Many people use trusts to achieve specific estate planning goals. Such trusts are designed to save money by avoiding probate fees and delays, and by deferring or reducing estate taxes.
For example, a revocable “living trust” can avoid the cost and delays associated with probate. A will or living trust may also create a separate trust when one spouse dies, in order to shield up a significant portion of the estate from later estate taxes. Such trusts are designed to save money by avoiding probate fees and delays, and by deferring or reducing estate taxes.
But if there are disputes about the management of the trust, litigation can be very expensive. Trust litigation may also take longer than probate to uncover mismanagement or theft, thus reducing the odds of recovering lost property.
Normally, a trustee (the person administering the trust) is not subject to court supervision. However, a trustee or beneficiary may initiate a court action. The court can compel the trustee to account for the trust’s assets and income, or to change investment and distribution policies to conform to the trust’s instructions. In some circumstances, a court can replace the trustee, dissolve the trust, or make other changes to resolve problems.
Trust disputes can have different causes. A trustee may decide to pay himself a high fee, or may distribute trust property in a way that conflicts with the trust instructions. A beneficiary may want more money distributed, or may object that the trustee’s investment strategy is too risky (or too conservative). Or a trustee may conceal information, so beneficiaries worry about possible mismanagement or theft.
There are many problems that can arise from trust administration. Adult children are often concerned about the management of a “living trust” by a step-parent after a parent has died. The children are concerned, yet they are uncomfortable insisting that the step-parent provide information, especially if the step-parent is entitled to all income during his or her lifetime. The result may be resentment, alienation, and a loss of family harmony.
Many problems can be avoided by making sure all family members understand their rights and receive adequate information about the trust’s management. Ideally, information should be shared before either parent dies.
If the beneficiaries are well-informed, they can more easily express any concerns about the trust’s administration to the trustee, who can then act quickly to address those concerns properly without the need for lawsuits.
There are ways to set up trusts and trustee provisions to minimize future problems and conflicts, and to prevent family disharmony. Much can be done to set up estate plans to ensure that trust assets will be managed wisely and fairly. An experienced estate planning attorney can suggest innovative solutions to seemingly insurmountable problems.
WITH A SATELLITE OFFICE IN PANGUITCH Jeffery J. McKenna is a local attorney serving clients in Utah, Nevada, and Arizona. He is a shareholder at the law firm of Barney McKenna and Olmstead. He is a founding member and former President of the Southern Utah Estate Planning Council. If you have questions regarding this article or if you have a topic you wish to have addressed in this column, you can call 435 628-1711.