This is the first of two articles on reviewing a trust. In this one I address whether a Palo Alto family with a living trust should have the creator of the trust do the review, or find a different attorney to take a fresh look.
Q: We live in Palo Alto, California and in the 90s our family chose a Burlingame estate planning attorney to establish a living trust. Now we are trying to verify if the attorney who drew it up really is trustworthy and experienced with living trusts. We need a trust review. Specifically:
- Is it better to go to the same attorney for this "check up" or someone new?
- Since we are asking for a trust review, would the fees be much lower than if we were starting from scratch?
A: You were smart to use an estate planning attorney instead of using off-the-shelf forms or packages from a self-service legal website. You are smart to check and update your living trust, too. Circumstances can change alot in a short time. In fact, it is a good idea to do a trust review and update your trust every three to five years.
Vetting estate planning attorneys using Avvo
I am glad to hear that you are vetting estate planning attorneys before hiring anyone. One way to check out a lawyer is to look on Avvo. Search for "estate planning" in the Palo Alto area and see which lawyers' names appear with high Avvo ratings. See if they've answered questions and read the answers to see what you think of their approach.
Checking out attorneys using the State Bar website
Also check out the State Bar website. Use the "Advanced Search" feature and the "Additional Search Criteria" to find a specialist in Estate Planning law. Less than 1% of all California lawyers are certified as specialists in Estate Planning. In order to be certified, a lawyer has to pass a specialized bar exam and meet rigorous experience requirements.
Also, check out these individuals' websites to see what their approach is to estate planning to see if you think the "chemistry" will be right.
What you can expect to pay
You get what you pay for! If price is your most important criterion, then skip all of the above and just phone lawyers until you find the one with the lowest price. Just remember, if they don't do it right, it cannot be corrected after you die or become incompetent.
Depending on the complexities of your situation (and whether you're married or single, have children who need to be protected, etc.), an experienced attorney's fees will be anywhere from $2,000 to $10,000. As a very rough rule of thumb, figure out your net worth and multiply by 0.10% to 0.25%. That usually approximates the complexity of your estate and the cost of planning for it properly.
For example, if you have an estate worth $3 million dollars, you should expect to pay between $3,000 and $7,500... a little less if your situation is really "plain vanilla"; a little more if it's complex.
Look for the next article on trust reviews
In the next article on trust reviews, tentatively titled "How is Review of a Living Trust Different from Estate Planning?" I'll show an example of what we examine when we do a trust review, and how a trust review differs from creating an estate plan.
Getting legal help
If you are currently working with a highly qualified estate planning attorney that you are comfortable with, it is probably best to continue working with him or her. On the other hand, if you have doubts about the advice you are getting or the experience you have working with the person, it's time to look elsewhere.
All the best,
Today I published a new guide, Picking Your Trustee in California: A Guide for High Net Worth Individuals. It springs from 20+ years of focusing exclusively on California probate law, estate planning, and gift-planning law.
The good and the bad
By now, for better or worse, I've just about seen it all:
- Trustees who can’t manage money
- Trustees who can’t meet deadlines
- Trustees whose commitment peters out too soon, and even
- Trustees who embezzle funds (and, wouldn’t you know it, rationalize the stealing)
Whatever the cause, the effects of choosing a poor trustee can be dire. Family members become resentful and estranged. Savings built up over a lifetime are poured into avoidable expenses. And the estate plan is not realized.
Picking the right trustee is crucial
The good news is that with the right trustee, your estate plan has a much better chance of coming off without a hitch. In the new 13 page guide we put out today, I outline the “job description” of a trustee in California, and common mistakes to avoid.
At the end is a worksheet to help individuals with high net worth pick someone who will do a good job.
While we like to think of a trust as taking care of all your estate planning concerns, it’s actually the trustee who has to carry out the orders. Choosing a trustee is not just bestowing an honor, it’s assigning a real job. There will be forms to fill out, letters to write and bills to pay. Trustees have a special duty to always act in the best interests of the estate and beneficiaries, and not intentionally do anything or make any decisions that could harm them.
The oldest isn't necessarily the best choice
Some people automatically pick the oldest child in a family, or a family friend to do the job. That person might have the right temperament and skills, but it’s wise to think through the choice. A bad trustee might delay distributing the assets, fail to account for assets, or otherwise mismanage the estate. A really bad one might even embezzle.
In this guide I go through several options when making choices, including the idea of hiring a professional trustee for a fee. Whatever choice you make, take time to think it through. That’s where an estate planning attorney can be a big help. Download the free guide here on our website. For more information, please click to get started >>
All the best,
When executors or trustees take advantage of trust
Most people assume that the person they have named as their executor or trustee is honest and would never take advantage of the position of trust they’ve been placed in – that they would never embezzle, cause unnecessary delays in the distribution of the assets, fail to account for assets, or otherwise mismanage the estate.
