Weíre going to step off of the beaten path of questions and answers and pay some attention to the questions that our clients and readers donít always think to ask. Today, we are going to write about one of the biggest mistakes you can make in creating an estate plan Ė naming the wrong person as trustee or executor.
Many clients do not put much thought into it Ė some of the more traditional families tend to name the eldest male child as successor trustee. After all, heís the prince of the family.
Weíve learned the hard way that this isnít always such a good idea.
The decision as to who your successor trustee will be (or executor if you just have a will) is critical. Being a trustee is a job. Some people are better at it than others. Some people canít handle the responsibility or canít really be trusted.
The job of a trustee is to manage a trust for the benefit of the beneficiaries, the people who will inherit your trust when you die. Selecting a trustee who doesnít get along with the rest of the family, or one who isnít very organized, or who canít even manage his or her own money, is a recipe for disaster.
We have seen trustees (not our clients, mind you) pay out their shares while maintaining control of everyone elseís inheritance without authority. We have seen trustees fail to inform beneficiaries of the existence of a trust. We have seen trustees liquidate and distribute assets without providing any information at all to the beneficiaries other than giving them a check and claiming, incorrectly, that if the beneficiaries want an accounting, theyíll have to pay for it themselves.
You can imagine the effect of all of this. If thereís smoke, thereís fire. And thereís plenty of smoke when a trustee refuses to be informative and isnít organized enough to even know for himself or herself whatís going on. The worst trustees are the ones who are both ignorant and arrogant. They believe they are correct in all things, when they are not, and they arenít willing to listen. These are the trustees who create animosity in the family and who wind up getting sued.
Who should you pick as trustee? You want a trustee who is diplomatic Ė who tries to make nice with the beneficiaries and who wonít strike out against the beneficiaries who are not running on all cylinders. You want a trustee who is moderately organized. If one of your children is better at managing his or her own finances than the others, then that child may be a good candidate to be trustee. Finally, you want a trustee who is smart enough to understand that he or she canít do it alone, if only because most people do not understand the legal requirements of managing a trust.
Len & Rosie
Dear Len & Rosie,
After my second wife passed away, I put my step-daughterís name on the title to our house as joint tenants. I tried to sell the house last year but she would not sign the papers because she said she wanted the whole house. I went to a lawyer, and he didnít do anything. I went to another lawyer, and still nothing. I have already spent $7,000 on lawyers and I have made no progress.
All I want to do is sell the house and give her one-half of the money I get, but she wonít listen. My step-daughter wants to buy the house from me for only $40,000. If she gets it, sheíll sell the house for a lot more money. I pay all the upkeep on the house, including taxes, insurance, and everything else. She never paid a cent.
I am 77 years old and she is waiting for my death so she can get everything. She never sees me and has never done anything for me since her mother died, even though she lives only three miles away. She is so mad about me because I have a girlfriend who takes good care of me. I want to sell the house, but not to her for what little she wants to pay. I worked too hard for that. Do I have the right to sell the house without her signature?
Every once in a while someone asks why we tell people to put their homes into a revocable trust to avoid probate instead of just adding their children to the title of the property. The next time that happens, we will show them your letter. When you gave your step-daughter part of your house, you gave up your exclusive control of it. She is as much an owner of the house as you are, at least according to its title. Because of this, you cannot sell the home without her agreement.
You can sue your step-daughter and ask the court to revoke the joint tenancy deed and return the property to your name. You have a case, as long as she did not pay you for her half of the home, and has never contributed to its maintenance, insurance, and property taxes. Your attorney can argue that you added your step-daughter to the title to the home only to avoid probate, and that you didnít mean for her to own an interest in the property until after your death. This is not an automatic win, because you have to overcome the legal presumption that the title to the home is correct. This may be what your attorneys have tried to do for you. Unfortunately, itís not cheap. This may easily cost you more than $7,000 to see it through.
If youíre willing to settle for half and you want to sell the property now, you can sue your step-daughter in an action for partition. The court will order a neutral party to sell the property and divide the proceeds of the sale between the two of you.
If you do not want to sell the property, you can sign a deed that will sever the joint tenancy and change the title of the property to a tenancy in common. Your step-daughter will still own half, but she wonít get your half when you die. Then, you can leave your half of the home to someone else in a will or revocable trust.
The lesson learned here is this: Donít add a child or step-child to the deed to your home without the full understanding that you canít just take it back whenever you want.
Len & Rosie
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at 996-4505, or on the Internet at lentillem.com. Len also answers legal questions each weekday on The Len Tillem Show, a podcast available via iTunes, Facebook, www.spreaker.com/user/lentillem and lentillem.com.