Trustee Beneficiary Relationship
Get up to speed about the trustee beneficiary relationship as John Pankauski discusses sharing of trustee responsibility from his book, “Pankauski’s Trustee’s Guide.”
Sense Of Entitlement
You have no right to an inheritance. So you’re your parents’ child. So what?
Many beneficiaries have a misplaced sense of entitlement to an inheritance. They fully expect that mom or dad will leave them property or money. The truth is that one may dispose of one’s property in any manner. There is no right to an inheritance. Just about anyone can be disinherited. Further, many states, like Florida, have a very strong public policy in favor of permitting a citizen to dispose of their property at death in any manner they wish.
That means that the decedent can stand on the deck of a ship, and throw his or her money overboard or leave it all in trust for a pet—as long as they are competent and know what they are doing. One may disinherit his or her adult children by, for example, leaving everything to a neighbor or a mistress or a charity. It’s their money. You can do with it as you wish.
Other than dealing with a spouse, your right to dispose of your property during life and at death is virtually unfettered. There’s a saying in Florida that the freedom to contract includes the freedom to make a bad bargain. Likewise, in the context of giving away your wealth, you can give it to whomever you like, and for whatever purpose you desire, and even if it may be considered foolish or stupid by others. The bottom line for trusts is this: the grantor can disinherit many people who may mistakenly believe they are going to receive an inheritance. And a trust is a perfect way to do that. The bad part, however, is that a disgruntled beneficiary may take it out on you.
The Audacity Of The Trust
The trust is family members’ ball and chain around their inheritance.
While many family members have a mistaken belief that they are actually entitled to an inheritance, imagine how frustrated, even angry, they become when they learn that the decedent left them nothing – or left more money to others, or were left an inheritance in trust – with strings attached. The beneficiaries view trusts as handcuffs on their money. The trustee is the warden of the prison or jail cell whose permission must be sought for just about every dollar.
Many times beneficiaries will direct their frustration with their parent or the grantor of the trust to you, the trustee. They’re upset that mom or dad did not throw money in their laps. Many trusts permit the trustee to distribute, or not distribute, trust funds (cash), in their discretion, to beneficiaries. Typically, a beneficiary may ask a trustee for money for a specific purpose. Beneficiaries hate asking the trustee for what they view as their own money. Beneficiaries hate the idea that some third-party, the trustee, gets to make the decision about whether the beneficiary receives a slice of “their” inheritance.
This setup or process makes beneficiaries feel insecure, that they can’t be trusted with money. It projects beneficiaries into a businesslike arena that they are uncomfortable in, particularly because they view their inheritance as family money, something very personal to them, which should not be formal nor business – like. It removes any slice of family or personal relationship and makes the trust relationship a business requiring beneficiaries to request money from the trustee – a process which they find frustrating, time consuming, and demeaning, even akin to groveling. Beneficiaries will often seek counsel and attempt to “bust” the trust, sue you, or remove you as trustee, or get more money than they may be receiving.
The cold hard truth: Had mom or dad thought that their child was responsible with money, they would not have placed it in trust, but rather would have given it outright – or made the beneficiary a co-trustee.
There are a number of good reasons why funds should be left in trust, even for the benefit of prudent, financially savvy, and responsible, beneficiaries. But financially savvy and responsible beneficiaries are the great exception and certainly not the rule –
Many would argue that most people are irresponsible with money, particularly large sums of inherited money, so-called “found money” – money that appears out of the blue much like a lottery winning. Although I’ve not read any studies on this matter, my best guess is that most people don’t prudently manage their inheritance nor let it build for retirement or a rainy day, but rather they spend 90% of it within the first 24 months of inheriting it. It will be your responsibility to deal with this –
Trustee As Psychologist
A big part of your job will be handling, or learning how to handle, the beneficiaries, and their emotions, demands, and insecurities. Still want to be a trustee? You have to know why you want to serve.
Many beneficiaries do not like their trustee. “Why didn’t you just give me the money?” they ask. “Why did you leave my money in trust?”
If a trust permits discretionary distributions of funds to beneficiaries, the beneficiary must apply for, or request, money from the trustee(s). Requesting money is an entire process, which may not be complicated nor long, but is, nonetheless, a process – with certain basic, even simple, steps which need to be followed. This often infuriates beneficiaries because they often have a false sense of entitlement –
Serving as trustee will require you to balance the personalities of various beneficiaries. We all know that not all family members get along. Families are not immune from highly charged, deep, personal feelings, animosities, jealousies and pettiness. Let’s face it, the phrase dysfunctional family which is being thrown around is now the normal state of affairs. Ozzie and Harriet and Ward and June Cleaver and their wonderful children don’t seem to exist anymore. If they do, they all have lawyers –
A trust takes all those family members’ personal feelings and emotions, all that baggage, adds money, to create a financial stew into which the beneficiaries are thrown. When mom or dad created the trust, they may not have realized that they were linking all their beneficiaries financially. In many instances, when beneficiaries don’t get along, it makes more sense to cut their financial ties by either creating multiple separate shares within the trust or creating separate trusts—one for each adult beneficiary, perhaps even with various trustees. In some instances, it may make sense to defy the grantor’s intent by simply busting up the trust by giving each beneficiary an outright share now and terminating the trust. Why? Some people have such disdain for each other, it makes no sense to put them in the same financial bed –
You will be faced with the personal feelings and emotions which existed within a family which may, or may not have, surfaced or shown its ugly head – until now. Many times it takes the death of a family member, or money, to bring issues to the surface.
If one sibling was always jealous of another sibling, you are going to hear about it. If the middle child is jealous of the baby, you’re going to hear how the baby got everything, and the middle child was neglected. If the oldest sibling thinks their younger brother spends too much money, or has a tramp for a wife, you will know about it. If you think I am embellishing or over embellishing, I am not. Seriously. You will hear stories of sibling rivalries, jealousies, mixed emotions and feelings of inadequacy or inattention. Childhood fights over choo-choo trains will rise to the surface once again. One probate court judge has described trust and estate litigation and disputes as being nasty as a divorce but without the sex. A trust, like a family business, can be nothing more than a financial soap opera played out in emails, angry letters and in lawyers’ conference rooms. And this is only for a single family. Imagine the fun when you have multiple families.