California probate courts see many cases of dishonest executors and trustees
Unfortunately, in many cases, they would be wrong. A local probate court judge recently stated that many of the cases he’s hearing these days deal with a dishonest executor or trustee (he also said that another “hotbed” of estate litigation deals with co-trustees who cannot get along with each other – but that’s a topic for another day).
Believe it or not, here’s a question someone had the audacity to ask me just a few days ago:
“[I am the trustee of a California trust.] The trust is large by my standards, plenty to cover all expenses and have a lot left over. There are only 2 beneficiaries, the trustee [me] and one other relative. [I] could use a few bucks right away! Or maybe a loan? Who would know?"
The "who would know?" standard of conduct
Would you want this person as your trustee? Should the standard of conduct be “who would know”?
If you are still unconvinced - or even neutral - about the fact that embezzlement, mismanagement, unnecessary delays or asset omissions happen with any regularity, take a moment to digest this small sampling of true stories about dishonest executors and trustees:
In New Jersey, a brother and sister were named executors in their mother’s will. The brother refused to sign a tax return and began making unreasonable requests to which the sister could not agree. After several years, the brother was arrested on three federal indictments – two for embezzling over $400,000 and one for obstruction of justice (all relating to their mother’s estate). The brother pleaded guilty to tax evasion and to a felony charge of stealing from the estate.. Now the sister doesn’t know if her share of the estate will be seized to pay for the fines, penalties and interest on unpaid taxes tied to the estate (because, of course, the brother has no money left).
When their father died, one son was left as trustee of their father’s trust. He was supposed to manage the trust on behalf of himself, his brother and his sister. The siblings trusted their brother with the role at first, but soon realized that too many facts were not being revealed to them in a timely fashion. The siblings never saw a copy of the trust their father left, and the only funds the siblings received were from the sale of their father’s home. However, the sale did not bring in much money because their brother, the trustee, had failed to pay the mortgage for months. The house was on the verge of foreclosure when it was sold (unbeknownst to the other siblings) - the house had to be sold under extreme conditions and for far less than its fair market value. Other high-dollar assets belonging to their father were repossessed because the trustee failed to make timely loan payments on them. Now the brother and sister are left wondering if it’s worth taking any actions against the trustee to recoup the lost funds.
Executor and trustee responsibilities
Executors and trustees have a legal responsibility to act with honesty and impartiality on behalf of the estate’s beneficiaries, but sometimes this concept is lost on those tasked with these responsibilities.
When people face the need to name an executor or trustee in their will or trust, they sometimes feel the need to name their oldest child, regardless of that child’s ability to perform the needed tasks. I’ve actually had people tell me they don’t really trust the person they’re thinking of naming because s/he has had serious drug or mental problems in the past or because the person is “terrible at managing money.” This is not a person who should be named as an executor or trustee!!! Other people take drastic actions like naming all their children as executors so no one feels left out.
Naming the oldest is not necessarily a good idea
Naming a child as the executor or trustee because s/he is “the oldest” is a poor reason to name that child to manage one’s money and other assets. There are highly competent professionals who can be named instead. If you don’t know how to find these professional fiduciaries, ask me for assistance - if you are my client, I would be pleased to help you find a competent professional trustee.
All the best,
When problems arise
Many times when a person is creating a will or a trust, s/he will nominate a child or other family member to act as executor or trustee. In theory, there is nothing wrong with doing this. However, in my many years of practice, I have seen problems arise after the death of the parent or other loved one because the trustee or executor is no longer getting along with the rest of the family. Communication has broken down, tensions have risen, and eventually the family is at war over the estate of their loved one.
Special duty of trust and responsiblity
A trustee or executor is a “fiduciary” of the estate and the beneficiaries of the will or trust. A fiduciary is someone who has a special duty of trust and responsibility to an individual or a group, such as the beneficiaries of a will or trust.
This means that the executor or trustee must always act with the best interests of the estate and beneficiaries in mind and must not intentionally engage in any act or make any decisions which could harm the estate or the beneficiaries.
Required: honest open communication
Moreover, the trustee or executor is required to act in accordance with the probate code and must communicate honestly and openly with the beneficiaries, gather all property of the estate, and prepare an accounting of all property that passes through the estate.
The benefits of a professional trustee or executor
Because of the unique and special duties of an executor or trustee, I usually advise my clients to consider naming a professional to act as executor or trustee rather than a child or other family member. This reduces the likelihood of drama and chaos if familial relationships breakdown after the client's death. Although hiring a professional costs money, I believe it is a wise investment. After all, it's better for the family to be united against the professional executor or trustee than to be at odds with one another.
Getting expert help
If you are currently planning your estate and are interested in naming a professional fiduciary to act as trustee or executor, consider your bank. For a fee, most banks are more than happy to provide such services to their customers. There are also a number of companies which specialize in acting as executor or trustee…. and in California you also have the option of naming a licensed “private professional fiduciary” – an individual who is licensed by the California Dept. of Consumer Affairs.
