It is called a Trust, but should you trust?

How much of my practice is suing trustees who clearly should have never been trusted? A lot.

People often want to have some control over their money after they die, designating particular purposes for which the money is to be used. To do so one needs a “Trust”. The person holding the money is called a “Trustee”. The Trustee pays the money where the Trust directs it is supposed to go; normally to people or charities called “Beneficiaries”  according to what the person making the Trust, called the “Settlor” has designated.

Because a Settlor perceives that nephew or child really understands money and has the character to do the right thing and follow his post mortem instructions in the Trust, they name him as Trustee. The general perception is the bank or some other professional fiduciary will be expensive. While it is true banks and professional fiduciaries do charge fees, often more than the person making the trust would like, it often pales in comparison to the damage the nephew or child can do when it turns out that Trustee isnt really good with money, or just doesnt do the right thing.

Years after the Settlor has died the Beneficiaries show up in my office wondering where the money has gone. I will tell you where it has gone. Often to a place called “The Casino”. Or the money has been invested in the business of the Trustee himself. These things would not happen if the bank or professional fiduciary was handling the money. Rather than the money going where the Settlor designated or perhaps earning something called  “interest” or “dividends” or otherwise increasing in value,  the losses are dramatic, making the fees of a bank look like a bargain.

Money invested in the Trustee’s own business, or even borrowed by the Trustee is called “self dealing”. Money from the trust spent at the casino is called “theft”.

The really remarkable aspect of these events is the Settlor has worked his whole life to build this estate, then potentially throws it away by chosing a Trustee that may or may not do the right thing, act like a prudent investor, or otherwise take on the task of managing the trust.

We see this in guardianship often as well, when the incapacitated person is fleeced even by a court appointed family member. Yet most of the complaints I hear is about the fees of a professional guardian appointed  when no family member appears suitable. It is as if the Settlor of the Trust and his family would rather see the money squandered rather than pay someone unrelated to manage the money with competence.

I am still puzzled by the phenomenon.

OK that’s enough for now, I gotta go.

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