Author Archives: arai

If you are a trust beneficiary whose trust has been in existence for more than 10 years, you should ask for a periodic accounting. Here’s why:

Long term trusts are often set up with automatic features. Certain payments are paid from income or principal or both. These could include distributions to beneficiaries, trustee commissions, trust income taxes, etc.

Certain receipts are also allocated to income or principal or both, such as dividends, income, long term capital gains and short term capital gains. These automatic payments are set up by the initial trustee and investment manager in accordance with the trust document and state laws at the time the trust is funded.

Often, however, there are changes to state laws or simply errors in the initial setup. Because commission and tax payments are typically made quarterly, this could mean multiple errors over a ten year period.

Because of the “compounding” effect of errors even smaller or fewer errors really add up over time. As a beneficiary what can you do?

You can ask your Trustee for a checkup in the form of a periodic accounting.

Who prepares the accounting? Hire a fiduciary accountant like FastTax that does nothing but trust accountings and is independent of the Trustees and Investment Managers running your trust. They will be faster, cheaper and more objective, which is in the beneficiaries’ best interest.

Who pays for this accounting? The trust will pay for the cost, usually a few thousand dollars. This will save money in the long run however, because when the trust terminates, this accounting period has already been addressed.

What typically happens in an accounting?

First, the fiduciary accountant will review all of the transactions of the trust for the period of time you and the Trustee specify (for example, from funding date in 1997 until current date of 2007). There will be thousands of transactions for the accountant to compile and reconcile – no easy task!

Next, the fiduciary accountant will flag any errors or areas for correction. Most errors are then corrected retroactively by the Trustee or Investment Manager with notice to the beneficiaries.

Last, the Trustee will issue a draft accounting to the beneficiaries for review and signature. If you are satisfied with the accounting as it is, you would sign a “receipt and release” agreement effectively “closing the books” on that period of trust administration.

If you feel that anything is missing however, you could hire a specialized reviewer to look for errors with a fine tooth comb.

In my experience as a bank trust officer, 90-100% of problems are self-corrected by the trustee in the review process. That said, trust your intuition and spend the extra money for an independent review if warranted.

Just as you wouldn’t drive your car for 100,000 miles without service checks, you should not let your trust run more than 10 years without a service check either!

How did the Grantor of your Trust really intend the administration of your Trust to be carried out? Read on to find out …

Grantor’s Role in “Setting” Administrative Provisions of Trusts or Wills

Having been a Trust and Estates attorney for the past 12 years, I can say that we almost NEVER discuss administrative provisions in any detail with clients. Why? Clients simply don’t want to get into that level of detail 99% of the time. What happens when an estate planning client walks into our offices? Well, they know they need a Will or Trust, and they have some ideas about how they’d like funds to be distributed and to whom.

Grantor’s Role in Establishing Dispositive Provisions of Trusts or Wills

As estate planning lawyers, our job is to put the grantor’s desires on paper in the form of a structured legal document. We spend 90% of our time designing the “dispositive” provisions of the client’s Will, namely who gets what, how and when. We also take a great deal of time explaining Trust, Estate and Tax concepts to clients including various options they have. This might take multiple conversations with husband and wife to get the document “right.” Typically, the first few pages of a Will or Trust contain these “dispositive” provisions. These are the heart and soul of the document as far as the client is concerned. By the time the dispositive provisions are complete, the client is often completely fatigued by the planning process and ready to sign and be done. Don’t forget the estate planning client is also being presented with several other major decisions needed for Powers of Attorney, Health Care Proxies, Living Wills, HIPAA waivers and often more sophisticated planning techniques.

Grantor Fatigue

To say the client is fatigued by the end of those tax and legalese laden discussions is an understatement. So how do estate planners make time to go over the “backplate” of the document filled with “administration” provisions that govern Trustee or Executor powers and protections? Not well! This is simply the nature of the beast.

