Trust administration can be challenging. Layperson trustees are not really trained for the tasks. And, professional fiduciaries can occasionally go off track. Lack of transparency is an ignition switch for controversy. Controversy that can flame into expensive and emotional trust litigation. So, is it a good thing to avoid litigation?
Unquestionably. With this in mind, I'll share some things that were catalysts for estate and trust disputes that we've litigated.
The seeds of controversy include a misunderstanding of the trustee-beneficiary relationship. The relationship is a fiduciary relationship. That is to say that the trustee, the fiduciary, has the duty to act for the benefit of the beneficiary within the scope of the trust relationship. The trustee should not profit at the expense of the beneficiary.
The trustee holds property, both real and personal, for the benefit of the beneficiaries.
So, how do things go sideways? Some trustees lack recordkeeping that identifies income and payments made to a trust. This recordkeeping should include receipts. The lack of a proper accounting from a prior trustee can be more than troubling. In mishandled trusts, it is not unusual to discover that property or income taxes have not been paid.
The asset value of California trusts is heavily weighted in the family home. Beneficiaries not living in the family home are none too pleased when the trustee or other beneficiaries are living in the home and not paying rent. This is a failure on the trustee's part to make the trust assets productive.
Trustees often fail to transfer trust assets into an irrevocable trust required to be formed at the death of first spouse to die. Essentially, the original trust might require that half of all assets are to be put into an irrevocable trust with the remaining half left in a revocable trust that can be changed by the surviving spouse.
This failure can be especially perilous for the beneficiaries vested in the irrevocable trust. They might see their beneficial interests vanish because of a trustee's lackadaisical, negligent or maybe even intentional violation of the trust terms. It is, of course, not helpful if the trustee is borrowing trust money for this own benefit. Even if there is an intention to return the money, this is a bad practice. Some trusts allow the borrowing under a defined set of circumstances.
These are only a few of the ways that trust assets may be mishandled. Vigilance, requested accountings, proper recordkeeping, and transparency all help to reduce the beneficiary's exposure to loss of trust assets.
At Hackard Law we are a little like health care providers. We prefer wellness for trust beneficiaries rather than the need for judicial intervention. We know that the vast majority of trusts are appropriately handled and open and close without the need for litigation attorneys. That's good.
But when judicial intervention seems necessary, we take substantial cases where we think that we can make a significant difference and there is a wrongdoer who can be made financially accountable for their wrongdoing.
If you are a beneficiary and you would like to discuss your circumstances with us, call us at Hackard Law: 916 313-3030.
We'll be happy to hear from you.