|
Q. |
I am a beneficiary of a
trust and don’t understand my rights. The Trustee never returns
my calls and I don’t know what is going on with the Trust. |
|
A. |
One of the most important duties of a trustee is to keep the
beneficiaries of the trust informed of the trust and its
administration. Assuming we are discussing a trust that has
become irrevocable and the trust does not contain anything to
the contrary and, given some exceptions, the Probate Code at
Section 16061 states that “on reasonable request by a
beneficiary, the trustee shall provide the beneficiary with a
report of information about the assets, liabilities, receipts,
and disbursements of the trust, the acts of the trustee, and the
particulars relating to the administration of the trust relevant
to the beneficiary’s interest, including the terms of the
trust”. At the onset of the trust administration (meaning after
the Grantor passes away and the Trustee steps in), a beneficiary
is be entitled to receive a copy of the trust. If you do not
understand your rights after you have read the trust, it may be
in your best interests to see an attorney and have them read the
document and explain your rights. Thereafter, you are entitled
to an accounting of trust activity at least once a year. The
accounting must outline receipts of the trust, distributions,
the trustee’s compensation, any agents hired by the trustee and
the accounting must contain the statement that “claims against
the trustee for breach of trust may not be made after the
expiration of three years from the date the beneficiary receives
an account or report disclosing facts giving rise to the claim”.
The trustee must also notify you if there is a change in
trustee. |
| Q. |
I stand to inherit the
assets of the estate after my stepmother passes away. She
receives income. How should the trust be invested so that I will
in fact receive assets that are still worth something when she
passes away? |
| A.
|
If one beneficiary is entitled to income for their lifetime
and another beneficiary stands to inherit the remainder of the
estate, the trustee is obligated to invest in both
income-producing assets and in assets that are expected to grow
over time. Even if the income beneficiary needs more income,
having an investment strategy that only produces income and does
not produce any growth of principal is favoring the income
beneficiary over the remainder beneficiary. This is a violation
of the duty to treat beneficiaries with impartiality. Also, it
may be a violation of the duty of the trustee to invest the
portfolio prudently and can constitute a breach if not adhered
to. |
|
Q. |
The Trustee of my father’s estate
bought a piece of art from the estate for what he called “fair
market value”. I don’t think he paid enough. Was this right? |
| A.
|
A Trustee may not deal with trust property for their own
profit nor to take an action in which they may personally
benefit. While the Trustee may have paid fair market value, the
action is still questionable at best. A Trustee should not “buy”
property from a trust they are administering. Sometimes Trustees
buy property after fully disclosing the purchase to the
beneficiaries and getting the beneficiaries to “sign off” on the
purchase, but even this should be avoided because it is
questionable on its face. |
| Q.
|
My father passed away a year ago and
I want to contest the trust. How do I go about filing a contest? |
| A. |
Your first step is to speak with an attorney regarding your
right to contest. As outlined above, the Trustee should have
sent you a notice regarding the administration within 60-days of
your father’s death. The notice would have contained information
regarding where the trust was being administered and how you
could obtain a copy of the document. If you received this
notice, it would have contained the following language:
“You may not bring an action to contest the trust more than 120
days from the date this notification by the trustee is served
upon you or 60 days from the date on which a copy of the terms
of the trust is mailed or personally delivered to you during
that 120-day period, whichever is later.”
This means that you may be barred from bringing an action
one-year later – assuming you received the notice.
Also keep in mind that the Trustee has a duty to defend the
trust so if you bring an action, the trustee will hire attorneys
to defend against your suit and the fees for that legal service
will be paid from the trust – thereby reducing your eventual
share of the estate. Finally, many trusts contain language that
if a beneficiary brings suit against the trust and does not win
that suit, that beneficiary will lose their right to inherit
under the document.
|
| Q.
|
My Aunt was named Trustee, but she
asked my brother to take over the administration. He is a
beneficiary of the trust and he seems to be favoring his kids
over me. What can I do? |
| A. |
At least two issues are at play here. First, your Aunt
cannot transfer her duties as trustee unless the document gives
her the right to do so (see PC. 16012). Secondly, even if your
brother can rightfully step in as trustee under the terms of the
trust, he has a duty to deal impartially with the beneficiaries.
Point this out to your Aunt and ask that she immediately remedy
the situation. If she does not, seek the services of an
attorney. |
|
Q. |
My parents both passed away and my
sister and I will receive distribution of the trust assets when
we each reach age 35 (7 and 10 years from now, respectively).
The Trustee has all the investments in Treasury Bills paying 2%.
I want a better return but the Trustee said it’s “too risky”.