“Standard” Administrative Language

We ask our clients to review the administrative provisions or at least skim them and ask questions but very few do. Why? Again, the administrative provisions are long, detailed, and often in necessary technical terms that are completely unfamiliar and frustrating to the client. Also, the client trusts that the “standard” language is all in there so there is not much to discuss. This leads to the critical question of what is “standard” language for administration provisions and why. The language is geared to protect Executors and Trustees in carrying out the terms of the document. This is not entirely unreasonable. Would you personally agree to handle someone else’s money for decades at the highest standard of scrutiny and with a myriad of ever evolving rules and regulations without some personal protections? What are some of the key protections?

1. Executors and Trustees are compensated well from the Trust or Estate they administer. Commissions are often set by state statutes or published fee schedules in the case of a Trust company or bank. In order to cover minimum administration expenses, commissions are often disproportionately high for smaller Trusts or Estates.
2. Allowing Executors and Trustees to defend themselves from beneficiary challenges using trust funds for legal defense. The alternative is to require Executors or Trustees to defend themselves out of their own pockets but then almost no one would agree to act. If you were named to a board of directors, you would certainly obtain Directors and Officers liability insurance to protect you personally from an action against you in some corporate capacity. The same holds true for a Trust which is a separate legal entity that exposes you to unknown future liabilities such as beneficiaries or remaindermen who years later question your actions.
3. Exculpating Executors and Trustees from all but the worst acts of fraud and gross negligence. Again this provision assumes the best of Trustees and Executors. Why not? The client has hand picked the people he thinks will best take care of his heirs.

How Grantors Choose Trustees and Executors

Clients typically choose a trusted long term adviser, a bank with whom he or she has a long standing relationship, or a responsible family member with a financial background. They never imagined multiple bank mergers with personnel turnover or siblings who have stopped talking to one another. In short, beneficiaries should know that Grantors and their attorneys did not conspire to craft purposely restrictive administration provisions. Quite to the contrary; they probably spent little time discussing these “standard” provisions.

The Bottom Line: Flexible Interpretation

It is up to beneficiaries and their Trustees or Executors to openly discuss these realities and agree to deal with each other on more flexible, current terms. Very restrictive readings and interpretations of the administrative provisions will only drive beneficiaries and the fiduciaries further apart and in doing so cause tremendous angst for everyone involved.

This chart shows trusts at a basic level and an advanced level. What seems like a simple relationship between trust beneficiary and trustee is often much more complex and may explain why trust decisions are miscommunicated despite good intentions.

Barbara Stanny, inheritor, author and leading authority on women and money.

In this 51 minute interview, inheritor and author Barbara Stanny reveals her fascinating personal experience as a trust beneficiary. Barbara’s father was the “R” in H&R Block and she inherited substantial trusts at a young age. She blindly trusted others to manage her trusts only to wake up one day with almost nothing. The experience profoundly changed her for the better and she took massive action to correct the problem and make financial empowerment for women her life’s mission.

What are Bank Beneficiaries Unhappy About?

Interviewer: Thanks for taking the time for this interview. I just want to let everyone know that because you are currently employed as a trust officer at a major bank that we are protecting your identity here.

Trust Officer: Yes, thank you. I love my job but I also see its shortcomings and I want to help trust beneficiaries better understand how to deal with their trusts. Frankly, it would make all of our lives easier.

Interviewer: So what are the vast majority of complaints you hear?

Trust Officer: Lack of communication, poor communication, neglect and turnover.

Interviewer: Any others?

Trust Officer: Sometimes asset allocation complaints or conflicting expectations between income beneficiaries and remaindermen. It is so important to manage expectations.

Interviewer: How so?

Trust Officer: Often beneficiaries cast suspicion on the bank for wrongdoing but really most often it is a case of benign neglect rather than intentional acts.

Misunderstandings percolate for years. Then the trust officer is surprised to get a nasty legal letter from a beneficiary who they haven’t heard from in years.

Interviewer: Is there a better approach?

