So you have named your children as your successor trustees of your trust, the personal representative in your will or your financial power of attorney. You may have named your oldest child first as your financial agent because you think it is the right thing to do, …. or is it? Different people have different skills and you should choose accordingly.
For example, in my own estate plan I have named a successor patient advocate whom I would trust with my life. However, she has no authority over any of my money or property. In her fifty-some years, she has demonstrated that the ability for financial money management is not one of the gifts that God has given her. It may be the same with your family.
Also, are the persons that you have chosen as successor trustees or other financial agents, trustworthy? Why do you think it is called a trust? It is because you are trusting your trustee to handle your funds in accordance with your instructions.
Money does strange things to people. Even the prospect of money can change a person’s personality. When money is involved, it can turn some of the most loving families into seething masses of greed.
One probate estate I had went on for years because the kids could not agree on the distribution of about $1,000 worth of used tools, furniture and other household items.
At some point your children may start to think that your money and other property is theirs, even before you die. I had one case in which mom died. Although dad was not incapacitated, he was not getting along as well as before. After the funeral, the kids started helping themselves to mom and dad’s stuff. The kids even went so far as to schedule the rental of a U-Haul so they could haul mom and dad’s stuff away so they could sell it.
I had another case not too long ago in which step-dad died and left mom $3.5 million in trust for her care during her lifetime, if needed. Any amounts remaining in step-dad’s trust after mom’s death would go to charities. Mom had $2 million in her own trust, which would go to her descendants if not used during her lifetime. Between mom & step-dad’s trusts, there was $5.5 million available for mom’s care during her lifetime.
Mom had named her daughters as successor trustees of her trust and her power of attorney agents. Apparently, mom’s three daughters didn’t like step-dad’s millions going to charity after mom’s death. So after mom’s incapacity and with the pretext of protecting mom, the girls sued step-dad’s trust. The case never went to trial and the girls settled for a $2.5 million transfer from step-dad’s trust to mom’s trust and a waiver of all claims against step-dad’s trust.
The charities were happy because they received $1 million today instead of maybe getting $3.5 million 20 or 30 years from now, after mom’s death. The girls were obviously ecstatic because they had more than doubled their inheritance. All they have to do is wait for mom to die. However, mom now had $4.5 million for her care instead of her original $5.5 million before the lawsuit. In the process of increasing their own inheritances, the girls cheated mom out of a million dollars and used mom’s money to do it. Mom was probably out another couple hundred thousand dollars for all the legal fees.
Is this a conflict of interest? Absolutely. Is this a breach of fiduciary duty that the girls have towards mom? Most certainly. But no one was looking out for mom’s interest since the girls were named as mom’s legal representative. Elder financial abuse is unfortunately alive and well in St. Clair County. What can you do to protect yourself?
If you have only a power of attorney there are very few checks and balances. Your financial agent generally has full authority to do whatever you can do. With a trust, you can put more instructions for you during your lifetime and your family after you are gone, than in a financial power of attorney. However, before 2010 there was little you could do to stop all of your trustees and beneficiaries from conspiring to change your instructions, as in the case of the three daughters above.
With the passage of the Michigan Trust Code last year, there is a new sheriff in town, the trust protector. A trust protector is basically a watchdog over your trust and the persons whom you have named as your successor trustees. By putting all of your financial assets in your trust, your trust protector can make sure your wishes are followed.
Your trust protector should be an independent third party who has no interest in your property or your estate. Often times it is a CPA, trust company or close family friend. Your trust protector may be a committee of people. There are also companies that provide trust protector services for a fee.
I generally do not recommend that a sibling of your trustee be named as your trust protector. There is nothing that can more quickly ruin family relationships than having one sibling being a watchdog over another.
Whatever powers you give to your trust protector, you should be as specific as possible. Your trustees and beneficiaries as well as your trust protector, should know the nature and the extent of your trust protector’s powers.
So what can your trust protector do?
Your trust protector could have the power to amend your trust for changes in trust, tax or other laws to maximize the amount that would be going to your beneficiaries and minimize the amount that gets paid out as taxes and fees and to make sure the purposes of your trust are accomplished.
Your trust protector could also have trustee removal powers. If, in the opinion of your trust protector, your trustee is not acting in the best interests of you or your trust, your trust protector can remove your trustee.
If there is a disagreement between your trustees or between your trustees and your beneficiaries, your trust protector can act as the referee to resolve the matter and to make sure that everyone is equally unhappy.
Your trust protector can be named as a recipient of your trustee’s annual accounting of your trust. The financial activities of your trust could then be reviewed by your trust protector on at least an annual basis.
Your trust protector can also have the power to review an investment’s propriety and veto any investment decision.
Your trust protector can be named to handle or manage certain assets or special assets of your trust.
In the case of the three daughters above, a trust protector may not have been able to stop the girls from suing step-dad’s trust. However, for trusts drafted or amended after 2009, mom could name a trust protector who would have the power to remove the girls as mom’s trustee so they could not use mom’s money to cheat mom out of a million dollars.
If you had a family business or rental real estate in your trust and none of your named trustees had any experience with that activity, then your trust protector could be someone with knowledge and experience managing and protecting those assets for your trustees and beneficiaries.
So you can have your cake and eat it too. You can name family members to be the successor financial agents for you when you are incapacitated and for your stuff after you are gone. You can now also make sure that if your financial agents are not following your wishes, that someone will be there to enforce them. That person is your trust protector.
By: Matthew M. Wallace, CPA, JD
Published edited February, 2011 in The Times Herald newspaper, Port Huron, Michigan as: Danger! Danger! Greedy kinfolk lurking