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Hi, this is Keith Davidson from Albertson & Davidson.  In this video, I’m talking about can you release your trustee from liability and, in particular, can a trustee force you to sign a release in order to get your trust distribution?  And you see this happen fairly often or more often than it really should.  Which is a trustee will say, “I have your money.  I’m ready to distribute it out to you, but I won’t give you a dime until you first sign this release relieving me, the trustee, of all liability under California Probate law and Trust law.”  And the answer is no.  A trustee cannot force you to sign a release as a condition to getting a distribution of your trust share.

Now, that doesn’t mean that a trustee can’t still ask you to sign a release.  You voluntarily can choose to sign a release if you’d like to.  And there are some reasons why you might want to do that.  Because if you don’t sign a release, the trustee might choose, instead, to seek court approval of a trust accounting.  And the reason why a trustee would want to do that, is if they disclose all of their activities in a trust accounting and they file it with the court, and the court approves that accounting, then all of those acts cannot be sued on later.  So, once the trust accounting is approved, the beneficiaries can’t come back later and sue the trustee for those acts.  And for that reason, the trustee may say, “Well, I either need you to sign this release voluntarily, or I’m going to have to file an accounting with the court.  And I’m allowed to use trust funds to pay for that preparation of that accounting.”

So you’re in the unusual position where the trustee cannot withhold your money, pending you signing a release.  But the trustee can spend some of your money to get a trust accounting prepared and filed with the court and seek court approval of that accounting.

That doesn’t mean that the trustee can withhold all of your money, however, because even preparation of a trust accounting, it only costs so much.  So it might cost five, ten, fifteen thousand dollars to hire an accountant to do a trust accounting.  You might have to pay a lawyer similar amounts, but it’s not going to be your entire trust share, in most cases.  So if you’re entitled to a million dollars, the trustee can’t withhold a million dollars because they want to get court approval of an accounting.  They have to give you a distribution.  They can hold a reserve, let’s say a hundred thousand dollars out of your million, but they can’t keep the whole million dollars hostage until the court approves their accounting or until you sign a release. And, unfortunately, this happens quite often.  Trustees will threaten that they will withhold your money unless you sign a release, and unfortunately, a lot of times people feel compelled to sign those documents.

And our advice would be don’t sign the documents.  Get some advice before you take any action.  And hopefully, the trustee will do the right thing, will follow California Trust law, and will give you your trust distribution.

THE FOLLOWING IS A TRANSCRIPT OF THIS VIDEO. FOR MORE INFORMATION, CLICK HERE

Hi, this is Keith Davidson at Albertson & Davidson.  And in this video, I want to discuss step-parents.  And I don’t mean to disparage step-parents, there’s a lot of very good step-parent and step-child relationships out there.  But, there’s also some bad ones.  And a lot of times we’re asked, “Can my step-mom or step-dad, can they change the estate plan after my parent dies?”  So, typically, in this scenario, maybe you have a father who married somebody new and that’s your step-mom.  And then your father passes away and you always thought you had a good relationship with your step-mom, but after your dad passes, things start to get a little strained and awkward and you start to wonder can she actually change the estate?

In some cases, it might actually get downright hostile and maybe the step-mom actually tells you, “I’m changing the estate and I’m leaving it all to my kids and I’m not going to leave your father’s share to you after all.”  And you wonder, can she do that?  And the answer is maybe.  And that’s a typical lawyer answer, right?  But it depends; it depends on what your father did when he planned out his estate.  Or, if he didn’t have any planning at all, that could be a real problem.

So the best case scenario would be if your father had created a trust prior to his death, he has the right to leave assets to step-mom and that’s fine.  But, typically, what you’d want to see is that he left money to step-mom in a trust.  So she can use that money for her care and support during her lifetime, but she can’t change the ultimate distribution of it.  Whatever’s leftover after step-mom passes, has to go to you.  But that only works if your dad created a trust and if he had a trust created that had those type of terms in it that allowed the step-mom to use the assets but not control them.  That required that the assets go to you after death.

If your father didn’t do that, then you probably are not going to be entitled to his share of the estate.  And so what happens a lot of times is, either your father leaves everything to the step-mom, in which case she can do whatever she wants after your father dies, and she can cut you out.  Or, he just doesn’t plan at all and things just pass to the step-mom because it’s in joint tenancy or she’s the beneficiary on life insurance, or whatever the case may be.

