Setting up a trust for your children is an efficient way to transfer family wealth to the next generation in keeping with your wishes and to enable your family to avoid the California probate process after your death. A trust also may convey money to charities or colleges and universities that you support.
Trust funds can hold money, real property, stocks, bonds, a business, or a combination of those assets. The grantor of a trust fund sets the terms for how the assets are to be distributed.
When clients come to us for help with a mismanaged trust or theft by a trustee, the issues they face tend to illustrate the biggest mistake parents make when setting up a trust fund: choosing the wrong trustee.
Contesting a trust in California to remove a bad trustee or recover misappropriated funds requires experienced legal assistance. The attorneys at Albertson & Davidson, LLP are aggressive trial lawyers and have recovered more than $130 million in court verdicts and negotiated settlements for our clients through California trust and estate litigation. Our motto summarizes our approach – We stand. We fight. We win. Contact us online today or at (800) 601-0170 to discuss how we can put our knowledge to work for you.
How Does A Trust Fund Work?
Typically, the creator of a trust administers it until their death or infirmity, at which point a previously named successor trustee takes charge.
The successor trustee administers property or assets within the trust for the trust’s beneficiaries. Trustees have a fiduciary responsibility to make decisions about the trust’s assets, such as when and how to invest funds or whether to sell property, that are in the best interest of the trust’s beneficiaries. Trustees must also distribute funds from the trust as directed by the trust’s bylaws and maintain records and reports of trust activities.
For example, the Smith Family Living Trust would hold assets deposited by Mr. Smith for the benefit of the Smith children, Able, Baker, and Charlie. Mr. Smith would initially be the trust’s trustee. As the trust’s grantor, he would name a successor trustee to take over the responsibilities of administering the trust upon his death or a legal finding of incapacity.
Choosing the Wrong Trustee for a Family Trust
Many parents who create trusts designate one of their grown children to oversee a family trust after the parents’ death. They will often choose as the successor trustee the oldest child, the most responsible child, or a child who has training or aptitude for financial matters.
This often proves to be a big mistake, especially when the person designated as a successor trustee also is a beneficiary of the trust. A trustee who also is a trust beneficiary has an inherent conflict of interest.
Let’s say the Smith Family Living Trust is set up to distribute regular payments to the Smith children when they turn 25. Able Smith could find himself in charge as the trustee at age 25 and eligible to receive money from the trust while telling his younger siblings, Baker, age 23, and Charlie, 20, that they must wait. This may not go over well, especially if Baker is having financial problems and could use some of the money she can eventually expect to receive.
If Able relents and lets Baker have money from the trust ahead of time, even as a loan, this could be a problem. Their other sibling, Charlie, might have grounds to bring a case of trust mismanagement. It’s simply difficult for one sibling to hold the purse strings for their siblings. Able has to walk a fine line as a trustee and beneficiary. Dad has put Able in an untenable position.
How To Set Up A Trust Fund and Designate a Trustee?
A trust attorney or estate planning lawyer can help you draft and file a trust agreement. A trust fund relies on three entities to exist:
- Grantor, who establishes and funds the trust
- Beneficiary or beneficiaries who will receive proceeds from the trust
- A trustee who manages the trust’s assets in the interest of the trust’s beneficiary(s).
The grantor of a trust must understand the purpose of establishing a trust and should designate and explain the purpose of the trust to its beneficiaries and trustees. The grantor may appoint himself or herself to oversee the trust during their lifetime and name a successor trustee.
In most cases, it’s best to designate an independent third party as a successor trustee to a trust fund. This may be an individual, a trust bank, a law firm, or another professional fiduciary.
A family member is not a neutral third party to a trust that will convey money to them and/or other family members. Other individuals, such as business associates or close friends, may be neutral, but they are susceptible to age and illness. They may be unable to fulfill their duties when the time comes.
A corporate fiduciary – bank, financial manager, or law firm – is typically best equipped to manage a trust’s assets, maintain required records, and make distributions to beneficiaries.
Because of the multiple services a corporate fiduciary provides, it will generally charge more to administer a trust than an individual would. A corporate fiduciary’s fee will be a percentage based on the principal value of the trust and its income.
If you hired a law firm to draft your trust agreement, the firm can either administer your trust or refer you to a capable firm. You can ask your bank or financial advisor about their services. Speak with several referrals to learn more about services and fees corporate fiduciaries can provide.
We Litigate Mismanagement of Trusts
If you have concerns about possible mismanagement of a trust in Los Angeles, California, your first call should be to the experienced trust and will litigation attorneys at Albertson & Davidson, LLP. We can advise you on your options and zealously represent you in court if legal action is necessary to protect your inheritance.
Call us at (800) 601-0170 or reach out online today for a free initial consultation. We are tough trial lawyers who Stand. Fight. Win.
