How can you replace the shady administrator of a trust?
June 3, 2024 6:14 AM Subscribe
I have a friend who is one of three beneficiaries of a large trust. The trustee/admin is behaving inappropriately and discouraging reasonable use of the funds. Is it possible to replace the trustee? More details inside.
Three children, now aged ~35 to 40, are beneficiaries of a quite large trust bestowed by a grandparent. The trust is supposed to be fully available once they reach the age of 30. The trustee is a family friend who is an older man who is himself very wealthy and owns many buildings and some companies. He has a lavish lifestyle with a much younger wife of a different ethnicity who is decked out in huge diamonds and the like.
My friend (a woman) is 40 years old has needed to buy a larger house for a long time due to a growing family, but is a public school teacher married to a retail manager. Her share of the trust is enough to buy a good house outright with money left over. However, whenever she approaches the trustee, he discourages this and says "you don't want to do that; you'll just spend money on things like eating out" which is pretty rich given how he lives. Info about the trust is also not very forthcoming and some required disclosures have been delayed by several years. There are also a couple of very glaring money problems that we know of:
* $100,000 went missing at some point.
* He happily paid out $500,000 to one of the other beneficiaries to invest in a restaurant, while blocking my friend on money for a reasonable, non-luxurious house.
This is in the US. Personally I worry that the trustee could be dipping into the funds, but that's just a hunch. IANAL, but if it was me I'd say screw the family/friend relationship (it's indirect anyway; my friend is not friendly with the trustee). I would get some other lawyer or auditor to dig into things and figure out what's going on, and if possible try to get the trustee changed.
Note: My friend is a very kind and trusting person, and has been reluctant to confront the trustee or take drastic action. I hate to see this, as she has chosen a noble path (public education) that she really didn't have to given her background.
How can I help her?
Three children, now aged ~35 to 40, are beneficiaries of a quite large trust bestowed by a grandparent. The trust is supposed to be fully available once they reach the age of 30. The trustee is a family friend who is an older man who is himself very wealthy and owns many buildings and some companies. He has a lavish lifestyle with a much younger wife of a different ethnicity who is decked out in huge diamonds and the like.
My friend (a woman) is 40 years old has needed to buy a larger house for a long time due to a growing family, but is a public school teacher married to a retail manager. Her share of the trust is enough to buy a good house outright with money left over. However, whenever she approaches the trustee, he discourages this and says "you don't want to do that; you'll just spend money on things like eating out" which is pretty rich given how he lives. Info about the trust is also not very forthcoming and some required disclosures have been delayed by several years. There are also a couple of very glaring money problems that we know of:
* $100,000 went missing at some point.
* He happily paid out $500,000 to one of the other beneficiaries to invest in a restaurant, while blocking my friend on money for a reasonable, non-luxurious house.
This is in the US. Personally I worry that the trustee could be dipping into the funds, but that's just a hunch. IANAL, but if it was me I'd say screw the family/friend relationship (it's indirect anyway; my friend is not friendly with the trustee). I would get some other lawyer or auditor to dig into things and figure out what's going on, and if possible try to get the trustee changed.
Note: My friend is a very kind and trusting person, and has been reluctant to confront the trustee or take drastic action. I hate to see this, as she has chosen a noble path (public education) that she really didn't have to given her background.
How can I help her?
Response by poster: Thank you. The trustee's wife thing was brought up to me as illustrative of the personality and lifestyle of the trustee; essentially, pick your worst stereotype of a rich old guy in Florida. I'm not passing judgement on the trustee or on May-December romances, or even on marrying a rich old guy for money/beautiful young woman for her youth! My friend thought it was part of the picture of this guy. I am leaving out more details in the name of confidentiality; suffice it to say that the trustee is not a serious, dedicated financial professional who is primarily invested in doing right by my friend. I tend to be suspicious of conspicuous consumption to the degree seen here.
posted by caviar2d2 at 6:50 AM on June 3, 2024 [1 favorite]
posted by caviar2d2 at 6:50 AM on June 3, 2024 [1 favorite]
Best answer: Replacing the trustee seems like an unnecessarily indirect way to resolve the problem. If your friend is supposed to have full access to the funds at this point, then it seems like she is being very passive in her interactions with the trustee. If the trustee is brushing her off, she should seek legal recourse now, which may or may not include replacing the trustee but would at minimum get her access to her funds (ideally getting them out of the trust entirely, depending on its terms).
