San Diego Estate Planning Lawyer Blog
When you set up any kind of trust, it is important to consider the potential relationship between the trustee and any beneficiaries. In a revocable living trust, for example, the person making the trust often serves as the initial trustee. But when that person dies, a successor trustee must assume responsibility for the trust and make distributions to the beneficiaries according to the trustmaker’s instructions. Obviously, this process will go a lot smoother if there is a good relationship between the trustee and the beneficiary.
Trustee Ends Up Paying for Dealing With “Demanding” Beneficiary
Here is an example, taken from a recent unpublished California appeals court decision, of what can go wrong when there is a poor relationship between trustee and beneficiary. This case actually involves an irrevocable trust–one where the trustmaker does not serve as initial trustee and cannot amend or revoke the trust once it is made. Such trusts are commonly used for tax planning and charitable giving purposes.
Here, a Marin County woman created an irrevocable trust naming her daughter as the sole beneficiary. The woman initially named a professional fiduciary (a bank) to serve as trustee. But after the woman died, that trustee was replaced by an attorney.
The new trustee had difficulty working with the beneficiary. According to court records, the beneficiary sent the trustee upwards of 10,000 emails and was, in the words of a probate court judge, “difficult and demanding.” The beneficiary eventually filed a petition accusing the trustee of misconduct, demanding his removal and a full accounting of the trust itself. A new successor trustee was eventually named.
One issue that arose during the course of litigation was the now-former trustee’s fee. Many trusts contain language authorizing a trustee to receive “reasonable fees” paid for by the trust’s assets. Here, applying the local rules of the Marin County probate court, the judge determined that a “reasonable” fee equaled 1 percent of the value of the trust’s assets, which is what a “qualified corporate trustee” would charge in similar circumstances. The judge even multiplied this fee by 1.75 given that he had to deal with a “demanding beneficiary.”
Unfortunately for the ex-trustee, he actually ended up owing money to the trust, as the probate court surcharged him for overbilling.
Get Trust Advice From a San Diego Estate Planning Lawyer
Obviously, when you create a trust you want to minimize the potential expense of administration so as to maximize the assets available for your children or other beneficiaries. And while you cannot control what happens after your death, proper trust planning beforehand can help prevent possible breakdowns in communication afterwards.
Selecting a trustee or successor trustee is among the most important decisions you will make in creating a trust. It is imperative to select an individual or professional fiduciary that has the experience and judgment to manage your assets. It is also a good idea to specify the exact fee arrangements for the trustee.
A trust is also not something you should try to create and manage on your own. An experienced California estate planning attorney can assist you with setting up and administering many types of trusts. Contact the Law Office of Scott C. Soady if you would like to speak with an attorney today about your trust needs.