Tuesday, December 7, 2021
Richard Ausness recently published an article entitled, Keeping It In The Family: Pitfalls of Naming A Family Member As A Trustee, Journal of the American Academy of Matrimonial Lawyers (2021). Provided below is the Introduction to the Article:
This article is concerned with trusts in which either the settlor, trustee, or beneficiaries are members of the same family. For example, the settlors may be the parents, grandparents, or other relatives of the trust beneficiaries. Trustees may be settlors parents of the beneficiaries, children of the settlor, and other family members, while beneficiaries may include either the settlor, the settlor's spouse, children, grandchildren, or other relatives of the settlor. These persons will be referred to as “family members.”
Virtually all family members have disagreements with other family members and sometimes these disagreements can destroy relationships and even lead to bitter, long-term feuds. As the cases discussed below will show, testamentary provisions by a deceased family member can also cause strife within a family, particularly when a long-term trust is involved. More importantly, the chances of this happening are greatly increased when the decedent chooses a family member to serve as trustee. Some settlors are willing to take this risk because they have confidence in the prospective trustee to administer the trust fairly or because they believe that the cost of administering the trust will be less if a family member serves as trustee instead of a bank or other corporate trustee. Nevertheless, a settlor should think twice about appointing a family member as trustee. In particular, a settlor should avoid naming a surviving spouse as sole trustee if some of the beneficiaries are adult children from a prior marriage.
Part II of this Article discusses some of the fiduciary duties that trustees must satisfy, including the duty of loyalty, prudence, and impartiality, the duty to inform, and the duty to account. Part III is concerned with special problem areas such as support trusts, discretionary trusts, and the modification of “irrevocable” trusts by decanting. Finally, Part IV describes a number of precautionary measures that settlors and trustees should take to reduce the chance of future conflicts within the family.