Edit to add: if she is worried about funds going missing, she really should be acting sooner rather than later. Sure, she could win a judgement against the trustee down the road, but if the funds are spent, they are gone, and the trustee may or may not actually have the assets to make her whole.
posted by AndrewInDC at 6:59 AM on June 3, 2024 [26 favorites]
Edit to add: if she is worried about funds going missing, she really should be acting sooner rather than later. Sure, she could win a judgement against the trustee down the road, but if the funds are spent, they are gone, and the trustee may or may not actually have the assets to make her whole.
posted by AndrewInDC at 6:59 AM on June 3, 2024 [26 favorites]
If the trust was supposed to be fully available to the beneficiaries at 30 and your friend is now 35 (over 30), she should ask again and if still denied hire a lawyer. It does not matter what her use of funds is for, she is entitled to her share of the trust.
posted by JohnnyGunn at 7:00 AM on June 3, 2024 [18 favorites]
posted by JohnnyGunn at 7:00 AM on June 3, 2024 [18 favorites]
Best answer: I would add that if it were me, I would ask for 100% of my share and take any extra funds not going to the house and hire my own financial advisor after putting it all in my name.
posted by JohnnyGunn at 7:02 AM on June 3, 2024 [25 favorites]
posted by JohnnyGunn at 7:02 AM on June 3, 2024 [25 favorites]
It seems like the first thing to do is just insist, "No, I do want this money now and you would be legally obligated to disburse it to me even if I did want to spend it on things like eating out. I'm 40 years old and I can make my own decisions!"
posted by mskyle at 7:06 AM on June 3, 2024 [14 favorites]
posted by mskyle at 7:06 AM on June 3, 2024 [14 favorites]
It doesn’t matter who the trustee is. That’s her money, she’s over the age, she should be able to access the funds. She should start by sending a very clear letter that she wants x funds by date, and the next step is a lawyer.
posted by warriorqueen at 7:39 AM on June 3, 2024 [7 favorites]
posted by warriorqueen at 7:39 AM on June 3, 2024 [7 favorites]
Where is the money? A bank? A brokerage? Because if she has a copy of the trust documents, she should approach the institution holding the money directly to assert her rights to her share. This could get things moving and allow her to get around dealing with the trustee himself.
posted by minervous at 7:47 AM on June 3, 2024 [8 favorites]
posted by minervous at 7:47 AM on June 3, 2024 [8 favorites]
Best answer: If there is substantial money involved (as it sounds) then your friend should hire a trusts and estates lawyer to: (1) review the trust document so your friend understands her rights; (2) potentially ask for an accounting (which requires the trustee to account for how the funds are being managed/spent); and (3) if the trust really does allow your friend full access to the funds at this age, then the lawyer would simply demand the access and that should be that. If access is not provided and/or the money has been misspent, then (4) would be exploring a lawsuit against the trustee, but that's premature without the first few steps.
This is a super simple problem if you have a lawyer.
posted by Mid at 8:59 AM on June 3, 2024 [14 favorites]
This is a super simple problem if you have a lawyer.
posted by Mid at 8:59 AM on June 3, 2024 [14 favorites]
Best answer: Yeah, it would be good to have a trusts and estates lawyer review her copy of the trust agreement. I am not a lawyer, I am not an accountant, but she should consider talking to both. Something for your friend to consider, counter to one piece of advice above: Getting all of her money out of the trust at once could have tax consequences (as a taxable distribution). The distribution would have to be reported on a Schedule K-1, and her personal SSN and info would be on that K-1 as a beneficiary. I would want to know if there are stipulations in the trust agreement for splitting off separate individual trusts or subtrusts, such as once the beneficiaries reach age 30. Who knows—maybe that's something that already was long since supposed to happen but didn't.
So those are some questions for her (and a lawyer, hopefully) to look at the trust agreement to find out: Does the trust agreement have any stipulations for creation of subtrusts? Or are they all just supposed to keep drawing upon the same trust? And does the trust have any amount of required distributions per year? Are there any limits on distributions per year? Has she been receiving a Schedule K-1 each year from the trustee? (I believe she should as a beneficiary, even if she received no distributions in a given year, but it's also possible that if she didn't receive distributions in a given year, the trustee might not have bothered to give her a Schedule K-1 for that year.) If the trust doesn't have stipulations for creating subtrusts, could a lawyer work with the trustee to amend the trust agreement to do so, to avoid a taxable distribution and put her in charge of her own assets?
She should also check whether the trust agreement includes specifics about how much (a specific amount per year or percentage of assets under management) the trustee is allowed to draw as a fiduciary of the trust. While everyone's assets are still in the trust and it hasn't been fully disbursed, the trustee is entitled to a fiduciary fee each year, which might be part of what's supporting his current lifestyle. So he might have a vested interest in not fully disbursing the trust because of that.
posted by limeonaire at 9:23 AM on June 3, 2024 [10 favorites]
So those are some questions for her (and a lawyer, hopefully) to look at the trust agreement to find out: Does the trust agreement have any stipulations for creation of subtrusts? Or are they all just supposed to keep drawing upon the same trust? And does the trust have any amount of required distributions per year? Are there any limits on distributions per year? Has she been receiving a Schedule K-1 each year from the trustee? (I believe she should as a beneficiary, even if she received no distributions in a given year, but it's also possible that if she didn't receive distributions in a given year, the trustee might not have bothered to give her a Schedule K-1 for that year.) If the trust doesn't have stipulations for creating subtrusts, could a lawyer work with the trustee to amend the trust agreement to do so, to avoid a taxable distribution and put her in charge of her own assets?