Trust Officer: Yes, a friendly approach with your trustee is always better and gets more favorable results.

Situations where a “heartless corporate trustee” does wrong is rare.

It is better to say “Something is not quite right. Can we get together to go over this?”

Litigation with aggressive letters and depositions puts off negotiations and triggers a level of formality.

We are required to refer the matter to in house counsel with no comment.

It shuts down all communication and negotiation.

Interviewer: So what is the problem in your opinion?

Trust Officer: General litigators, more than trust and estate litigators, are inflaming matters by promising big judgements and by casting banks as evil entities.

Better to use calm professionals who can talk about their concerns in person.

Interviewer: What can trust officers do to avoid litigation?

Trust Officer: Trustees may come across as condescending or hostile. It is important for trust officers to remain friendly and accessible.

Interviewer: Would beneficiaries be better off with individual trustees?

Trust Officer: No, there are generally more problems with individual trustees who are all over the board in terms of their sophistication (for example, not notifying beneficiaries of their total return options).

Interviewer: Yes, I had this situation once with a retired attorney trustee who had not heard about total return distributions several years after they became law and banks were offering them. The beneficiaries had no idea they had this option and the retired attorney trustee was too out of touch with fiduciary law to know to offer it. Frankly, it would have made the trustee’s life easier too by automating distributions.

Trust officer: Yes, that is common.

Interviewer: So what can beneficiaries do to avoid litigation?

Trust Officer: Send kind letters. Trustees are not looking to give beneficiaries a hard time. Many letters sound overwrought and overdramatic.

Interviewer: Yes, it sounds like beneficiaries wait until they are fuming mad to write a letter. So what are other solutions you see in addition to kind letters?

Trust Officer: Ancillary remove and replace documents with a 2-3 year waiting period have been used to successfully settle disputes.

Interviewer: Can you explain that to us?

Trust Officer: Yes, essentially we agree to a reasonable waiting period where we try to get the trust “back on track.” If the beneficiaries are still unhappy with us, we agree to resign in favor of a replacement trustee such as another bank. Even though the trust agreement did not provide for this, we agree to it in order to settle the dispute and avoid litigation.

Interviewer: Then what happens if the beneficiaries choose to remove the bank after that 2-3 years?

Trust Officer: We prepare an accounting (either formal for court approval or informal without court approval) and then resign.

Interviewer: Well, thank you for your insights and your candor today. I know many beneficiaries will put this extremely valuable information to use immediately.

This article describes real world frustrations of beneficiaries. Many of the statements contribute to further miscommunication between beneficiaries and trustees. Do any resonate with you?

“I am not sure I even have a copy of my trust instrument.  I think it’s in Dad’s old estate files with the lawyer.  I don’t remember exactly what it said.”

“I don’t get trust bank statements but I think my trust was worth around $XXX last I checked.”

“I do get these huge trust bank statements, along with my other personal bank statements and bills each month.  I have to say, they are so long and complicated that I file them away and try to look at them later.  I think the last time I really looked at them was a few months ago.”

“I let my spouse handle my trust.  He/she is better with finances than me.”

“I let my adult child deal with my trust.  He/she is better with finances than me.”

“I don’t go to trust meetings.  We just never had them and I figure I’ll just ask for more money if I need it.”

“I go to trust meetings each year and meet with the Trustee to go over my Trust.  He talks a lot about legal and financial terms that I just don’t understand.  I don’t want to be rude, so I nod my head until it’s time to go.  I have to say I dread those meetings now because they make me feel stupid and useless.  Maybe it is better that the Trustee is handling this money for me.”

“When I need money for something, I call my Trustee over and over again until I get a hold of him.  This can take days or weeks and by the time I get him, I’m furious.  I get really snippy and agitated – wouldn’t anyone?”

One time I yelled at my trustee and he just calmly told me I couldn’t get what I was asking for.  I mean, he just didn’t care what I was saying.  For him, it was just another request for money.”

“I hinted that I might need a lawyer to get what was due to me.”

