Dealing with Crooked Executors and Trustees

Strategies like naming protectors and checks and balances to prevent issues like negligence, conflict, or theft in estate administration can help avoid costly court disputes and safeguard beneficiaries. 

Transcript

Hello. It's Peter Klenk, of Klenk Law. And once again, we're getting together to talk about death and taxes—everybody's favorite subjects. These are things that come up that we can't avoid, and that we all should be dealing with.

So, let's talk about it. Today's subject is going to be "Trust No One: Dealing with Crooked Executors and Trustees." What are we talking about? We're talking about some things that are inevitable: people pass away, wills get filed, and executors execute plans.

Sometimes, when you do your planning ahead of time, you've set up a trust, and the person in charge of a trust is called the trustee. These are inevitable sorts of things, but they're also useful tools that can be used to protect your family, your spouses, and your loved ones, as well as set up charitable foundations. All sorts of great things can come from these, but they need planning.

If you do things haphazardly, you fall into general rules that often don't reflect your wishes. And if you don't think through the people you've selected, bad things can happen. Even if you pick the right people, sometimes things go awry. If there's no check or balance involved, things end up in court—and court is expensive.

At my firm, I like to tell people: "We have a great litigation department run by Glenn Ridenour. We were in the Navy together. He's an excellent litigator, but you'd rather not meet his team." The goal is to try to avoid that.

So, that's what we're talking about today: how to avoid that.

When you're setting up a plan, whether you're using a will and setting up an executor, or creating a trust for a minor child, a special needs person, your spouse, or whomever, the people you pick to be in charge must be carefully considered. It can't be a knee-jerk response.

Let's talk about executors first. In general, let's walk through what should happen within an estate. Somebody passes away. Remember, every state in the U.S. has a different system—there are 50 different probate systems. But in general, whoever you've named as the executor has to go to the county, register the will, and be recognized as the executor.

Their job is to execute the plan, carry out your wishes, gather your assets, pay your bills, and always with the concept that they will act in the best interest of the beneficiaries.

In most cases, people who are selected as executors haven't done it before, but they stumble through. They hire an accountant for taxes, an attorney for legal issues, a realtor to sell the house, and they get it done. Everyone cooperates.

The system is built on the idea that you've picked an executor with a lot of power. They need to prove that everything they've done benefits the beneficiaries. But the only way to make them do that is to go to court—and again, court is expensive.

Can we avoid that? That's the idea. The goal is to pick someone you can rely on—someone who won’t stick their head in the sand because it's a stressful or irksome responsibility. They need to be able to deal with beneficiaries, who may or may not be easy to get along with.

The tasks involved can be simple or complicated. Are they selling a house? Are they shutting down a business? Unexpected things happen—an accident, a lawsuit, or other unforeseen complications. Even a simple estate can become complex.

You have to pick the right person. Even the right person can encounter issues: Alzheimer's, a stroke, or rehab. Things happen.

So, who are your teams? Most people struggle to find even one person they trust with all these responsibilities. If you have other people, it's time to brainstorm with your trust and estates attorney. This is what we do every day.

Together, we can determine how to implement checks and balances. Should it be two people? Should we build oversight into the process? Depending on personalities, it might be better to have a professional who does this all the time, to avoid conflicts.

Executors sometimes can’t help but use the role as a pulpit to take petty revenge on a sibling for something that happened decades ago. It happens. You have to think it through and brainstorm with a professional to minimize conflict.

If an executor is crooked or steals, you really picked the wrong person. Unfortunately, this happens. Our litigation team often goes to court over these issues.

For beneficiaries, it's crucial to have someone watching out for them, especially if they're minors, have special needs, or are elderly. This ensures that if the executor strays, there's someone to hold them accountable and keep things on track.

Trustees are more complicated than executors. Executors generally wrap things up within a year, depending on the situation. But a trustee could serve for a lifetime.

Trusts are set up for young people, special needs individuals, or the elderly, who can't take care of themselves. Trusts can also be set up for any child to protect their inheritance from divorce or lawsuits.

But what happens if the trustee goes wrong? That's where checks and balances come in. We brainstorm about this, too.

One clever system, adopted from Liechtenstein, involves "protectors." Protectors have one job: they can remove and replace the trustee at will—no court, no attorney, nothing else. This ensures trustees know they must act properly or risk being replaced.

However, protectors need to be chosen carefully. You don't want protectors randomly firing trustees out of frustration. The plan must be well thought out, with the right personalities and skill sets assigned to these roles.

If you don’t plan carefully, it could result in a trustee or executor not doing the right thing. Litigation becomes necessary, and it’s expensive.

Special needs beneficiaries often don't have the money to hire lawyers, and the process of going to court takes time and resources. Judges need evidence, not just accusations. Assembling evidence is time-consuming and costly.

While the system works as a check and balance, it's far better to plan ahead and avoid litigation.

So, that's a little basic information about trusts, estates, and dealing with crooked executors and trustees. I hope you found it useful.

We do this every day. If you have questions about setting up a trust or estate, or choosing the right people for these jobs, give us a call.