Grandma As Trustee - The National Special Needs Network, Inc.

GRANDMA AS TRUSTEE – LOSING MORE THAN JUST THE PIE

An argument which favors the appointment of a Corporate Trustee
to preserve family integrity.

Nonne dulce est familiam totam in unum locum congere?
(for those of us who are not Latin scholars: “Isn’t it great when the whole family is together?”)

Jeffrey H. Minde, BSSW, MSW, JD

Louis J. Cohn, contributor

In the day to day practice of estate planning professionals, a dilemma all too often arises when it becomes necessary to determine just who shall serve in the capacity as Successor Trustee. The answer to this crucial question must go by default to the very heart of the efficient administration of the Trust. Thus, the nomination and appointment of a Successor Trustee is a matter that should not be taken lightly, and it is one which should be made only after due contemplation of all possible consequences.

Obviously, it is anticipated that the Successor Trustee will serve prudently on behalf of the Trust and its beneficiary(s). Hopefully, he or she will make wise investment decisions, and make distributions accordingly for the benefit of the beneficiaries named thereunder. In a perfect world, any individual of average intelligence and prudent sensibilities, integrity and honesty should be well able to serve in that capacity.

Darryl King is a disabled adult. His parents left him well provided for in a Special Needs Trust, shortly before their untimely deaths. In choosing a Trustee, their logical choice was Grandma King, who is well acquainted with Darryl’s special needs.

Needless to say, Grandma, with her lifetime of investment experience and her appeal as an individual of untainted honesty and dignity, would seemingly be an appropriate Trustee for her Grandson’s Trust. Likewise, Darryl’s sister or brother would presumptively be equally as honest and trustworthy, and the appointment of a sibling would appear on its face to be a wise choice. Unfortunately, the consequences of utilizing family members as Trustees may have the potential for profound adverse consequences upon otherwise copacetic intra-family relationships.

As legal counsel to the National Special Needs Network, we have had many opportunities to prepare Trusts naming family members as Trustee. In one instance, we had the opportunity to appoint Grandma as Trustee for her grandson, a person under a moderate developmental disability. Grandson needed distributions from a Special Needs Trust to supplement his ordinary living expenses. The grandson, however, had overwhelming and unrealistic concerns for the preservation of his principal. He believed that he would have little, if any income from secondary sources other than the Trust. Thus, efficient administration of the Trust was essential to the stability of his day to day living and future care.

For approximately twenty years prior to the creation of the Trust, the relationship between Grandmother and her grandson flourished. The grandson looked to his grandmother for the extra nurturing that his busy parents could not always provide. Grandma baked pies and Grandson would willingly partake. This relationship appeared to be the foundation for a perfect Trustee/Beneficiary relationship. As it turned out, this, however, was not the case.

Although at the beginning the Trustee/Beneficiary relationship was a success, Grandma soon became alarmed at Grandson’s monthly phone bills, which were often in excess of $200.00. Grandma, using some good old fashioned common sense, attempted to impose reasonable restraints upon her grandson’s telephone expenditures. Thus began the first of many intra-family disagreements. But for Grandma’s appointment as Grandson’s Trustee, their relationship would have in all likelihood continued untarnished indefinitely.

Thereafter, the axe fell, and their relationship suffered and was severed on numerous occasions. When Grandson felt that a two bedroom apartment at a significantly higher rent, would be more comfortable than the one bedroom apartment he presently lived in the tensions between them worsened. Grandson desired that the Trust purchase an automobile for him (he didn’t drive), and he fell into a vicious argument with Grandma. When Grandson at last demanded an outright distribution so that he could provide start-up capital to a friend’s proposed business venture, the bottom fell out of their relationship. Grandma refused to serve any more pie.

Ultimately, the appointment of a qualified Corporate Trustee became necessary to replace Grandma as Trustee. Grandma was now left with an abundance of time to tend to her pies and to focus upon her own investments. The substitution of a corporate Trustee in this situation was in no way a reflection upon Grandma’s ability to manage the Trust and to make wise investment decisions. It merely highlighted the very real conflicts that can and often do arise in situations requiring intra-family Trust administration. Such conflicts would not otherwise arise if a Corporate Trustee was initially appointed to serve.

A particularly devastating example of the effect of intra-family tensions concerns the unfortunate termination of what was once a lifetime sibling relationship when a younger sister was appointed as Trustee for her older sibling whom the parents, as grantors, felt was incapable of managing her own money. This situation turned the family roles topsy-turvy. The elder disabled sibling became relegated to the position of a “child”, as the Trustee sibling was called upon to act in a “parental” manner. This sibling relationship met with a devastating end when the demands made by the Beneficiary sibling were not fulfilled. This intra-family Trust administration dispute became the subject of litigation when the beneficiary retained an attorney. All around, this situation caused misery and heartbreak, and ended what was once a loving relationship.

How then can the Grantor insure family involvement in the administration of the Trust and yet avoid the potential pitfalls? Grantors should give consideration to the appointment of a Corporate Trustee as the named financial advisor, and a family member as a Co-Trustee, for issues pertaining only to the person of the Beneficiary, who may be a minor or incapacitated individual. In that event, the decisions as to financial issues, budgets, distributions and the like, if not otherwise mandated within the Trust, would fall upon the Corporate Trustee. The family member Co-Trustee would be responsible for giving guidance as to the practicality of expenditures for the beneficiary’s day to day living needs. This would include, in particular, such matters as the choice of an appropriate residential setting for the Beneficiary, the practicality or impracticality of automobile ownership, the use of community resources which may assist the Beneficiary in lieu of Trust assets, and other important decisions. In having specifically designated roles, the Trustees have particular responsibilities, and the disabled family member beneficiary has less reason to make demands upon the Co-Trustee of the person for unwarranted, unnecessary and unreasonable distributions. The integrity of the family remains intact.

In the appointment of a Trustee due consideration must be given to the anticipated time that the Trust will remain in effect as well as the likelihood that the Trustee will continue to live throughout the period necessary for the administration of the Trust. In the scenario above, Grandma is not likely to outlive her grandson, and there is clearly the need to name a Successor Trustee at some point during the years of administration of the Trust.

Corporate Trustees live on into perpetuity. The Corporate Trustee duly appointed today would in all likelihood continue to serve while Grandson became a father, and a grandfather himself. Moreover, with a Corporate Trustee in place, Grandma would have all of the time she desired to tend to her own investments, and to make her apple pies.