Becoming a Trustee
Relatives have asked you to become a Trustee for their Living Trust. Perhaps flattered by their belief in your honesty, or because of ignorance, you accept. Even if there are few assets and the transition after the Grantor of the Trust dies, the Successor Trustee has much to learn. This is explained through the Estate of Bowles, discussed later in this article.
If there is not much in the estate you are asked to administer, it might be easy to pay out the funds and be done quickly with the responsibilities. Not all issues of inheritance are difficult, especially if there are few Beneficiaries. If this is the case, you are lucky.
It is a different experience when millions are at stake, and from court cases on these more dire examples, the rest of us learn what not to do. Where passing wealth is handled with expertise, there is no contest to be decided, so the more well-run Trusts remain silent on how the administration provides proper distribution. After all, the bigger Trusts go on for generations. There must be a trick to it.
Passing the Mantle
Remember this, all Trusts become irrevocable when the Grantor(s) passes. While he or she is alive, though, the Grantor can spend the money, allegedly earmarked for Beneficiaries, without being questioned. The rules and set legalities about the Trust are found in its Declaration of Trust or Indenture. They govern the conduct of the Trustee(s) after the Grantor(s) die. This is when the conflicts and confusion can begin.
A common way to chose the Successor Trustee, though, is the surviving spouse takes the reins of the family finances. The logic is that this person cares about the children, and will use prudence in dispensing the wealth. Unfortunately, the spouse is not necessarily the right choice. When the Trustee is elderly and finds those friends who visit often more valuable than the children, wealth can easily be given away. Passing out the children’s assets to close associates is not uncommon. You will see how this works when some of the issues are examined in the Estate of Bowles.
Despite its vital importance, across the entire subject of inheritance, we find training of Trustees has been systematically neglected. Through this neglect, billions of dollars are lost; while the courts and lawyers make millions, and wealth is gone to the future generations of the family. This happens mostly because those who receive the assets have little experience with money management.
It is common for the uninitiated Trustee to consult with CPAs and lawyers, who have little-to-no experience about Trust Administration. While knowledgeable about their particular fields of expertise, they lack the particulars about internal Trust administration. Left with a pile of paper and assets, the new Trustees do their best, and many of them are successful-if they have enough education and common sense.
How do you learn to be a Trustee?
Sources of Information
Apprenticeship is the most important aspect, except in our world, there is no formal apprenticeship program available. The next choice is to read books on the subject of inheritance, except there are few. Left with no direct source, reading what initially appear to be dry and boring court cases becomes the next alternative; how does one find the cases to read, and how does one find the meanings to foreign and alien terms?
Ways to get Informed
Although there are books on the subject of inheritance, most people do not know this and so, the only real option left is to read court cases. Filled with obscure legal terminology, most people find this a daunting task, but here are some pointers of how to continue for those who have no formal legal training:
1. Find court cases by searching through legal sites and look for terms such as: Probate, Wills, Estates, Trusts; or if you know a lawyer, ask him or her to find you any relevant cases to read.
2. Skim through the case, just to pick up the ideas and terms.
3. Ignore all the references to other court cases. Unless something intrigues you, it is not necessary to get the information. Just absorbing the gist of the issues involved is enough at this point in your journey through a strange land of alien ideas and a complicated forest of people.
4. Read the first and last sentence of each paragraph.
5. Put the case down, walk away and then come back to it when you feel like it.
6. Read sections.
7. Get a legal dictionary and look up every word or term you do not understand.
8. Start at the beginning of the court case; read it slowly.
Deliberate Obscure Language
Our legal setup stems from Roman law, and when William the Conqueror, who was from France, established himself as King of England in 1066 A.D., he changed the legal format and required that cases be argued in French. This deliberate maneuver ensured the English people had no direct access to the courts.
The two languages most needed to understand the root of legal words are Latin and French. Most people have no such training, so forgive yourself immediately as you muddle through the jargon used. You will be surprised how well you do! Once you understand the complexities of the language and are able to deal with it, you will astound yourself how much you grasp. Even reading one court case provides a mountain of information.
Getting an Education
Usually, the motive for tackling a task of this size is there is no place else to get the information. If you feel responsible for others, you need to get some education about what you are doing.
By the way, I have no formal legal training. I gained my knowledge while muddling through the jargon, and direct experience with many issues of inheritance. I am a Trust Administrator, so I see many events, and I set up the paperwork. What I share with you, I learned the hard way, and every time a new strange incident occurs, I have to whack away at the mountain of new ideas presented. There is no reason you cannot do the same.
The subject of inheritance is in such disarray, and is so important to surviving into the future, it cannot be neglected. Please note: By not providing an educational forum for Trustees, the mistakes listed in the following battle among the Beneficiary, the courts and the Successor Trustee happen more often. This is lucrative business for the legal profession. This is why those who become Plaintiffs are likely to have oodles of money. The average person will run out of funds long before an Appellate review like this ever happens.
Dissipation of Wealth
Through the following example, you will see how a Trustee, totally and wholly ignorant of her duties and role, simply ignores all her obligations. Others were more than willing to help her squander the funds of this large fortune.
