‘She is a grifter’: My father set up a $500,000 trust for my troubled sister, and asked me to be trustee. What are the risks involved in being a trustee?

He’s a grifter, unmarried, unemployed, broke, drifting, on social security disability, unpaid IRS debt, and has many more issues. The “problem child” is currently living with our father in a very nice home in an affluent neighborhood, being supported by him and enjoying the finer things in life.

When my father’s house is finally sold his lifestyle will decline dramatically. The will states that her inheritance will go into a trust, with me as a trustee, to make sure she has something to live on in retirement, and doesn’t blow it all at once. The size of the trust can be $500,000 or so.

I’m worried that I’ll be caught between the IRS and a problem child. I imagine a situation where I give a monthly amount from the trust, and carefully pay everything I owe to the IRS in taxes, but the problem child becomes unhappy with what she’s getting.

I believe she will be unhappy with her reduced circumstances, unhappy that so much is being paid out of the trust for taxes, legal and accounting expenses, etc. For mismanagement of his trust and estate.

On the other hand, if I want to minimize payments to the IRS, and arrange things to maintain Social Security Disability, etc., then the IRS or Social Security will accuse me of engaging in an illegal scheme to hide assets. Can make allegations. How much risk am I realistically exposed to? And how can it be reduced?

To be honest, I don’t want to get involved, but I don’t want to let my father down either. What’s more, I have also been named executor of his will. what do you think I should do? Your comments and advice are greatly appreciated.

reluctant trustee

dear reluctant,

Let’s focus on you instead of your sister.

A good trustee must be trustworthy, have good judgment, be fair and objective, and above all be committed to the job. Like a power of attorney, it is not for the faint of heart. You may be some of these things, but it is clear that you are too embedded in family drama to take this job.

You are already reluctant and upset – rightly or not – that this task has arrived at your door, and you are worried and frustrated at being responsible for your sister, whom you see as a source of chaos and instability in your family life. Let’s agree. For this reason, don’t do it.

Talk to your father. Tell her that in order to operate the trust successfully, she will need a professional – an accountant, banker or lawyer – who can operate it with steely judgment and a clear understanding of what lies ahead, and who is not emotionally involved in it. Are. Work.

The trustee is a fiduciary, which means they have a legal and moral obligation to act in the best interests of the trust. If you fail in that task, or you are perceived to have failed in that task, you can really get into legal trouble. Either way, it looks like this trustee may have a rocky road ahead.

Any trustee should ask about the intent of the trust, the remuneration for their time and energy, whether it is designed to provide income, if there are conditions that must be met before the beneficiary can receive certain funds, And for how long will the trusteeship last? ten years? Twenty? a lifetime?

It is a stressful role. It appears that your own interests conflict with those of the Trust, which is another reason why you want to say so now. You need to act fairly and have some understanding of finance to make it run smoothly. On the former, you seem like a bad choice.

James L. Cunningham, a trust and estate attorney in California, says potential trustees should proceed with caution. It is an honor to ask, perhaps, but no reason to agree to it. “Shouldn’t you always say yes when asked?” Cunningham writes on his website. “Frankly, no!”

She has a caveat for anyone who is in your position: “A ‘fiduciary duty’ is the highest level of care you can legally owe someone, and it is the standard by which regardless of your expertise You will be judged in the court of law. In financial and legal matters.”

“Trustees often inadvertently, well, step into and create disasters,” says Cunningham. “Usually, these disasters happen simply because a novice trustee thinks everything will happen automatically, as in: ‘I’ll just follow the terms of the trust!’ Here,

Your father has created a trust for his adult daughter. It is a kind and rational decision. Trusts are designed to manage assets, distribute income, prevent beneficiaries from receiving too much money at once, avoid probate, and plan for any beneficiary disabilities.

Talk to your father and outline your concerns.

yoYou You can email The Monetarist with any financial and ethical questions at [email protected], and follow Quentin Fottrell Twitter.

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