What are my options? |
| A. |
A Trustee has the duty to invest as a “prudent investor”
would. This means your Trustee has an obligation to take into
consideration the time horizon of the trust, in this case 7 and
10 years to distribution, and construct an appropriate
investment strategy. If inflation is 3% and your Trustee is
getting 2%, then paying income taxes and a trustee fee, the
corpus of the trust is ostensibly declining in value and will be
worth less when you receive it in 7 or 10 years. This is not
appropriate. If your Trustee is unknowledgeable about investing,
he or she should delegate this part of the administration to an
investment manager. The Trustee still has a duty to supervise
the management and he or she continues to be liable for the
management so they should work with an investment manager who is
experienced in “fiduciary” investment management – like a bank
trust company. Taking high flyer risks like investing in .com
businesses is not appropriate, but constructing a portfolio of
stocks and bonds or other investments that will yield some
growth over time with an acceptable level of risk is a duty of
the trustee.
Notwithstanding the above, if there are other assets of the
Trust that are producing growth (other assets than the Treasury
Bill investments), your Trustee may not have an obligation to
take on more risk. The investments of the Trust must be
considered as a whole. |
| Q.
|
Does the Trustee need to work with
the Court in the administration of a Trust? |
| A. |
Not necessarily in fact, one of the attractions of a Trust
is that it avoids Probate and the perceived delay and expense of
Court involvement. However, at any time a Trustee can go to
Court for instructions on how to deal with a particular issue of
the trust or for clarification of their duty as trustee.
Additionally, a beneficiary can ask the Court to bring the
Trustee in to clarify certain actions or lack of action taken by
the Trustee. This latter action should be pursued with the help
of an attorney and only after the Court has read the complaint
will they decide if it has merit to warrant the Trustee’s
appearance in Court. |
| Q. |
The Trustee has been a complete
failure in my opinion. They have not carried out their duties to
the beneficiaries. What action can I take to remove them and, if
I take action to remove them how can I know they won’t spend all
the assets while I’m trying to get them out?
|
| A. |
The Trust document itself may provide a means to remove the
trustee. Short such provisions, the court on its own motion or
on the petition of a co-trustee or beneficiary, can seek removal
of a trustee on the following grounds:
(1) Where the trustee has committed a breach
of trust.
(2) Where the trustee is insolvent or otherwise unfit to
administer the trust.
(3) Where hostility or lack of cooperation among co-trustees
impairs the administration of the trust.
(4) Where a trustee fails or declines to act.
(5) Where the trustee’s compensation is excessive under the
circumstances.
Additionally, there are grounds for removal in some
circumstances where the Trustee appointed is the attorney who
drafted the trust (absent independent review of the trust) or a
caregiver who worked for the Grantor prior to the Grantor’s
death, and some additional “questionable” circumstances.
If you believe any of these issues exist, you can first ask the
trustee to resign. If they do, the next named person or
institution in the document would step in as trustee. If there
is no successor trustee named in the document, a vacancy is
created in the office of trustee and, barring any provision in
the trust to the contrary, the adult beneficiaries of the trust
can elect a trust company step in as trustee.
|
| Q.
|
How much tax will I have to pay on
the assets I receive from my mother’s trust? |
| A. |
There are several tax implications on the transfer of
wealth. The estate will pay an estate tax on the estate assets,
your mother’s final income tax return will be due and an annual
income tax is payable on the trust income each year it is in
existence. While the assets you receive are generally tax-free
to you (since the estate and income taxes have already been
paid), you may have some income tax due during a year when you
receive either income or principal distributions from the Trust.
It is advisable to work closely with the Trustee and your
accountant so income of the trust can receive the most
beneficial tax treatment and also so you don’t get any nasty
surprises if the trust has reported taxable income to you and
you forget to claim it on your 1040. |
| Q.
|
I’ve been working with the same Bank
for trust services and I’m sick of the constant turnover of
trust officers and the general lack of interest they display in
my concerns and questions. Can I remove the current trustee and
name another bank as trustee? |
| A. |
Many trust documents provide the beneficiaries the right to
remove a trustee and replace that trustee. Absent such a right,
unless the Trustee has committed a breach of trust, the
beneficiaries cannot remove them. However, if the beneficiaries
of a trust unanimously agree that the trustee is not fulfilling
their needs, they can ask the trustee to resign and then, when
there is a vacancy in office and absent the trust addressing
this type of a vacancy, the adult beneficiaries of the trust can
appoint a trust company to fill that vacancy. It’s been our
experience that when asked, most trustees will step down and
allow a trust company to step into the trustee position. |
| Q.
|
The trust my parents set up provides
special treatment of my brother, who has been and continues to
be a drug user. I’m not sure exactly how the trustee is handling
this – or how the trustee should handle this. Any suggestions? |
| A. |
The way the trustee handles this difficult situation is most
likely spelled out in the trust document and hopefully the
trustee is sticking to the finer points of such an
administration. If the trust is drafted with these types of
issues present, often times the trust will require that the
particular beneficiary test clean prior to receiving
distributions, and that the trustee provide distribution for
detox or other treatment. Distributions for detox or such
treatment are generally made directly to the facility rather
than to the effected beneficiary for obvious reasons. |