“I don’t trust my trustee.  I don’t like him/her personally and I don’t relate to him/her at all.”

“I hate dealing with this trust and  have given up on trying.  I avoid trust issues and file them away until I figure out what to do next.”

“As angry as I am, I don’t want to make too many waves and then have the trustee deny future distributions to me.  After all, the trustee controls my trust funds.  My hands are tied and I’m so frustrated I could scream/cry.”

Here are some insights into what your Trust Officer may be thinking. These are real world examples and reflect realistic working pressures today’s trust officers operate under.

“I’ve got more work than I can handle. I used to handle 150 trusts and now I handle 350.”

“When the beneficiary calls or writes me, it takes several days to get the file from storage and review it carefully.”

“I usually write back in 7-10 working days so I guess the beneficiary gets my response in two weeks or so. That’s really the best I can do given my other workload.”

“This is one of my smaller trusts so it has to wait until I get my big trust matters under control. I’m also getting swamped with deadlines on a big estate matter and a foundation matter and I need to deal with those first.”

“I’m reluctant to change the original investments of the trust because that’s what the grantor left me to work with. Besides, all the stocks are very low basis and I don’t want to trigger capital gains tax and anger the beneficiaries.”

“I never met the Grantor and can only interpret his/her wishes within the four corners of the trust instrument.”

“I don’t really know the family that well. I know the primary beneficiary from some recent conversations but I’ve only worked on this trust for a couple of years. I’m doing my best to piece together the file the prior trust officer left me.”

“My job is to carry out the grantor’s wishes, which was to provide income to the beneficiary and preserve the rest for grandchildren and beyond.”

“My job as trustee is to preserve and protect trust assets as much as possible for the longest term.”

“I’m not willing to take any investment risks that would come back to haunt me. If I distribute more than 3-4% income to the beneficiary, the remaindermen could come back and sue us!”

“I’m reminded by my department head and all of our continuing education lectures of the many ways a fiduciary can be sued by remaindermen. There are more and more lawsuits all over the country, especially against banks and trust companies. I’m always very cautious in making distributions to beneficiaries.”

“To protect the trust, I often require beneficiaries to provide a detailed budget documenting why they need a distribution. This protects both the beneficiary who may need that money later in life and the remaindermen who will surely question distributions that are too generous or too vague.”

How to value the summer house fairly so you and your siblings can share it?

So Mom has passed away and it is time to value her summer house. Everyone seems to have a different opinion about what it’s worth. Sister one says it’s worth a fortune given the neighborhood and the acreage. Sister two says the housing market has brought the value down at least 20%. Brother is married to a realtor who says they are both wrong and need an independent appraisal. How to settle the house value once and for all?

Keeping the House

If the house is staying in the family it will need to be valued for estate tax purposes and also to calculate the “buy out” share for any siblings who prefer to “opt out.”

The best way to settle valuations is with an independent appraiser, but whose? Sister one has a friend who can do it cheaply. Sister two lives far away and does not trust sister one. Brother wants to get a fair appraisal and not get an earful from his wife.

Well, first of all stop squabbling and start solving!

Appraising the House

Real estate appraisals are cheap. They are also tax deductions to the estate. Agree with your siblings to spend up to $500 on each of three appraisals. Sister one chooses her friend, sister two chooses someone she was referred to, brother chooses his wife.

The three appraisals are due in 30 days, in writing, with comparables. The three will be averaged for a final valuation.

For example,

• Appraisal 1: $1,250,000
• Appraisal 2: $1,400,000
• Appraisal 3: $1,395,000

Average valuation: $1,348,333. This is the amount reported on the estate tax return. It is also the amount used for any buyout (e.g. sibling sells his or her share to the others for $449,444).

Why are the values so similar? Because the neighborhood comparables are the same! Any fluctuation higher or lower is generally the appraisers view of the condition of the property such as age, needed repairs, etc.

