Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Tuesday, December 7, 2021

Article: Keeping It In The Family: Pitfalls of Naming A Family Member As A Trustee

Richard Ausness recently published an article entitled, Keeping It In The Family: Pitfalls of Naming A Family Member As A TrusteeJournal of the American Academy of Matrimonial Lawyers (2021). Provided below is the Introduction to the Article: Estate planning

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.



Articles, Estate Administration, Estate Planning - Generally, Trusts | Permalink


Quoting the talented Mr. Beyer, "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." Such is the sad state of affairs with many estates, with many family members, heirs, in California and everywhere else. I just happen to be more familiar with California than other states.

Let me say that along with conflicts driven by “who gets more or less” in terms of inheritance assets going to heirs – the second most prevalent source of disagreement and conflict, from what I have seen over the years, is squabbling among trust beneficiaries inheriting real estate from parents – between siblings who want to sell their share of their inherited home, and the siblings who insist on keeping that inherited home in the family, so to speak. This is a source of extremely bitter conflict, that often involves beneficiaries hiring their own lawyers, battling it out endlessly until some resolution is reached… And this resolution is frequently in the form of a trust lender stepping into the picture, providing a large loan to an irrevocable trust, working in conjunction with Proposition 19, with a parent-child transfer, generally enlisted by the beneficiaries looking to keep their inherited home, while retaining a nice low property tax base.

And, thanks to Proposition 13 & Prop 19, you can have a bundle of property tax relief options…You can transfer parents property taxes when inheriting property taxes – and keep parents low property tax base through a parent-to-child exclusion (from paying current tax rates), upon inheriting a home – as long as it's a primary residence, and you move in within a year; thereby happily avoiding property tax reassessment, which is the crucial outcome of course. Plus, siblings selling their property shares get far more money than they would dealing with an outside buyer and realtor with a 6% commission, legal fees, transaction fees; etc. It’s always helpful to go to the California State Board of Equalization at https://www.boe.ca.gov for details on all of this. Or a property tax relief blog like https://propertytaxnews.org ; or an experienced California trust lender like https://cloanc.com – where you're likely to get a pro bono consultation if you visit their offices, to learn up on how to keep a low property tax base, how to avoid property reassessment, and so on. It's certainly worth a look.

Posted by: Geoffrey Sadwith | Dec 14, 2021 2:49:25 PM

Post a comment