The court case discussed in the next several paragraphs has been simplified. I have left out the Trust Types mentioned, and all the citations to other court cases. This is a bare bones version of a complex and lengthy court battle.
Prohibitive Court Costs
Because the costs of pursuing legal remedies are prohibitive, most of the Trust cases reaching the Appellate level are worth millions. This one is no exception.
Loss of 15 Million Dollars
In 1988, the Estate of Bowles was worth over 17 million dollars when Thomas C. Bowles passed. The assets had dwindled to 2.7 million when his wife, Mary J. Bowles, died in 2006. She had been named the Successor Trustee, and is the one responsible for squandering the assets between 1988 and 2008.
Lacking Substantial Evidence
First Regional Bank in California had been named as the Successor Trustee after Mary J. Bowles passed. The question haunting the bank, as well as the Beneficiaries, was where did the funds go? After a lengthy review of paperwork and an investigation by First Regional Bank, it was determined there was not enough of a paper trail to make a full recovery. Thus, lacking substantial evidence of what occurred, the bank decided it was not worth pursuing those who received funds from the Trust.
This leaves the Trust without a Trustee, as the one named is not willing to make restitution on behalf of the Beneficiaries. Believing only tools of “formal discovery” would get the needed information, the bank determined the effort to recover the lost assets would not be “productive.”
Who Can Sue?
The next issues revolve around what court has the authority to decide the matter. This became a lengthy debate among judges about the Probate Code, and who has jurisdiction to sue the culprits who got the funds from Ms. Bowles. Clearly under their influence, she gave away the assets held for the Beneficiaries to strangers and her preferred Beneficiary, Richard Cavalli.
The brother of Richard Cavalli is Kevin Cavalli who has launched this lawsuit. Because he is a Beneficiary of the Estate of Bowles, he has no standing to sue for this Trust. Kevin Cavalli argues the Trustee, First Regional Bank, will not sue for the Beneficiaries, and thus, he has the right to continue.
The Probate Court did not agree, and thus this matter was taken to the Appellate Court for a decision.
Kevin Cavalli prevailed. The Appellate Court stated third parties can be sued by a Beneficiary of a Trust, and since the Bank will not make the effort to recover the property, the Appellate Court determined Kevin Cavalli has the right to sue. The matter was returned to the Probate Court for proceedings.
The proper procedure would be for Kevin Cavalli to sue Mary J. Bowles as Trustee. Since she has passed, that is not possible.
Less Than Market Value
Richard Cavalli, a Trust Beneficiary, induced the Trustee, Ms. Bowles, to sell directly to him Trust property for less than full value. To handle this transaction properly, Ms. Bowles would have sold the property at fair market value and the earnings would be put into the Trust to be shared by the Beneficiaries. Because Mr. Cavalli got all the property for less than its value, the other Beneficiaries were cheated out of their inheritance. These Beneficiaries included his brother and four of Ms. Bowles grandchildren.
Mary J. Bowles Estate
Mr. Richard Cavalli was named the Trustee of a separate Trust in which Ms. Bowles put all her personal assets. After she died, he was to manage it for the Beneficiaries she named. Somehow, she trusted him? Because Ms. Bowles’s assets are held in a separate Trust, and by her negligence the Estate of Bowles assets were squandered, her estate can now be ordered to reimburse the Estate of Bowles.
Breach of Fiduciary Responsibilities and Duties
The confusion entangles the Estate of Bowles in legal controversy. All of this could have been avoided if Ms. Bowles were trained. Because she was not, we assume she either deliberately or ignorantly engaged in fraudulent transactions, by both reducing the size of the Trust and squandering the inheritance of the children and grandchildren.
In this lengthy court case; the following breaches of Trustee responsibilities were listed. This is one of the longest lists ever attributed to one Trustee. It has been adapted to be applicable to all incompetent and untrained Trustees:
1. Distributes Trust principal to him or herself when it was not necessary for health, support, or maintenance;
2. Fails to invest prudently all Trust property;
3. Commingles Trust assets with other assets, including those of the Trustee’s own property and other Trusts;
4. Make imprudent loans to a third party, who provides no security and, after receiving the funds from those loans, later defaults. The Trustee takes no action to collect;
5. Sells Trust property to third parties for less than fair market value;
6. Gives out Trust property to a third party who has no right to the property;
7. Fails to keep complete and accurate records of transactions;
8. The Trustee puts his or her own interests over those of the Beneficiaries, thus in breach of the responsibility to act neutrally;
9. Encourages the third party to whom loans were made to file for bankruptcy so the third-party gets a discharge of debts owed to the Trust;
10. Fails to give out income and principal of the Trust according to the Trust terms.
11. Fails to make required distributions to beneficiaries.
We assume, without training, any Trustee could make these errors. If possible, get the court case of the Estate of Bowles (2008), Cal.App.4th [No. B203254. Second Dist., Div. Five. Dec. 22, 2008.] for a thorough tour of the facts, and an incredible education.
If you suffer because of the missteps of an errant Trustee, share this article with that person. It just might save a fortune.