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| Best Practices |
Trust Busting
Fran Hawthorne
05/02/2005
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Many beneficiaries,
however, chafe under such restrictions. Over time, as succeeding generations of
family members demand greater say in how the trust is managed, the relationship
can become positively rancorous. When the unresponsive trustee is a family
member—for example, a child who oversees a trust for his siblings—the situation
often becomes even more difficult. “That person may see their job as trustee as
doing what Mom and Dad wanted,” Shiller says.
TOP VIEW
Wresting control of a family trust
from an appointed trustee can be as simple as filing a request with the
institution that oversees the trust. But many times, this process is much more
complex, expensive and angst-ridden. In difficult situations in which
beneficiaries and trustees cannot agree on a solution for altering their working
relationship, judges and arbitrators can step in to hammer out a binding
resolution. | Such is the case with Susan, a woman in her
late 40s who lives in the New York area. She moved to fire her younger brother
as trustee of a life insurance trust two years ago, after he hesitated to
perform actions she requested. First, as trustee of another life insurance
trust, he delayed transferring proceeds to her son’s college trust, pushing the
date past December 31 and forcing Susan to pay an extra year’s taxes. One year
later, Susan had a three-week window of opportunity to revoke another insurance
trust that had been performing poorly in order to retrieve her premium. Fearing
that her brother would again stall, she asked him to resign as trustee. “He
absolutely refused,” she says. So she invoked a provision in the trust allowing
her to name a third party, a trust protector, to fire him. “Our relationship
really was altered,” Susan admits. “I’m angry at him. I’ve spoken to him about
other things only when I have to.”
Last year Shenkman asked his 83-year-old mother to resign from a trust for
his three grandchildren. She was mentally alert but, as Shenkman puts it, “I
thought it best to make the transition while she was able to sign documents
without an issue.” The paperwork totaled one paragraph, and his sister replaced
her.
Change Management
Robert, Susan
and Shenkman all had it relatively easy. All three could enact provisions in
their trusts to allow them
to make needed changes, and only one faced
resistance. “We feel pretty strongly that if the client doesn’t want us, then we
don’t want to tie the client to us,” says Gail Cohen, general trust counsel at
Fiduciary Trust International in New York, which manages roughly $4.5 billion in
trust accounts. Cohen adds one caveat: “If there is an appropriate trustee who
can take over.”
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