Beneficiaries of family trusts stand to inherit stock
portfolios, childhood homes and treasured heirlooms. Yet those assets come with
what can be a delicate relationship with the trustees who control the purse
strings. A trustee can be a valued partner and mentor. But if disagreements
develop, the result can be costly problems and years of frustration.
Here are some tips for managing your relationship with a
Sources of Tension
The relationship between beneficiary and trustee has natural
sources of tension. Heirs often want to get control of the assets sooner, and
trustees sometimes push back out of concern heirs will spend the money
unwisely. The trustee is chosen by the person who funds a trust with
cash or assets—often a parent of the beneficiary. Usually that person is a
family member or confidant, or a professional such as a lawyer or financial
adviser who works with the family.
Beneficiaries who want to make a case for getting trust
assets sooner should find out how much flexibility was built into the trust.
Often, the trust includes guidelines for when and how the assets are to be
distributed. But some trusts grant the trustee considerable leeway to adjust to
changing circumstances. The trust document, for example, might direct the
trustee to distribute trust income and assets for the general support and maintenance
of a beneficiary but leave it up to the trustee to interpret what that means.
The trustee could decide that providing the funds for a down
payment on a house fits that description, but that paying for an expensive new
car does not. See if there might be a reason a trustee is resisting a request.
The trust may have distributed a fair amount of money recently, for example,
and the trustee may want the portfolio to have a chance to grow a bit before
handing out more.
Beyond managing assets, trustees are supposed to communicate
with the beneficiaries and others who are involved in the trust; handle the
paperwork, such as record-keeping and tax filings; and pay out assets to the
Fees can be another source of conflict with a trustee. Individual
trustees negotiate management fees privately, and the fees are sometimes
spelled out in the trust document. Costs can vary widely, but rules governing
trust fees in some states can offer guidelines. At the same time, a close family friend sometimes will act
as trustee at no charge, especially if the person who set up the trust is still
alive and the trustee is basically doing a personal favor. If the beneficiary
thinks fees are too steep, he or she may be able to limit them by hiring
someone to manage the trust and someone else to invest the assets.
Many states allow such a division of roles. The arrangement
limits the potential for conflicts of interest and creates a system of checks
and balances, which can provide extra comfort to a family that doesn’t know
much about investing.
Large banks that act as trustees often want to play both
roles and typically charge at least 1% of the assets under management. That fee
covers their services for investing the assets as well as, for example, acting
as custodian of the assets or handling the distribution of assets to
If you are a beneficiary of a trust and you aren’t happy
with the way the trustee is handling matters, try opening the lines of
communication, perhaps by setting up a meeting to air your grievances. Lawyers
often facilitate these sessions. Try to find out what might be driving an unwelcome decision
by a trustee. The trustee might feel torn between making sure all beneficiaries
are being treated equally and meeting the specific needs of a beneficiary who
needs more money than others.
Seek a compromise. If the relationship is beyond saving, a change may be
necessary. Many trusts set up in the past decade or so include provisions
allowing heirs to switch trustees. Older trusts often make it harder to change
Poor investment performance isn’t usually enough to get a
court to remove the trustee, unless there is also some demonstrable
mismanagement of the assets. If the trustee isn’t being responsive to requests
for information or is slow to deliver documents and records, the beneficiary
can make a stronger case for removal by keeping a record of the communications,
or lack thereof.
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