THE Legacy Hierarchy™

It’s a thankless job. Do it right and that is what you were supposed to do. Do it incorrectly and you stand to be sued by unhappy beneficiaries. Being a Trustee carries with it duties and responsibilities yet despite the growing number lawsuits most people still name their eldest child or other family member to serve as a Trustee.

What is a Trustee? A trustee is a person or company that manages the internal affairs of a Trust, whether revocable or irrevocable. By internal affairs I mean the financial assets of the Trust such as investments, real estate and the like. In most cases, a trustee also makes decisions about how and when distributions to beneficiaries should be made from the Trust.

One of the key obligations of a trustee is to prepare an accounting of all income, expenses and other financial actions in which the trustee engaged. This may sound simple enough, however, as far back as 1998, the First District Court of Appeal in California held that remainder beneficiaries (those people who stand to receive assets from the Trust after the death of the person who formed the Trust) could sue the Trustee for an accounting for the actions by the Trustee even when the person who formed the Trust was still alive. This Court ruling greatly expanded the rights of beneficiaries in spite of other specific language in the Probate Code to the contrary.

Here are the real life facts that illustrate these rules. Dad died in a car crash and mom was gravely injured. Daughter took over as a Trustee of the Trust. The Trust could be revoked or changed by mom (she was competent). When mom died, the remainder beneficiaries sued the daughter for an accounting for all the time she acted as a Trustee and not just the time after mom died. The remainder beneficiaries were concerned that daughter had moved funds from the Trust to her personal account.

Many times when a parent gets older even though legally competent to change or modify the Trust, they may decide to turn over the Trustee responsibilities to take care of financial and other affairs to one of their children. We see this in our practice all the time. Normally, provided the parent is capable of understanding and agreeing to the actions of the Trustee, the Trustee would not and is not required to account to the parent and doing so would defy common sense as a duplication of time and effort. The parent already knows what is going on. Yet, with the new case law, remainder beneficiaries now have potential rights to sue the Trustee for actions the Trustee might not have been concerned about while the parent is still alive and competent.

One last area that also has been expanded in California is an action for what is called intentional interference with an expected inheritance. Take each word and read it carefully. Intentional meaning a person knew what they were doing was wrong. Interference meaning that they caused something to happen that wouldn’t otherwise have happened. Expected Inheritance meaning that another person was going to receive something. The case that led to this lawsuit, involved a brother, sister and beneficiary. The sister deceived the beneficiary and in doing so prevented him from assisting the brother in changing the brother’s will as brother wanted. Beneficiary was allowed to sue the sister.

These quick examples of new trends in law show that being a Trustee is now full of potential liability and risk and the question of who should be a Trustee should be made very carefully. Our company talks about these questions with our clients all the time to gain clarity in the plan that people put together.

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