Tuesday, April 28, 2020
The largest transfer of generational wealth is expected to occur in the next 25 years, so there so should be no surprise that there has been an increase in trust litigation. One issue that is often at the heart of these cases is that of successor trustees. With proper planning and and due diligence this problem may be avoided without getting litigators or arbitrators involved.
The following is a number of mistakes that settlors and trustees often make that should be avoided.
- When Successor Trustees Misunderstand Their Fiduciary Responsibility
- The fiduciary responsibility of successor trustees is to the trust's beneficiaries rather than to the creator of the trust, and this distinction should be clearly spelled out in the trust document.
- When Trust-Makers Appoint Co-Trustees Who Disagree
- If co-trustees are siblings or other family members, disagreements are almost bound to happen. Consider naming an unbiased third party to serve as successor trustee.
- When There Is A Failure To Coordinate Among The Grantor’s Key Advisors
- Lack of communication during the trust's creation and the initial estate planning process can cause disagreements and missing information. The grantor should introduce all trustees and advisors at the outset of the relationship to inspire cohesion.
- When The Successor Trustee Doesn’t Act Objectively
- To ensure the trustee acts in accordance with the grantor’s intentions, it can be helpful to appoint an objective third party rather than a biased family member or adult child.
- When The Grantor Does Not Build Enough Flexibility Into The Trust Documents
- Depending on the state where the trust was created, amending the trust documents can be complicated. Naming a trust protector, whose sole purpose is to remove an unsatisfactory trustee on behalf of the beneficiaries when necessary, can avoid costly and time consuming court involvement.
See Kimberly Dawn Bernatz, Choosing the Right Trustee, Financial Advisor, April 1, 2020.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.