Crooked Trustees and Family Feuds: The Dark Side of Estates

Explore the risks of choosing the wrong trustee and how poor planning can lead to family feuds, mismanagement, or even legal battles. Estate Planning Attorney Peter Klenk shares how thoughtful trust design and regular updates can help prevent conflict and protect beneficiaries. 

Transcript

Hi, everybody. It's Peter Klenk, Klenk Law, here to talk about all this good old death and taxes stuff—the inevitable stuff that's going to come at us someday. And I know, guys, you don't think it's going to happen, but let's just pretend. How’s that?

And today, we're going to talk about something that actually can be potentially avoided, is not inevitable, but happens a lot—and has to do with the potential of a crooked trustee, family feuds. It's the dark side of the estates, of the things that can happen—things that hopefully, working with us, you can avoid.

But what are they? What are these things?

Well, okay, guys. There's a lot of reasons why you might want to set up a trust. And let's go down that path first, because let's talk about what that is, and then you'll see why it's important to make sure that we don't have a crooked trustee.

So, a trust is something that you create. You don't need a government permit for it. It was created to actually avoid the king back in the day. It was something that people did—they granted the power to a trusted friend to hold onto assets for the benefit of a child or somebody else. And that evolved into: the grantor is the person who creates, they grant the parts to the trustee, who holds the assets and carries out the terms for the beneficiary—the person who benefits.

Grantor, trustee, beneficiary—you have a trust. And you don't need a government permit, right? You don't go and get a license or something for this. You just create it.

Now, lots of reasons why you’d do this. There are so many different tools. They're great tools. You can avoid probate. You can help avoid your son or daughter-in-law getting half the money when your child gets divorced. You can help special needs people so that they still get their government benefits, but they have extra money to make their life a little bit better. You can protect your spouse so that if they make a horrible choice on their next spouse, they don't lose everything when they get divorced. Right?

There are so many different reasons to use trusts. They really are wonderful tools. That's why, when we parted company with the British back in the 1770s, we kept them. It's a British invention, and we decided, you know, we like these things, and we use them in a lot of different ways.

But what they all boil down to is that there's a trustee. The trust is just a piece of paper—it just sits there. The rules are there, but someone’s got to carry them out. And the human personification of the trust is the trustee.

Now, the trustee doesn't own anything. If they get divorced or sued, right? It has nothing to do with the trust. But they are the person that you trust to carry out the terms. So, if they do, we're all good. But what if they don't? Right? What if they don't?

What if the trustee is crooked? What if they're dipping in the till? What if they're investing the money in a way to enrich themselves that’s harmful to the beneficiaries? What if they're selling real estate to their friends at a discounted price? Right? What if they're just hoarding all the money and not distributing it so that their fees are higher?

There are all sorts of terrible things that a trustee can do. And what can you do about it?

Well, let's think about that.

First of all, there are some checks and balances—things that we can do as we're planning your trust. We can actually put one or two people in charge of simply monitoring what the trustee does, with the power to fire them—without going to court. Simple, clean, easy.

You have to have people you trust to do this, obviously, because you don't want to put people in charge who are going to mess with the trustee or maybe fire them and put in their buddy or something. But if you have the right group of people, a lot of times, their personalities fall into the category of “this is a good trustee personality,” and these other people maybe aren't the best trustees, but they would always look out for your kid. They would always make sure your spouse is okay. And they don't want to do much—but if they find out there’s something shady going on, they'll go in and sort it out. Right?

That's the idea. So we can set that up. You have to have the right people for that, but it certainly works well.

On the other side, if the trustee has done something, there's a court. There’s a court that oversees, in every state, the trust—a specific court. And the interested people have a right to petition that court and bring the matter to the judge to have the judge look over what in the world is going on.

It’s a slow and methodical process for a reason. I have many articles, so you can read about this as you go through the reasoning why, but it just is. And it costs money.

So you have to think through the beneficiaries too. If you're setting something up and it's a special needs person who doesn't have any money at all and doesn't really have a guardian looking out for them—if the trustee is messing with them, who's going to pay the money to go to court? Right? That's a good question.

So you need to think about the checks and balances here so that if somebody needs to go get something corrected, there’s a process.

Remember, it doesn’t have to mean being crooked. I'm using that word, but it could be your brother—and he's the most honest, nice guy in the world—but he has a stroke. Guy’s totally incompetent. He can’t resign, but he's still the trustee. Right? How do we get rid of him? We have to go to court. Who’s going to do that? Right?

Is the beneficiary up to that? Maybe they are, right? If you set this up for your son, and he's doing well and he's a hardworking guy, but you just didn’t want him to lose half of it in the divorce—can he take care of this and go to court? Yeah, he could do it. But you have to be honest. If you're setting it up for somebody else, maybe they can't. Right? They don't have the money, the inclination—they just aren't going to stand up to a bully if they're being bullied.

So we have to really think through what's here.

Now the other side of this is the family feud part. Look, after you go, let’s be honest here—it's the last chance that everybody has to mess with each other. And you might have somebody in your family who just can't resist that temptation. Right? This is the last chance everybody's going to be together, and dag-nabbit, they're going to use it to great vengeance—or to share what a nasty person their sibling is. They're just going to take advantage of that.

So, guys, we have to plan around that. When you come in and talk to me, I ask you to be honest about the people we're dealing with, and don't sugarcoat it. Don't tell me, “Oh, my kids all get along,” when they do not. Or if you have a problem son-in-law or daughter-in-law, let us know. I mean, there are ways we can craft to try to avoid the conflicts that can come up—but we have to know about them. You have to let us know, because family feuds are real.

I mean, it doesn't have to be like the old days where everybody shot each other up, but, you know, things simmer. People don't get along. They don't speak to each other. They end up in court for years. And, you know, maybe we can't make them like each other. Right? We can't make them get along. But we can try to avoid just an open conflict—that we can try to work around.

And that’s something that we do. In our process, too, we email our clients every six months, giving them a little nudge to log on to their documents and think about them—because things change. I mean, it could be that everybody's getting along great now, but your son marries somebody and they're just terrible. And it was all great five years ago, but now things are bad. People aren't speaking with each other, or you can just tell—man, there is a potential fight on the horizon.

So that's why we do that—so you can call us up and say, “Hey, things changed. Let's brainstorm a little bit here.” So that everything is as updated as we possibly can make it when the time comes—to avoid these conflicts.

So there you go, guys. Just some ten-thousand-foot stuff. If you have a situation you'd like to talk about, please give us a call. It's 215-790-1095. That's our general number for all of our offices, so we can connect you with the person who's best to talk to you about your situation. We're happy to help out.

So anyway, like and subscribe so that in the future, as we release these, you can listen in and learn some more. And I hope you have a great day.