If you have a trust, it’s critical you understand what it says and how it will work

By James Ward

James Ward

I recently had a couple come to see me from New York. The wife’s mother is in a memory care unit in San Jose, and the wife’s stepfather had just recently passed.

Upon review, the couple had a trust that was about to cause serious problems for the blended family.

The problem was that the attorney for the couple had talked them into using a private trustee to handle everything, and that trustee was anxious to start liquidating assets. Why? In part to pay for the memory unit care, and, more importantly, to pay for the fees the private trustee wanted to charge. There was enough money in savings and income to cover the cost of the memory unit, but the trustee appeared to be overly aggressive in getting control of the assets so that the trustee fees could be justified. Care and concern, or just greed?

With no declaration of incapacity of the wife, the trustee couldn’t yet exercise any authority to sell the family residence. The trust document revealed a way to change the trustee and have one of the children act as trustee at no charge, but only the surviving spouse could take the necessary steps for that change — and when I met her, she was having a bad day and couldn’t make any decisions. Will she be having a better day later? Nobody knows.

The couple could have acted jointly to change their trust a few months earlier while the husband was still alive and the wife was doing better, but nobody thought to get their old trust reviewed. Now it appears the wife won’t be able to make the necessary change. Result? Harm to the beneficiaries of the estate. They’ll all receive much less than they would have if the trust had been reviewed and corrected earlier.

If you don’t have a trust, you should probably get one. If you have a trust, it’s critical you understand what it says and how it will work.

A client recently came to me and asked me to review her trust that was completed six years ago. I pointed out that it was not prepared by an attorney and she said she knew that, but she had saved a lot of money by using a paralegal. She proceeded to tell me exactly how the trust would function to pass her residence to her daughter’s children, and simultaneously protect her disabled daughter with a life estate in the residence. Upon review of the document, there was no such language protecting the disabled daughter.

In fact, the residence would have passed half to the disabled daughter outright, half to the client’s son, and nothing to the grandchildren. The client argued that she knew it was in there somewhere, so I asked her to search the document and point it out to me. After several minutes of silence, she looked at me and admitted that there was no reference in the trust for special treatment of her residence, or the disabled daughter, or the disabled daughter’s children. She was absolutely stunned and said, “Now my whole trust is just blown up. For six years I’ve been relying on the false assumption that the trust was done right to protect my disabled daughter and her children.” She left with her head reeling from the realization that her trust would never have provided the protection her family required.

Make sure you have the right legal documents in place, and you know what they say. It’s critical for you and your family.