was done and I stepped in as trustee it became apparent immediately why the previous trustee never resisted being replaced. The beneficiary was – to say the least – difficult.

 

To understand the dynamics between a trustee and a beneficiary, it is important to understand a few key facts about trusts. Fundamentally, a trust is a legal agreement that mom and dad set up as part of their estate plan and the document dictates how their assets will be distributed after they are gone. Some trusts tell the trustee (the person or corporation that steps in after mom and pop are gone), to pay all debts, taxes and other obligations due from the estate of mom and pop and then give the rest to the children. Some trusts direct the trustee to hold a child’s assets “in trust” for a period of time – presumably until the child is old enough to responsibly manage their inheritance. Other times the child’s assets are held in trust for their lifetime because mom and dad believed that the child would never reach a point where they could responsibly manage their own financial affairs.

 

Inheritors who recognize that mom and dad could have given their assets to anyone or perhaps to a favorite charity, are usually thrilled to have a trust set up for them. Children who feel entitled to receive their parents’ estate but who are instead presented with a trustee who will continue to manage the trust’s assets and dole out funds according to the terms of the trust are often less than thrilled. A beneficiary’s resentment, combined with a trustee who may be either inexperienced or possibly just a bad fit for the beneficiary, may result in frustration for both. Also, this kind of mix may translate into a less than flattering online review of an otherwise capable trustee. 

 

Do you believe that if a parent takes the steps to set up a lifetime trust for a child that the child may, in fact, be deficient, in some way? This is a bold assumption and could, in some cases, be inaccurate. If there is a great deal of wealth at stake, for instance, parents may correctly feel that dumping money into a young adult’s hands may cause more problems than benefits and there are certainly well publicized cases of this happening. However, responsible parents of a child that either lacks financial acumen or one that suffers from mental incapacity or addiction should – and often do – set up a lifetime trust for that child.  

 

Irrespective of whether the beneficiary is mentally ill or simply lacks maturity, when a beneficiary is resentful toward a trustee or when a trustee lacks the skills needed to effectively interact with a compromised beneficiary, efforts should be made to resolve the problem. After all, when mom and pop set up a lifetime trust they sought to benefit the child – not cause them further anguish. It should also be stated that most professional trustees will honestly seek to do a good job as trustee.  So, fire the trustee and attempt to find one that “fits.” Hopefully the beneficiary will be more fulfilled by a new trustee and the support the trust will offer, and the released trustee will be freed up to find a client that they can better serve.   

Liza Horvath has over 30 years experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. If you have a questions call (831)646-5262 or email liza@montereytrust.com

 


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