Insight requested: trustee pitfalls & traps

[The Cosmic Avenger]

I've been designated as the trustee for my uncle's estate, and while he's still alive and quite healthy, I'm wondering what issues you've run into or heard of with being a trustee. His daughter has money problems, and he supports her and her husband and two small children. I understand he's probably doing it for his grandkids, but I think he's doing his daughter a disservice. She doesn't know how to LBHM or handle money at all, and has developed expensive tastes despite not holding down a job. My uncle is structuring the trust to pay income probably for the life of his daughter; he has mid-seven figures and has been retired for many years, so I'm guessing he wants the principle go to his grandkids.

I'm providing the soap-opera background because I'm curious in particular if any of you have been trustee for this type of beneficiary. By the time my uncle passes I may be retired, so I may have time to deal with it, or I may be too busy volunteering and traveling, but I am wondering if it will be worth it. I do know that I can decline and have a lawyer administer the trust, but I can pay myself a reasonable fee for managing it, and it would be significantly less than a lawyer would charge. I'm very close to my cousin, but she is horrible with money and many parts of adulting aside from parenting. I'm not afraid family drama, but while she can be immature she's not spiteful or one to hold grudges, so I don't want to pass off responsibility just to preserve harmony.

 

[Crabby Mike]

My situation is a bit different from yours, but I can attest that being a trustee for family members can be a thankless job, and certainly not worth doing for the fees. However, in my case, my former MIL asked me to serve as co-executor of her estate and co-trustee (along with her attorney) of a trust benefitting my own kids, so I felt I couldn't say no. In this case, we co-trustees have so far continued using the services of a commercial trust administrator to handle the assets, distributions, etc., while we make the decisions. So far, the "kids" (28 to 36 years old) have not been unreasonable with "special requests," and each benefit from regular distributions of a few thousand $ per year -- helpful to their budgets, but thankfully not enough to discourage ambition.

 

[OldShooter]

As @Crabby Mike said, having a family member as trustee is generally not a good idea.

But if you are going ahead, you should never be in "I'm guessing ... " mode. Sit down with an attorney and develop a list of questions for your uncle and his attorney. The language in the trust should be made much more specific on what he wants done, for whom, and when. Also for how and how much you are to be paid.

That is your protection. If you stick to doing exactly what the trust directs, the beneficiaries may not like it but they shouldn't be blaming you. This is also your defense if someone decides to sue for breach of fiduciary duty or other such claim. There should also be language allowing you to pay for any legal defense from the trust's assets. Again, your attorney should be able to help you with this. Finally, your attorney should be taking actions that will protect you from a "undue influence" or competency claims from beneficiaries who do not like the revisions that you are asking for.

 

[The Cosmic Avenger]

Good points, OldShooter. I'll ask my uncle for a copy. I already said he could put me as a trustee, and I did tell him that I'd figure out whether I needed to hire it out or not based on the terms and the work involved, but I hadn't thought about the fact that his request gives me standing (socially, not legally) to make suggestions or requests about the wording or structure. I'm not interested in helping my cousin be a trust fund baby, as you can probably tell. If she had any financial sense, I wouldn't mind...but then, if that were the case, my uncle would probably leave it all to her directly then!

 

[OldShooter]

Yeah, "standing" I guess. Your hammer though is that you can agree to serve or refuse to serve based on yours and your (own) attorney's assessment of the trust language. You aren't legally obligated to serve. Normally there is trust language covering the resignation of the trustee but if uncle's trust is badly drawn your recourse is to go to court and get the court to approve your resignation.

Re "helping ... cousin to be a trust fund baby" you really don't want to have any discretion in that. Do whatever Uncle's trust says and only what it says. Decline any language that gives you significant discretion. If Uncle wants discretion, he should hire a professional trustee. Those guys have years of getting yelled at by greedy beneficiaries, very tough skins, and they know what to do if the courts become involved. You have none of that.

 

[97guns]

My mom was trustee to my aunts $3M estate that got split into 3 siblings, one child was my aunts and 2 children were her late husbands kids, it was contested by her son and he ended up getting 75% of the estate while the 2 others got 1/2 of 25%, it was all RE. If I remember correctly it was pretty much deadlocked in court and the 3 agreed on the arrangement but after settlement the 2 in law kids felt they got ripped and now nobody speaks to my aunts kid, he might as well be alone on this earth because literally has no single family member that wants anything to do with him.

It was the most greedy action I’d ever seen

 

[OldShooter]

... It was the most greedy action I’d ever seen

My wife retired a an SVP in a megabank trust department. She has a hundred of these.

One of her perennials is cases where dad died, creating a trust to take care of mom, and the trust corpus goes to the kids when mom dies. Kid comes to see trust officer: "You know, mom really doesn't know much about what is going on around her any more. Don't you think it would be OK to move her out of her private room? It would save us a lot of money."

 

[MooreBonds]

I've been designated as the trustee for my uncle's estate, and while he's still alive and quite healthy, I'm wondering what issues you've run into or heard of with being a trustee. His daughter has money problems, and he supports her and her husband and two small children. I understand he's probably doing it for his grandkids, but I think he's doing his daughter a disservice. She doesn't know how to LBHM or handle money at all, and has developed expensive tastes despite not holding down a job. My uncle is structuring the trust to pay income probably for the life of his daughter; he has mid-seven figures and has been retired for many years, so I'm guessing he wants the principle go to his grandkids.

I'm providing the soap-opera background because I'm curious in particular if any of you have been trustee for this type of beneficiary. By the time my uncle passes I may be retired, so I may have time to deal with it, or I may be too busy volunteering and traveling, but I am wondering if it will be worth it. I do know that I can decline and have a lawyer administer the trust, but I can pay myself a reasonable fee for managing it, and it would be significantly less than a lawyer would charge. I'm very close to my cousin, but she is horrible with money and many parts of adulting aside from parenting. I'm not afraid family drama, but while she can be immature she's not spiteful or one to hold grudges, so I don't want to pass off responsibility just to preserve harmony.

To also help protect yourself, why not ask him to insert a clause about "maximum withdrawal per year to be no more than X% of principal plus any interest/realized net capital gains"?