In establishing a trust as part of the estate planning process, you may intend to provide for future generations beyond your immediate heirs. Some trusts may last for decades in order to fulfill its creator’s purposes. If this is a path you intend to follow, it’s important to carefully consider the long-term logistics of administering such a trust.
Here’s a recent example taken from a California court of appeals case. The case involves a trust established nearly 50 years ago for the benefit of the trust settlor’s grandchildren and their descendants. Please note this is simply an illustration of one trust that should not be construed as a comprehensive statement regarding California law on the subject.
Wells Fargo Bank, N.A. v. Sprott
Bearl Sprott created the original trust as part of his last will and testament. Sprott died in 1959. A California probate judge approved the trust’s formation in a 1964 order. Like many such trusts, a corporate trustee, rather than an individual, assumed control of the trust assets, in this case Wells Fargo Bank.
Sprott left approximately $350,000 to fund the trust. He directed the trustee to distribute the trust’s income to any of his “blood issue” who needed the money to attend college full-time. The trust itself would continue until there were no descendants left who needed the money or 21 years after the death of the last of Sprott’s children or grandchildren living at the time of his death.
By 2010, there were at least 19 living descendants of Sprott who could be in a position to avail themselves of the trust. Wells Fargo was concerned that a decline in the trust’s assets left it with insufficient income to cover anticipated future distributions. Wells Fargo therefore asked the probate court to modify the original terms of Sprott’s trust, limiting the total annual distributions to 5% of the trust’s value.
Daniel Sprott was one of the grandchildren alive at the time of Bearl Sprott’s death. Daniel Sprott had six children of his own. He objected to the proposed modification because he feared that Wells Fargo would “favor other, less needy family members” over his children. The court eventually provided its own instructions to Wells Fargo regarding future distributions.
This did not satisfy Daniel Sprott, however, who continued to file objections and pursue litigation against the trust. Eventually, the trust paid out more than $100,000-nearly a third of its value-to respond to Sprott’s various claims, none of which had any merit. In a November 2013 decision, the court of appeals upheld a probate court order sanctioning Sprott as “vexatious litigant” and ordered him to repay the trust for its attorney’s fees and costs.
How Many Generations Can You Provide For?
There’s certainly no way Bearl Sprott expected his grandson would wage a fight over his estate 50 years after his death. Unfortunately, the elder Sprott may have fermented an unreasonable expectation that his $350,000 gift would somehow bare fruit indefinitely even as his descendants multiplied. Even with the best trust management, the trust’s income could no longer keep up with the number of beneficiaries.
In preparing your own estate plan, you should think about the limits of your assets and who they might provide for in the future. While you may wish to leave your children (or grandchildren) well off, it can be more trouble than its worth to provide for an indeterminate number of succeeding generations. As with such considerations, it’s important you work with an experienced California estate planning attorney. Contact the Law Office of Scott C. Soady today if you have any questions.