Administering a trust can be risky
Have you been accused of stealing or mismanaging a family member’s trust or estate, or even the estate of a friend? There are things that can be done to avoid family turmoil and strife when jealousy and paranoia reign.
Even those in charge of celebrities’ estates can suffer such accusations. For example the Trustee for Lisa Marie Presley’s Trust is under fire for his alleged poor investment decisions pertaining to her trust. On Feb. 22, 2018, TheWRAP reported that Lisa Marie Presley started a civil suit against her Trustee for “reckless and negligent mismanagement” of trust assets.
It is reported that in 2005, Lisa Marie Presley’s trust was worth more than $100 million. However, just 11 years later $14,000 remains in cash. It’s alleged that the trustee sold off 85 percent of the trust’s interest in “Elvis Presley Enterprises” and invested the money in the “American Idol” holding company. Unfortunately, “American Idol” went bankrupt in 2014, causing a loss to the Trust of $24.5 million. Whether Presley’s trustee’s sale of assets and investment in American Idol was reasonable will likely be determined under the Prudent Investor Rule.
A Trustee is appointed by a written agreement to manage property for the benefit of others. When a person accepts appointment as a Trustee, he or she accepts fiduciary duties to act in the best interests of the beneficiaries. These duties include the duty to manage the Trust property prudently under the Prudent Investor Rule. When a Trustee violates his or her fiduciary duties, the Trustee can become personally liable. That means that the Trustee could be subjected to a lawsuit that could result in a judgment. In some instances, the person that accepted appointment as an Executor or Trustee did not have an understanding of their duties and made negligent or careless mistakes such as not diversifying trust assets or making poor investment decisions.
Under the Prudent Investor Rule, a Trustee has a duty to diversify the investments and assets of the trust within a reasonable time. Additionally, the Trustee must manage property in such a way to provide for the purposes of the trust without incurring unnecessary and inappropriate costs or risk. When making these decisions, a Trustee must consider several factors and circumstances including (1) the general economic conditions; (2) the possible effect of inflation or deflation; (3) the tax consequences of decisions or strategies; (4) the purpose of the investment be it appreciation of capital or a return from income; and (5) the need to have cash on hand.
All too frequently I hear about family relationships being destroyed as a result of the poor management of an estate or trust. Sometimes the stories pertain to unforgivable conduct. However, jealousy and greed can sour family relationships regardless of the management of estate property.
If you have established a trust, this discussion should beg the question: are those that you have named capable of managing the trust without violating their fiduciary duties, including the careful management of estate property? If you have any doubt, you may want to reconsider your choices. There certainly is nothing wrong with giving those you have named in your estate the opportunity to decline appointment in favor of an independent and neutral party such as a private fiduciary service.
Likewise, if you have been named as a trustee and you have the ability to appoint your successor, there is no shame in appointing a neutral successor trustee. In Lisa Marie Presley’s case, the Trustee was not a member of Lisa Marie’s family. If it had been, not only would she be broke, but she would also have a lost familial relationship.
Things become more complicated and difficult when you throw family into the mix especially when the administration of the estate or trust isn’t perfect. In many cases it is better that some neutral person be the “bad guy” in charge of administering the trust, than families no longer speak or get together after Mom and Dad are gone.
Things are not all gloom and doom. You have choices and can prevent family strife with careful planning. As well, if you are now or will be administering a trust, make sure you surround yourself with professionals to assist you correctly managing the trust assets.
Michael G. Millward, Esq., is an estate planning and business attorney. Michael previously practiced with Cassandra Jones, Esq., at Heritage Law Group, and started his own firm, Millward Law, Ltd., in April of 2017. He is a resident of Douglas County, and practices in state and federal courts in Northern Nevada. He can be reached at 775-600-2776.