By the way, brother’s wife did not charge for her appraisal and sister one’s friend charged half price.

The total cost of the appraisals was $750 — far less than the cost of fighting it out!

The benefit of including all participants in the process — priceless!

Why would any sibling want to sell out her share?

• Lives too far away to use it
• Children grown, live far away and won’t use it
• Shared upkeep costs of house too high (e.g. property taxes, new roof, etc.
• Too many scheduling complications, not worth it
• Have our own summer place
• Prefer to travel to different places each year

Selling the House

If the house is directed to be sold or if the siblings agree to sell it, you would follow a similar approach.

Each sibling chooses a listing agent who provides a selling proposal (essentially a free appraisal plus marketing plan).

The siblings vote on the strongest agent / proposal and the executor then retains that agent.

The housing market will determine the final sales value but for now you have gotten the process moving.

Just remember to be creative, be collaborative and respect others’ choices!

Selecting Estate Silver with Your Siblings: Squabbling or Solving?

So your mother passed away and it is time to divide up the family silver. Her Will simply said that her tangibles were to be divided in approximately equal shares among her children, leaving you to figure out how to do so without fighting with your siblings. Your sister and you both want the silver to pass on to your children someday. Your brother on the other hand does not care about the silver but wants a fair share of the value. On top of that, your brother’s wife is urging him to select at least some silver from the estate to pass on to their children.

Sound familiar? Here are solutions you can propose to avoid World War III.

Split the Set

Normally a set of sterling silver flat wear contains 64 pieces. The set may also contain a coffee service, serving platters, trays, etc. You can divide the set into logical components such as:

• 40 piece dinner service
• 20 piece dessert service
• Large tray
• 3 smaller trays
• Coffee Service

You now have 5 components of roughly equal value. So you institute a round robin system. Draw straws to see who goes first, second and third.

Sister one might choose the dinner service because she entertains every holiday season.

Sister two might choose the trays because she would like to hang them on her kitchen wall as a collection.

Brother might take the dessert service because his wife has always admired it and she can tell her children stories about dessert with grandmother.

If no one chooses the coffee service (because it is too much work to clean and use), then simply sell it and split the proceeds.

Time Share

If both sisters insist on keeping the set together agree on a rotation system such as:

• Even years: Sister one keeps, cleans and uses the set
• Odd years: Sister two keeps, cleans and uses the set
• Or rotate every three years.
• Or five years.

Set a rotation date right before the holidays or right after.

Keeper delivers the silver to sister or pays for shipping to sister.

By the way, brother is happy not to clean any silver sets. He can either:

• Select another estate item (such as a piece of jewelry) to give to his wife.
• Select another estate item (such as a painting) to put in his office.
• Take the cash and spend it on a golf trip away from sisters and wife.

Just remember: be creative, be collaborative and respect others choices

Ever wonder what the Grantor was thinking when he or she created your trust?

As a former estate planning attorney I’ve talked with dozens and dozens of wealthy grantors who tell me the same thing: “I just want my children to be safe and secure when I can’t be there for them.”

What do they mean by “safe and secure?”

I’ve heard everything from “I don’t trust my son-in-law” to “She has a bit of a spending problem” to “I don’t want him to be taken advantage of by questionable friends” to “She doesn’t seem to know about / care about finances.”

I’ve also heard more serious concerns like “We’ve had some addiction issues with our son.”

Many of these concerns are never articulated to the beneficiaries because they could be so hurtful. They are such delicate discussions that much of the time they only happen behind closed doors of an attorney’s office.

Is there a solution?

Yes, if the Grantor is still alive initiate an open discussion about their concerns and yours.

If the Grantor is no longer alive, visualize a conversation with them where you imagine their concerns and how the discussion might follow. This will not change the terms of the trust but it will allow you to understand and appreciate the Grantor’s best intentions.

Rather than see the trust as a restriction on your inheritance you may come to see it as a special gift that managed properly will provide a safe, secure nest egg to cushion you and your family through difficult times.