She should also check whether the trust agreement includes specifics about how much (a specific amount per year or percentage of assets under management) the trustee is allowed to draw as a fiduciary of the trust. While everyone's assets are still in the trust and it hasn't been fully disbursed, the trustee is entitled to a fiduciary fee each year, which might be part of what's supporting his current lifestyle. So he might have a vested interest in not fully disbursing the trust because of that.
posted by limeonaire at 9:23 AM on June 3, 2024 [10 favorites]
That said, it's also entirely possible it's a dynasty trust or generation-skipping trust, each of which would have different rules and might not result in any transfer tax—or might be irrevocable, in which case it wouldn't have a trust agreement that can be amended. Again: She should review the trust agreement and/or consult an attorney so she knows what kind of trust it is and what the potential tax implications might be of various distribution strategies.
posted by limeonaire at 9:49 AM on June 3, 2024 [1 favorite]
posted by limeonaire at 9:49 AM on June 3, 2024 [1 favorite]
We (internet strangers) have no idea what rights she has to the money and how much discretion the trustee has in managing any disbursements. It sounds like maybe she doesn't either. Step 1 - she absolutely needs to see a copy of the trust document. Does she already have this? If not, does she know the law firm that was involved in creating and implementing the trust (depending on how long ago the grandparents died this may or may not be something that she would know.) If so, then I would suggest contacting the lawyers to get a copy. If not, then she should ask the trustee politely. If the trustee refused or delays then I think the next step is to contact a lawyer to get them to write a letter demanding a copy of the trust documents. Only after she (and her lawyer) see the trust documents will they know what options are open to her.
posted by metahawk at 10:34 AM on June 3, 2024 [3 favorites]
posted by metahawk at 10:34 AM on June 3, 2024 [3 favorites]
The trust is supposed to be fully available once they reach the age of 30.
A rich person would hire a lawyer instead of wringing their hands about it or worrying about offending a man they regard as a hypocrite. Maybe she was young when the trust was initiated, so she hasn't fully come into an adult understanding of this. If she was supposed to get control of this money, and the trust eliminated, at age 30, she needs to hire a lawyer who will make it happen, and likely help her and the other siblings figure out if this man has been stealing from them. She'll be able to pay the lawyer once it's all settled. Whether they should hire individual lawyers or use one for all of them, I don't know. But regardless, your friend should stop waiting for this man to be nice and remember his obligations. He is at worst stealing from them and at best not fulfilling the obligations of his position. A lawyer will be able to speak the language to make him pay attention.
posted by bluedaisy at 11:20 AM on June 3, 2024 [5 favorites]
A rich person would hire a lawyer instead of wringing their hands about it or worrying about offending a man they regard as a hypocrite. Maybe she was young when the trust was initiated, so she hasn't fully come into an adult understanding of this. If she was supposed to get control of this money, and the trust eliminated, at age 30, she needs to hire a lawyer who will make it happen, and likely help her and the other siblings figure out if this man has been stealing from them. She'll be able to pay the lawyer once it's all settled. Whether they should hire individual lawyers or use one for all of them, I don't know. But regardless, your friend should stop waiting for this man to be nice and remember his obligations. He is at worst stealing from them and at best not fulfilling the obligations of his position. A lawyer will be able to speak the language to make him pay attention.
posted by bluedaisy at 11:20 AM on June 3, 2024 [5 favorites]
Best answer: I'm the trustee of a trust and I do get a fee each year for doing my work. In my case, the trust will run for 20 years, and I only get my fee for the first 10 years. It was specifically structured that way so that I could be compensated for my time during the years when there would be the most work to be done—right after the person who funded the trust died, and in the years when the beneficiaries are young and I'd have to do the most hand-holding and decision-making.
In my case, the trust also requires me to share the financial status of the holdings with the beneficiaries once a year. I don't know if that is per law, or just per the rules of this trust.
But yeah, what everyone else is saying: help your friend get a lawyer.
posted by BlahLaLa at 11:27 AM on June 3, 2024 [5 favorites]
In my case, the trust also requires me to share the financial status of the holdings with the beneficiaries once a year. I don't know if that is per law, or just per the rules of this trust.
But yeah, what everyone else is saying: help your friend get a lawyer.
posted by BlahLaLa at 11:27 AM on June 3, 2024 [5 favorites]
Response by poster: Thanks everyone! I'll pass this info along. Special thanks to limeonaire for the tip about taxes - I hadn't thought of that. I have a good financial adviser that I trust, so I'll put him in contact with my friend. I think her and her spouse seeing these answers will also be more impactful than just me saying what I'd do :-)
posted by caviar2d2 at 1:41 PM on June 3, 2024 [3 favorites]
posted by caviar2d2 at 1:41 PM on June 3, 2024 [3 favorites]
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But if she's not there yet, I think the best thing you can do is suggest she document all of these interactions and delays well so that if she decides to take action in the future she will have a contemporaneous supporting record to take to that attorney.
I would leave the trustee's wife's age and ethnicity out of these conversations; that's a weird sidebar that will be a distraction from any actual issues with how the trustee is managing the trust.
posted by Stacey at 6:42 AM on June 3, 2024 [16 favorites]