So when these things are not planned out and if the assets actually pass to step-mom after your father passes away, then you’re really in trouble, because the step-mom can do whatever she likes.  She becomes the owner of those assets and she can do whatever she wants with them as the owner.

The fact that your father may have had a family home that you grew up in and lived in and has been in the family for decades, the law doesn’t care about that – if your father didn’t plan it out property.  And so that’s really the big question.

So anytime somebody approaches us and says, “Can step-mom change the estate after my father passes away?”  The first question we’re going to have is, “Well, what did your dad have in place?  Did he have a trust?  Did he have a will?  Did he have something that we can look at to see if you, as a child, have any rights to any of those assets?” And if you were to tell us that no, he didn’t have any of those things, then chances are, you’re out of luck.  And that’s a little something about the downfalls of step-parent and step-children relationships when it comes to passing assets.

 

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Funny thing about Trustees, they are expected to seek help, just not too much help.  Generally, Trustees are not allowed to delegate their duties (see Probate Code section 16012).  The rules state that anything the Trustee can “reasonably” be required to personally perform cannot be delegated.  And the Trustee can never delegate the entire administration of the Trust to someone else.

Where a Trustee does delegate some matter to an agent or co-Trustee, the Trustee still has a duty to supervise that person in the performance of the delegated matter.  That means a Trustee cannot simply delegate and forget about it.  The Trustee is required to oversee the agent and make sure that the job is being done in the best interests of the Trust.

There is one big loophole this the nondelegation rule: investment and management decisions.  Under the Uniform Prudent Investor act, a Trustee has the power to delegate certain financial decisions (see Probate Code section 16052).  This exception allows a Trustee to delegate financial decisions “as prudent under the circumstances.”  But the Trustee retains the duty to (1) select a good agent to act for the Trust, (2) establish the scope and terms of the delegation, and (3) periodically review the agent’s performance.

Here’s where things get interesting.  Where a Trustee has properly delegated financial decisions to an agent, the Trustee CANNOT be held liable for those investment decisions.  That can be a shocking result for a beneficiary who seeks to hold a Trustee liable for bad investment decisions.  Of course, the agent to whom investment decisions were delegated can be held liable for bad investment decisions.  But that just means the beneficiary may find himself suing a large financial firm rather than the Trustee.

The good news is that financial advisors rarely will agree to accept delegated financial responsibility for a Trust–primarily because of the liability involved in doing so.  Yet, so often Trustees who make bad investment choices will try to pass the buck to the financial advisor.  It then becomes the beneficiaries job to determine whether the investment power was delegated or not.  It could mean the difference between suing a Trustee or suing a large financial institution.

If you happen to be a Trustee, choose your delegation wisely.  Even with the job being handed off to someone else, you may still be on the hook for a bad decision.

 

There’s Trusts that run smoothly, there’s Trusts that have a few problems, and then there’s Trust where everything is a fight from start to finish.  Which Trust sounds most like yours?

  1. Smooth Sailing.  This is the way Trusts are supposed to work.  The successor Trustee takes over management of the Trust, the assets are collected and inventoried, assets are sold as needed, bills are paid, beneficiaries receive their fair share, and the Trusteereports his actions with an accounting.  If there is a continuing Trust for a beneficiary, then the assets are properly invested using a financial planner and an investor policy statement to be sure investments are appropriate.  And the Trust administration is complete, without Court intervention.
  2. Houston we have a problem.  The troubled trust administration is where a Trust has a few problems along the way, but nothing serious enough to force anyone into Court.  Maybe the Trustee needs a gentle reminder on what to do.  Maybe a beneficiary is being unreasonable, or a piece of Trust property is particularly hard to sell.  Whatever the problem, a few arguments back and forth, some slight corrections, and the Trust administration is back on track.  All’s well that ends well.
  3. All-out Warfare.  This is where a Trust administration goes completely off-the-rails.  A bad Trustee who refuses to follow the Trust terms, refuses to communicate and refuses to make mandated Trust distributions. Or Trust investments that are not planned out and are not appropriate for the Trust, or a Trustee who fails to account.  Any one of these scenarios can end up with the whole mess in Court, for a judge to decide.

Notice something about the last approach?  All the examples involve Trustee misconduct because the Trustee is the ONLY person who owes duties to the beneficiaries.  The beneficiaries, in turn, owe no duties to the Trustee.

