Articles Posted in TRUST ADMINISTRATION

A living trust can be an excellent estate planning tool. The benefit of a trust is that assets can pass directly to your chosen beneficiaries without the need for probate. But if your wishes change during your lifetime, it’s important to amend your trust in a timely manner and ensure that any assets previously placed in trust are properly registered. Never assume that a bank or other institution managing your asset is aware of changes to your trust or estate plan.

An unpublished California appeals court decision from last year shows what can happen when a trust amendment is not properly administered. The case involved two trusts established by Marjorie Fae Howard. Howard created her first living trust in 1992 with herself as trustee and her son, Lawrence Howard, as successor trustee upon her death. The trust provided for an equal distribution of Howard’s assets between her three children, including Lawrence.

Subsequently, Marjorie and Lawrence Howard had a falling out. In 2002 she removed his name from a number of assets jointly registered in their names, including her automobile and safe deposit box. By November 2002, Marjorie Howard retained an estate planning attorney to prepare a new living trust to replace the 1992 trust. The 2002 trust named another of Marjorie’s sons, William Howard, as successor trustee. Whereas the 1992 trust provided for an equal distribution between the three children, Marjorie now wished to give William and her third son, Joe, $125,000 upfront before distributing any remainder equally among all three sons.

Sometimes a trustee of a trust has to be removed for a violation of his fiduciary duties. In California the Probate Code sets forth the various duties a trustee of a trust has to the beneficiaries. Some of these duties are the duty of loyalty, duty not to self deal, the duty to keep the beneficiaries informed, duty to act impartially, and the duty to use skill and care in administering the trust.

You may recall the late Dr. Atkins, the author and physician who created the Atkins diet. When he died in 2003, he left 90% of his estate to a Marital Trust for the benefit of his wife Veronica and the balance to his charitable foundation. Dr. Atkins had named three business associates to serve as co-trustees with his wife. The three business associates resigned their trusteeship within 9 months of Dr. Atkin’s death and were replaced with individuals who were named as beneficiaries in Veronica Atkins estate planning documents. Agreements were entered into with these co-trustees agreeing to pay them millions of dollars for trust administration. Mrs. Atkins was obligated to pay her co-trustees a minimum of $100,000 per month. In the first six months, two of the trustees were paid more than $1 million in fees. When Mrs. Atkins stopped paying them, they sued her for breach of contract.

Finally in 2007, Mrs. Atkins filed a petition to remove her co-trustees in a New York probate court. New York has similar codes to California which allow a trustee to be removed if they engage in a breach of their fiduciary duty or if hostility between the co-trustees or the trustees and the beneficiary impair the administration of the trust. In ruling that the trustees should be removed, the Court said when the trustees are chosen by the testator, the court is reluctant to remove a trustee but there was a clear showing of misconduct and a level of hostility between Mrs. Atkins and her co-trustees such it would affect the trust administration.