Bar News - March 16, 2016
Elder, Estate Planning & Probate Law: To Be or Not to Be a Trustee: Scenarios to Consider
By: Jeanne S. Saffan
Clients frequently ask their attorneys to serve as successor trustees of their trusts, but this is a relationship that should not be entered into lightly.
Although the invitation is flattering, the sensible attorney will take the time to weigh the request against the exposure to liability that serving as trustee presents. Antagonistic beneficiaries create countless dangers during trust administration, and decisions made with the best intentions can become the basis for litigation. Before accepting appointment as trustee, the attorney should to get to know the personalities of the beneficiaries and circumstances under which the trust will be administered.
Previously unknown family dynamics may influence the decision and spare an attorney a trip to court in defense of tough judgment calls. The attorney needs to look and listen for signs of resentment or jealousy, emotional instability, and substance abuse. Even in the absence of these concerns, there may be other indications that the beneficiaries are not going to get along with one another.
Disputes among beneficiaries are more common than one may think and can lead to court action, years of litigation, and permanent damage to family relationships. The causes of conflict are generally not the legal issues, but are frequently emotional responses to events that occurred in the past. There are many scenarios that can lead to disputes, but the following two scenarios seem to be the most common:
An adult child who lives close to an elderly parent moves in with the parent to care for her until death. The child has never held down a job and frequently asks for, and receives, money from the parent. The siblings question both the adult child and the parent about this, and repeatedly express concern and bitterness that the parentís resources are used to support this child while they go to work, and are now being nearly depleted. The child, typically, is an adequate caretaker, but the siblings do not appreciate what she does for the parent.
To show her gratitude, the parent amends her trust and designates the child as the beneficiary of the house at her death. The trust provides that the balance of the parentís assets are to be distributed equally among all her children. However, at the time of the parentís death, the remainder consists of a checking account held with the caretaker as joint tenants with rights of survivorship, the camp on the lake that the family has enjoyed each summer for generations, and some personal property of little value.
The siblings are surprised to learn of the trust amendment and believe that the parent was unduly influenced by the child when she amended the trust. It was their understanding that the parent intended for her house to be sold after her death, and the proceeds put towards maintaining the summer camp that they could all use. None of the beneficiaries will contribute any funds to pay taxes, the parentís bills or expenses of the trust, and the trustee intends to put the camp on the market for sale.
A 73 year-old widower marries a woman around the same age as his children, and she has two young children of her own. The children disapprove of the marriage and speak with him about a prenuptial agreement, but the father is lonely, the woman showers him with attention and casseroles, and he insists on marrying without one.
After a few months of marriage, the father amends his discretionary trust valued at $18 million by including the new wife, along with all of the children, in the class of beneficiaries who may receive distributions of income and principal during their lifetimes. The remaining trust estate is to be distributed to a charitable foundation at the death of the survivor. The trust specifically provides that the trustee shall distribute as much of the income and principal to maintain the new wife and her children in the manner to which they have become accustomed, including maintaining the gracious home they currently occupy, the condominium in Palm Beach, Florida, and ski house in Deer Valley, Utah.
He dies of a heart attack the following year.
Disputes among beneficiaries like those described above present ethical and practical challenges to trust administration. Beneficiaries, when unhappy with a particular result, may turn against the trustee. The trustee should be knowledgeable about the powers and duties that come with the role, as well as the Rules of Professional Conduct, and give due consideration to carrying appropriate malpractice coverage. The attorney should also review NH Bar Association Ethics Committee Opinion 2008-09/1, which outlines the ethical analysis to undergo before deciding whether to become a trustee.
Prior to taking action, a formal letter to the beneficiaries should be prepared in which the trustee clarifies the scope of representation, taking care to explain the duty of loyalty to administer the trust solely in the interests of all of the beneficiaries, and to inform them that the trustee does not represent any beneficiary individually. Beneficiaries should be advised to seek separate counsel.
During trust administration, adversarial beneficiaries can be counted on to express their own ideas about how the client intended the assets to be distributed and why. The trustee will hear accusations of bad behavior and terrible incidents that have occurred as the beneficiaries make the case for distributing the assets to them. Some beneficiaries will ally against a common enemy, only to turn on one another later. It might be difficult to determine who is telling the truth, so it is important for the trustee to remain impartial and to take care not to give the appearance of favoring one beneficiary position over another. A communication to or from one beneficiary should be sent to all beneficiaries, and excellent records relating to all aspects of trust administration should be maintained.
Providing effective trust administration requires technical skill, good judgment and an unflappable personality. It is an honor when a client asks an attorney to serve as trustee, but one that may be refused.
Jeanne S. Saffan is an attorney at Upton & Hatfield. Her practice focuses on estate planning and business law. She has served as chair of the NH Bar Association Elder Law, Estate Planning & Probate Section and currently serves on the NHBA Continuing Legal Education Committee.