You don’t have to read far into the legal literature regarding trusts to discover murder and mayhem. OK, not murder; well maybe murder. But surely the mayhem of one sibling acting as trustee of the family trust being sued by other siblings for mismanagement, co-mingling of assets, self-dealing and other various and sundry (alleged) acts of malfeasance. Or, as the “other” siblings say under their breath, “lying, cheating, and stealing.” Why else are there attorneys making a good living in trust litigation, you know, disgruntled siblings suing the gruntled ones?
So what’s that to you, newly minted trustee of the Mom and Dad Being Extraordinarily Good to their Children Family Trust? Why should you worry about those many cases of sibling on sibling mayhem? You’ve done no wrong. Well, because. See, if you read the cases, you quickly learn that too often there’s no fire beneath the smoke the siblings are pointing to and screaming. None. Not even a barely glowing ember. And yet, the legal bills mount, even as family harmony crumbles.
No guarantee here, but to avoid that, do the following 5 things, and your family may not ever be at each other’s throats:
- Read the Trust Agreement. The trust agreement lays out all the powers you as trustee will have. Often these powers are spelled out very specifically and sometimes certain powers are denied. To do good, you must understand what you can and cannot do as trustee.
- Act Prudently. The reasonably prudent person is the gold standard in the land of fiduciaries (trustees are fiduciaries). Brother-in-law want you to invest trust assets in his Make America Great Again Hat Shop on the Upper East Side of New York City? Wouldn’t be prudent. Niece asking you to “just lend me $5,000.00 to pay the back rent on my apartment. I’ll pay your 25% interest”? Not prudent. In other words, try to avoid doing with the trust’s money what you might carelessly do with your own in not-so-prudent times.
- Seek Professional Counsel. Being a trustee (or an executor/personal representative in a will) is heavy duty. Lots of rules and regulations you can trip over easily. That and the fact that simply managing a trust can be difficult, cry out for good advice from CPAs, bankers, brokers, and attorneys. So cry out. To do otherwise, wouldn’t be prudent.
- Communicate — Early and Often. Wanna keep the siblings off your back? Talk to them. Keep them informed. The trust agreement will almost certainly require you to do that. Prudence — the word is everywhere — dictates you do so as well. Face-to-face meetings are fine, but make sure you take notes of — maybe even record — the meeting and at least quarterly, write your sibilngs to keep them in the know.
- Maintain Good Records. You were probably selected as trustee because your mom or dad thought you kept better records than your siblings (what were they thinking, right?). Act the part. Balance trust bank and brokerage accounts (or hire someone to do it). Record income and disbursements. Memorialize in writing trust goings-on. Explain why you turned your brother-in-law down and thought twice about the 25% return your reprobate niece was promising. Buy low, sell high (or the reverse if you’re a short seller). The payback here is that even if — when? — your siblings sue, you will have proof that you didn’t co-mingle, mismanage, or self-deal, proof, in other words, that they’re blowing smoke.
Five things. Fewer headaches. Sounds prudent to me.
Gregory Taggart is an attorney specializing in Estate and Business Planning. Email: firstname.lastname@example.org Website: www.gtaglaw.com