Unfortunately, even though the Trustee’s duties are well outlined in the California Probate Code, when a Trustee fails or refuses to follow the rules, only a Court can make them behave.  There is no action a beneficiary can take, besides making demands, to force a Trustee’s hand other than seeking a Court order.  Once in Court, the judge can issue an order and force the Trustee to act.  Or the judge can remove the trustee, personally fine the Trustee, or any number of other actions to force compliance with the California Probate Code.

If you find yourself a beneficiary of Trust scenario number 3, you had better be prepared to fight for your rights.

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Selecting the proper Trustee for your California Trust is critical is you want your estate to stay out of the Court system.  Over half of the Trust litigation we work on everyday invokes a bad Trustee doing bad things.  In this video partner Keith A. Davidson discusses some considerations you should keep in mind in selecting your Trustee:

For our email subscribers, please click on the title link to watch this video on our website.

The California Court of Appeal (Sixth District) has clarified when a Trustee’s compensation can be limited in Thorpe vs. Reed, decided this month.  Thorpe involved a special needs trust that had be created for Danny Reed, who had been the victim of two separate auto accidents.  Danny’s mother, Jolaine Allen, was initially appointed the Trustee of the special needs Trust and everything went along fine for a few years.

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Then the financial crisis hit in 2008 and Jolaine was concerned that all of the Trust’s cash (about $650,000) held in Washington Mutual would be depleted if Washington Mutual became insolvent, which did in fact happen.  Jolaine went to Court and obtained an order withdrawing the money so that it could be re-deposited at other banks at $100,000 per deposit.  Unfortunately, Jolaine did not have a photo identification and, therefore, could not open any new bank accounts.  A mess ensued, but nothing damaging.

In the meantime, the Court stepped in, removed Jolaine as Trustee and appointed a new temporary Trustee, Thomas Thorpe, to act until things could be sorted out.  The problem is that the Trust document specifically stated that no successor trustee was entitled to compensation.  Since Mr. Thorpe was a professional fiduciary (someone who regularly acts as a trustee for a fee) the no-fee provision in the Trust was a bit of a problem.

Mr. Thorpe filed a petition with the Court asking that the Trust be modified to, among other things, increase the Trustee’s compensation.  But Mr. Thorpe’s appointment as Trustee was not made without a fight, and Danny’s family was prepared to fight to get the Trustee removed and appoint Danny’s sister, Audelith Reed, as successor Trustee—Audelith was willing to serve without compensation.

After a series of hearings, Mr. Thorpe was removed and Audelith was appointed successor Trustee.  Mr. Thorpe then filed a petition asking the Court to pay him and his attorneys the following fees: $65,844.08 for Mr. Thorpe, $31,047.85 for one attorney for Mr. Thorpe, and $11,879.44 for another attorney.  These fees were for four and a half months of services by Mr. Thorpe and his attorneys (it’s good to be a Trustee). 

Audelith objected to the fees on the basis that the Trust specifically restricted Trustee compensation.  The Trial Court disagreed.  The Court cut Mr. Thorpe’s fees, but not to zero.  Mr. Thorpe was awarded $27,006; $19,540.61 to one attorney; and $4,739.02 for the other.

Justice Premo, writing on behalf of the Sixth District Court of Appeals, disagreed with the Trial court.  Citing Probate Code Section 15680, the Appellate Court stated that compensation for a Trustee is set by the Trust document.  If a Trust document states that a Trustee is to receive no compensation, then so be it.  A court can issue an order increasing compensation where appropriate, but such an order only applies prospectively—not to past services that occurred before the order is issued.  If a Trustee does not like the compensation provisions, then they can either (1) not agree to act as Trustee, or (2) have an interested party petition the Court and ask for additional compensation before acting.

Of course, any Trust that prohibits Trustee compensation is not going to attract many Trustees who want to act.  But in Danny’s case, it may have helped to ensure that his family would act as Trustee rather than a professional—which is what Danny wanted. 

The point is, be sure to read the Trustee compensation provisions before agreeing to act as a Trustee.  If you don’t, you may find yourself working for free.

How do you get a private trustee to take action?  A parent dies, one or more of the kids take over as trustee, and nothing happens.  The assets of the Trust aren’t gathered together (called marshaling assets), notice is not given to the beneficiaries (as required under P.C. section 16061.7), beneficiaries are kept in the dark, real property is not sold and sometimes the trustee goes so far as to move into the property and live there rent free.  It is a common occurence, and yet none of it is allowed under California Trust law; what is a beneficiary to do?

