Wednesday, January 22, 2014

The Trouble With Trusts (in Oregon estate planning)

I love trusts. A contract, at its simplest is a legal relationship between two people. A trust, at its simplest is a legal relationship among three people. Maybe it's my farm background, but I like the three-legged stool, and I keep my copy of Oregon's trust code always near at hand.

Despite my love of trusts I have become discouraged about using them for estate planning. The source of my discouragement is not how trusts work, the theory behind the trusts, or the law governing trusts. Rather it is that people dealing with a relative who has died leaving a trust so often go crazy.

If you have a will you go through probate. In probate you file the will with the court and that begins a series of logical steps. You notify the heirs, inventory the assets of the dead person, pay the claims of creditors, prepare an account of everything you have done, and distribute the money. Executors appointed by the court seldom have a problem doing these things, because each step makes sense and each one is required by law. If, the executor fails do these things in a timely manner, the court sends out a nasty note saying that if the current executor can't get the job done the judge will be pleased to replace him or her with someone who can.

The same steps that are mandatory in probate are also either required or strongly suggested when it comes to managing trusts. When an estate planning trust becomes irrevocable because the creator of the trust has died, the new trustee should notify the beneficiaries of the trust, inventory the property owned by the trust, pay the claims of creditors, then prepare an account of everything the trustee did and then distribute the money. In one way or another Oregon's uniform trust code requires that a trustee do each of these things, and even if it didn't, doing them is a very good idea. In the case of trusts, however, if the trustee fails to do his job there is no court to write nasty letters. Without those letters people go nuts.

In my experience, non-professional trustees assume their duties with great enthusiasm and then proceed to do everything wrong. They fail to notify the beneficiaries of the trust that they are taking over as trustee, and then fail to provide the beneficiaries with a copy of the trust. They take a job that is best done in the open and treat their work as if it is secret. They fail to inventory the trust property, or if they do they keep the inventory secret. This naturally makes the beneficiaries suspicious about what the trustee is doing. The beneficiaries then ask what the trustee is doing, and, rather than being open and honest about the administration, the trustee gets all up in the air about it and tells the beneficiaries to go pound salt. The beneficiaries are now understandably pissed off because they haven't seen the trust, or the inventory, or the account--so they come to see me.

I see a stream of trust beneficiaries with the same set of complaints. The trustee is holding back documents, failing to answer questions, and is unduly and unnecessarily secretive. The beneficiaries suspect the trustee is mishandling the money, and who wouldn't think that.

More often than not the trustee is not mishandling the money; he is simply being a jerk. At great expense to all parties I pry the information out of the trustee and give it to the beneficiaries. By this time, however, the trustee and the beneficiaries are not speaking to each other.

I am tired of it. I may go back to wills. I do my share of cases in which the validity of a will or the actions of a personal representative may be at issue, but at least with wills the personal representatives don't go so crazy that they think they can administer the estate without giving the heirs a copy of the will. Maybe it is the threats from the court that keep them on the straight and narrow, but I really don't care. Trusts, no matter how much I personally love them, make people crazy, and crazy people make me crazy.

Probate is just not that bad, and it looks downright inviting if the alternative is having to deal with crazy people.