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By Carleton H. Morrison, Jr.

One of the important decisions a person or couple needs to make when creating a living trust is who to designate as successor trustee when they die. This article, which includes two real cases with names changed to protect the innocent and the guilty, is intended to help you select the successor trustee, or perhaps make a change with a trust amendment before it’s too late.

The moral of story in both cases is the same, so let’s say it right from the beginning: Don’t name as trustee a person who has financial problems:

Case #1

Mabel, a wealthy widow, had two children, Beulah and Gertrude, who were close friends as well as siblings. She named the eldest of the two, Beulah, the successor trustee of her trust estate. After Mabel died, Beulah began to function as the trustee and settle the estate. Often Gertrude, who was a beneficiary along with Beulah, would ask how the administration of the estate was going, only to be told that it was taking a little longer than anticipated. After a while Gertrude started to become a little impatient and her questioning became more intense. Eventually, Beulah stopped answering e-mails and phone calls. After almost two years had passed, Gertrude sought legal advice.

Gertrude petitioned the court to compel Beulah to provide an accounting as trustee of the estate. Beulah hired her own lawyer, but eventually was forced to disclose her actions as trustee. Sure enough, and as you probably guessed, Beulah had spent most of the trust estate on herself, much to pay off the considerable debt she and her husband had incurred over the years.

The court ordered Beulah to pay Gertrude her share of the estate. But by now it was squeezing blood out of a turnip for Beulah and her husband had continued their lifestyle of incurring significant debt.

Case #2

Matilda, another wealthy widow, was quite elderly with no children or other family. She named Philo, the son of very good friends who were both deceased, as the co-trustee and beneficiary of her estate. She then became quite ill and was placed in a care facility where even the doctors said she would never leave but die within a short period of time.

Lo and behold, Matilda completely recovered and moved back into her home, only to find all the furniture and personal belongings gone. She soon learned that Philo had become tired of waiting for her to die and, as co-trustee, started disposing of her property for his and his girlfriend’s benefit. He had sold not only her furniture and personal belongings but also had withdrawn over $100,000 from her bank account. You guessed it again. Impatient Philo was deeply in debt and on the hook for spousal and child support for several wives and families.

Like Mabel, Matilda was able to get a court order to have Philo removed as trustee and ordered to pay her back. But it was another case of squeezing blood from a deadbeat turnip.

Lessons learned

Obviously a lesson to be learned here is not to name as successor trustee anyone who is “financially challenged.” Even in the best of families, the temptation to self-benefit when financial pressures abound is hard to resist. Parents and others who name the successor trustee should protect that person by not putting him or her in that position.

In Mabel’s case a better option might have been to name another responsible child who had no debt and well off in his or own right. But perhaps in both Mabel’s and Matilda’s cases an even better alternative would have been to name a commercial entity as successor trustee. Some individuals name such a commercial trustee so as not to put the pressure of administering the estate on any child, regardless of the financial status, to ensure their children get along as well after their death as they do at the time the trust is created.

Who to designate as the successor of a living trust should be given as much consideration as naming the beneficiaries and conditions under which an inheritance is made. Hopefully, this article helps in making that decision.