Under California law a trustee owes countless duties and obligations to the beneficiaries, and the beneficiaries owe no duties whatsoever to the trustee.  The law presumes that trustees will discover what their duties are and then follow them.  But for private individuals acting as trustee, they often make the mistake of believing that they can do whatever they want now that they are “in charge.”  Not true.  While parents who create a trust can do whatever they want (because as the settlors of the Trust they have that power), successor trustees are not so lucky.  Successor trustees owe duties to the other beneficiaries and must act under the duties and obligations imposed on trustees.

Yet, individual trustees persist in not doing the right thing.  So what is a beneficiary to do?  Take action!  Fortunately, beneficiaries have rights and those rights have to be asserted and enforced.  Unfortunately, there is only one way to force a trustee to act, and that’s by going to court.  But there are some steps you can take as a beneficiary before running to the courthouse.

For example, under Probate Code section 17200(b)(7), you are entitled to information regarding the Trust and its assets, and you are entitled to accountings every six months to one year.  And the law requires that the demand for information and accountings both be submitted in writing to the Trustee.  Once sent, the Trustee has 60 days in which to respond with the requested information.  Thus, the first thing you should do is send the trustee your demand for information in writing.  Since you can’t go to court without that demand having been made and giving the trustee 60 days to respond, you might as well start the clock now.

It makes no difference if the trustee responds.  If the trustee gives you what you are asking for, great you just saved a trip to court.  If the trustee ignores your request or does not provide you with sufficient information, now you’re ready to file in Court.

What about removing the trustee?  Not the easiest thing to do, but not impossible either.  Take a look at some of our other posts about trustee removal here, here, and our video here.

The bottom line: sometimes you have to stand up for your rights.  Since private trustees don’t always understand the many duties they owe to their beneficiaries, and they don’t seem to have anyone educating them on those duties.  That’s when a beneficiary may need to educate the trustee to ensure their rights are protected.

I get calls every week from California Trust, Last Will, and Estate beneficiaries complaining that they can’t get their brother or sister, who is the Trustee and Executor of their parents’ estate plan, to provide copies of the parents’ estate plan after the parents have died.

I usually suggest the following. First, send a letter to the Trustee and Executor politely requesting the entire Trust, including amendments, and Last Will for both parents. Include the following language in the letter: 

A.         Please Provide True Copy of California Will

Under California Probate Code Section 8200, you, as Executor of Mom’s and Dad’s estates, are required to deliver mom’s and dad’s Last Wills to the County Superior Court where mom and dad died within 30 days of mom’s and dad’s respective deaths. Please note, if I am damaged by your failure to deliver moms’ and dad’s Last Wills to the Superior Court you will be liable for my damages. (See Probate Code section 8200(b).)

As you are required to deliver the Wills to the Superior Court, you should have no objection in providing me with true copies at this time. If you do not provide me with a true copy of the Wills I will have no choice but to file a petition in the Probate Court requesting the Court to order you to provide me with true copies of the Wills. Please note, if I’m forced to file a petition, I will request that the Court order you to pay for the attorneys’ fees and costs associated with my petition. I hope I am not required to file a petition and you will simply provide me with true copies of the Wills on or before DATE. 

B.         Please Provide True Copy of California Trust

Under California Probate Code Section 16061.7, you, as Trustee of Mom’s and Dad’s Trust, are required to provide all beneficiaries of the Trust and all of Mom’s and Dad’s heirs with a true copy of the Trust documents, including any amendments, 60 days after Mom’s and Dad’s respective deaths.

As you are required to provide Mom’s and Dad’s Trust after 60 days of their respective deaths you should have no objection in providing me with true copies of the Trust, and any amendments, at this time. If you do not provide me with a true copy of Mom’s and Dad’s Trust, and any amendments, I will have no choice but to file a petition in the Probate Court requesting the Court to order you to provide me with a true copy. Please note, if I’m forced to file a petition, I will request that the Court order you to pay for the attorneys’ fees and costs associated with my petition. I hope I am not required to file a petition and you will simply provide me, as an heir and/or beneficiary of the Trust, a true copy of the Trust, and any amendments, on or before DATE.

If you include the above-referenced language in your letter to the Trustee, more times than not you will be successful in getting the Trustee to turn over the Trust and Will documents.

If the Trustee still refuses to provide the Will and Trust, then you must seek help from the Probate Court to force the Trustee and Executor to hand over these documents. I will explain in a future post how you get the Court’s help for obtaining these documents.