Compelling the executor or trustee to comply
As a beneficiary of a will or trust, if you find yourself in the position of dealing with a trustee or executor who refuses to communicate or is otherwise mishandling the estate, you are not at his or her mercy. You do have options. Whether your situation involves a misbehaving trustee or a misbehaving executor, you should consider filing a petition with the probate court to compel the executor or trustee to comply with the terms of the will or trust. If the court determines that the terms of the will or trust are not being carried out, it will enter an order requiring the trustee or executor to perform certain acts as set forth in the will or trust document within a specified time period. Failure of the trustee or executor to comply with the court's order could result in his being held in contempt and may even necessitate his removal as trustee or executor.
If you suspect mismangement or worse
You may also want to file a petition for an accounting with the probate court. If the court finds in your favor, the trustee or executor must provide a detailed breakdown of all monies or other assets which have come into or gone out of the trust. Moreover, if you believe the trustee or executor has embezzled or mismanaged the money or other assets left by the decedent (the person who died and left the will or established the trust), you may also have a civil claim for “conversion”, which is similar to the criminal charge of theft.
In cases involving an irrevocable trust, California law requires the trustee to provide the beneficiaries with a copy of the trust document upon on the death of the settlor (the person who established the trust). If the trustee has failed to provide the beneficiaries with a copy of the trust document, they should consider filing a motion to compel its production with the probate court.
If the probate judge finds that the trustee has failed and refused to provide copies of the trust document to the beneficiaries, he will order the trustee to produce the trust document within a specified period of time. Failure of the trustee to comply with the court's order could result in his being held in contempt or even removed as trustee.
Seeking removal of a trustee or executor
Another option for anyone who is dealing with a trustee or executor who is not properly handling the estate is to seek his or her removal. In some instances, the will or trust document may set forth reasons for the removal of the executor or trustee.
Additionally, the California probate code sets forth valid reasons for the removal of a trustee or executor. Appropriate reasons to remove a trustee include a breach of the trust by the trustee, the insolvency of the trustee, the unfitness of the trustee to administer the trust, a lack of cooperation among co-trustees that impairs the administration of the trust, the failure of the trustee to act, and excessive compensation to the trustee.
Under California law, an executor or administrator (the person who oversees the estate if the decedent did not leave a will) of an estate may be removed if he or she has embezzled, mismanaged, wasted the assets of the estate or committed fraud on the estate or is believed to be planning on doing so, is incapable of or otherwise unqualified to execute the duties of the position, has neglected the estate or failed to act, or if removal is necessary to protect the estate or the beneficiaries.
Moreover, an executor or administrator may be removed for any other reason authorized by law.
Seeking advice from an attorney
Dealing with these issues can be very stressful, complicated, and time consuming. Therefore, it is best to seek the advice of an experienced probate or estate planning attorney before filing any of the motions mentioned above. Look for an attorney who specializes in wills and trust, estate planning, and probate litigation rather than one who drafts the occasional simple will. If possible, seek out an attorney who is board certified in these areas of the law. You need an attorney who has extensive experience dealing with cases involving trustees and executors who may have mishandled the estate or otherwise breached their fiduciary duty.
When you meet with the attorney, you should have as much information as possible available so the attorney can properly evaluate your case. That information should include details about the acts or omissions you believe the executor or trustee has committed and the dates of those acts or omissions. You should be prepared to provide any supporting documentation that you can get your hands on, especially if you believe the executor or trustee has embezzled from the estate.
Your goal in seeking an accounting and/or removal of a trustee or executor is to ensure the wishes of your loved one are carried out. Many times, the trustee or executor simply doesn't know what to do or may have made an honest mistake. Other times, the trustee or executor may be acting with their own interests in mind rather than those of the estate and beneficiaries.
Statute of limitations
Whatever the reasons behind the trustee or executor's acts or omissions, it's important that you act sooner rather than later if you suspect the estate is being mismanaged. If you do not act quickly, the courts may be unable to assist you. Remember, you only have a limited amount of time to bring certain court actions. This is known as the statute of limitations.
Moreover, if you know the estate is being mismanaged, but choose to do nothing about it for a number of years, your claim may be barred under the theory of laches. Laches means that you waited too long to take action and should not be rewarded for failing to make a claim in a more timely fashion.
Another reason to take action immediately if you believe an estate is being mismanaged is that you don't want to assets of the estate to be exhausted by the trustee or executor. Waiting could mean that you get nothing. Even if you win a lawsuit against the trustee or executor and a judgment is entered in you favor, collecting on that judgment might take years and it's quite possible, that you might never collect on it.
So, be proactive in protecting the estate and making sure that your loved one's wishes are being carried out. Don't be afraid to ask the executor or trustee for an accounting or for any other information regarding the estate that you are legally entitled to receive.
Being proactive may mean getting your own attorney
And remember, the attorney that drafted the will or trust is not your attorney, s/he's the attorney for the settlor or decedent; so, s/he cannot represent you or give you any legal advice. You need your own attorney who will represent you and work to protect your interests.
All the best,