“I know that you’re big on revocable trusts,” Jennifer began during our initial client consultation, “but let me tell you I’m not. I don’t believe in them.”
“Tell me your experience,” I inquired.
“My grandmother formed a trust for me and my brother, bypassing our father,” she began, “and it got ugly shortly after her death. My father only got a nominal amount from the trust as a specific bequest, then sued me and my brother to break the trust for us so he could get some money from it.”
“That sounds awful,” I said, listening to her story unfold. “So what happened?”
“Long story short, my father’s attorney somehow broke the trust and he got a life interest in the assets. On his death it all went to my brother and me.” Jennifer was visibly upset.
“So it ruined your family relationship.” I asked.
“Yes,” she said. “All because of that trust.”
“I don’t believe it was because of the trust,” I began, “whether your grandmother formed a will or a trust, if she wanted you and your brother to enjoy these assets and bypass your father, wouldn’t the same result occurred?”
“What do you mean?” Jennifer asked. “If it wasn’t for the trust, Dad wouldn’t have even known the assets existed.”
“I’m not so sure about that,” I said. “Wasn’t your father entitled to a copy of the trust as a qualified beneficiary anyway? He would have had the same rights – or even more – to a will since wills are public and anyone can read a will filed with the probate court.”
“I didn’t know that,” she said. “Well, if it wasn’t for the trust he wouldn’t have sued us for the money.”
“Are you saying that the fact that the assets were distributed through a trust instead of a will meant the difference as to whether your father would have sued you and your brother? It seems to me the fact that he was bypassed is what caused the lawsuit, not the form in which the bypass occurred.” I opined.
This exchange is typical when discussing why some have adverse feelings towards trusts. The problem with most individuals isn’t the fact that a trust was involved; rather, it was the beneficiaries – the people who were at odds with one another. Jennifer’s case would be like someone blaming automobiles in general for an accident that they happened to be in while on the highway. It wasn’t the automobile, rather it was the driver.
Trusts have many benefits over wills. First, they are active during the grantor’s lifetime, meaning that his assets are transferred into the trust now. If the grantor becomes sick and incapacitated, his successor trustee seamlessly steps in to handle the investments, write checks and pay bills, and accomplish a host of other tasks. Second, they are private. As opposed to wills that are published in the public probate court upon the death of the testator, trusts are only seen by interested parties. Third, assets funded into revocable trusts avoid the probate process, which can be time consuming and more costly than a trust administration.
In many northern states the probate process is not a major hassle, so wills are more popular. Here in Florida the probate process requires an attorney, and the courts take time to act. Moreover, those that own real property in different states benefit since a probate would be required in each state. So with anyone with any degree of net worth that would otherwise be subject to probate, considering a revocable trust is often a wise choice.
Sometimes the objection to trusts is the trustee. You find this most often when a bank or trust company has been named and can’t be removed by the beneficiaries. These restrictive provisions were more common decades ago, although some attorneys still draft their trusts in that manner. When a client names a financial institution, bank or trust company to act as trustee following her death, I usually counsel her to name a party, including the beneficiary of the trust, the ability to remove and replace the corporate trustee. This way, the beneficiary can replace the corporate trustee if their investment performance lags, their fees become excessive, or for whatever reason.
The lesson learned here is to not let irrelevant facts taint your opinion as to what might be right for you and your family.
The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.
© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.