untrusty Trustee??

[TrustUser]

btw, i did pick op on your comment "obligated to who", but forgot to say something.

i think you are referring to being only obligated to himself, and therefore no one would know the difference ?

most trusts have multiple beneficiaries, so he would be obligated to them.

but there will be times, especially say when just one of the kids is still alive, that the trustee may become the only beneficiary.

and while you do have a point in that it is not likely that anyone would find out, he still would be force to do something illegal, if he chose to do something outside of the boundaries of the trust.

i guess nothing is perfect, but i would rather my intentions fail due to my sole beneficiary spending the money contrary to my wishes, as opposed to taking the chance that my beneficiary would be run over the coals by a scoundrel trustee. i suspect that most parents would choose this, as well ?

anyways, nice talking to you. and if you do have any interesting links that i can read, i will do so.

 

[TrustUser]

hi tq,

i found something interesting. generally speaking, there is no problem with one of the beneficiaries acting as trustee.

but in the case when there is just a sole beneficiary acting as trustee, here is where the line tends to be drawn, regarding asset protection.

if the trust grants the trustee the ability to DETERMINE his income, then he can run into problems. in other words, if there is discretion left up to the trustee as to how to distribute his income, at least that part of the income that is under discretion can cause a problem.

and since asset protection from creditors is a very big reason for parents creating trusts that outlive them, that is probably a power that is better left out.

 

[TrustUser]

or a very simple clause could be added - "if the trustee is also a beneficiary, then said trustee has no discretion regarding distribution of income". something to that effect.

 

[tranquility]

btw, i did pick op on your comment "obligated to who", but forgot to say something.

i think you are referring to being only obligated to himself, and therefore no one would know the difference ?

most trusts have multiple beneficiaries, so he would be obligated to them.

but there will be times, especially say when just one of the kids is still alive, that the trustee may become the only beneficiary.

and while you do have a point in that it is not likely that anyone would find out, he still would be force to do something illegal, if he chose to do something outside of the boundaries of the trust.

i guess nothing is perfect, but i would rather my intentions fail due to my sole beneficiary spending the money contrary to my wishes, as opposed to taking the chance that my beneficiary would be run over the coals by a scoundrel trustee. i suspect that most parents would choose this, as well ?

anyways, nice talking to you. and if you do have any interesting links that i can read, i will do so.

How is not following the trust "illegal"? The cops are not going to come unless the trustee cheats the beneficiaries. The only enforcement method of following the trust is a suit by the beneficiaries who are the ones with standing to sue. That is the entire point of the protector and/or the hope the law changes to third party standing as espoused by the article posted.

 

[TrustUser]

either something is legal or illegal.

the ability to enforce a law does not change its legal status.

it would be illegal for the trustee not to follow the instructions of the trust.

if we look at the big picture, your solution is to punish everyone in order to stop some beneficiaries from taking the money from the trust.

look at all the hopefully wise beneficiaries who will be thrilled that they have a very special type of savings plan that is much better protected than their own assets are.

all states have the ability to make their own laws.

i understand what you are saying, and i think you understand what i am saying.

but if we were going head to head against one another in court, i think my claim would win more often than yours would.

but in the typical mom and pop trust, a sole trustee/beneficiary does not happen all that much. even when a child dies, his kids/beneficiaries usually have some standing.

so at least the sole trustee is in a pretty big minority.

and if the beneficiary can hire/fire the trust protector who can hire/fire the trustee, dont we just end up with a permanent problem of who watches the watchers ?

i say make it simple - allow the bene to be the trustee, if desired.

 

[tranquility]

either something is legal or illegal.

There are civil wrongs and there are criminal wrongs. Each requires someone to care before a court will look at it and call the facts a crime or a tort. Only then can you call it legal or illegal. In this case, things are worse. Because the only person who has civil standing to object is trying to control the trustee by firing those who don't do what the beneficiary wants, once he gets one who does what he wants, there is not going to be a case against the trustee. (The estoppel will be in equity.)

the ability to enforce a law does not change its legal status.

Sure it does. If Saudi Arabia makes a law saying it is illegal to say bad things about the king, and I say a bad thing about the king, what is my legal status if I stay here in America? And, you're not talking about a whole country making a "law", but some guy who may very well be dead.

it would be illegal for the trustee not to follow the instructions of the trust.

You said that before. Supply the law.

if we look at the big picture, your solution is to punish everyone in order to stop some beneficiaries from taking the money from the trust.

No, my "solution" to this problem is to have the trustee and the beneficiary to not be essentially the same person. If it were exactly the same person, the trust merges and disappears. If the beneficiary can completely control the trustee, same thing. That is why the trust protector theory came up--as I told you before. That is the problem it tries to solve. It has not been well tested in the courts yet and is not on the upswing of usage in my state in the trusts I see. The paper cited tried to show a different way to solve the problem.

look at all the hopefully wise beneficiaries who will be thrilled that they have a very special type of savings plan that is much better protected than their own assets are.

Yes, everyone would like a magic fairy to hold their money to use as they see fit but at no risk to liability against it. Such a magic fairy does not exist. If you are thinking your trusts are so well worded to have such a magic fairy, you are incorrect.

but if we were going head to head against one another in court, i think my claim would win more often than yours would.

No, it wouldn't. You don't seem to understand the issues and why they need to be the way they are under current law. We would not be breaking new ground with the arguments.

but in the typical mom and pop trust, a sole trustee/beneficiary does not happen all that much. even when a child dies, his kids/beneficiaries usually have some standing.

I agree. But, since the sole trustee that can be fired by the sole beneficiary is the matter I've been discussing, I am uncertain why it is in the post.

and if the beneficiary can hire/fire the trust protector who can hire/fire the trustee, dont we just end up with a permanent problem of who watches the watchers ?

That's probably why it is disfavored. I have not studied the litigation on the matter as it does not reach the appellate courts much. But, it is not so much a who watches the watcher problem, but the problem of the legal concept of merger.

i say make it simple - allow the bene to be the trustee, if desired.

"The" beneficiary CANNOT be "the" trustee. When that happens; when the complete legal and equitable interests come together, the estate and/or trust disappears.

 

[TrustUser]

come on tq,

your statement about saudi arabia ??? that is so weak, it needs supports just to stand up !! the law only applies in saudi arabia, as they have no jurisdiction here.

not following the instructions is illegal - i will say once again. it is part of the trustee law of AMERICA. and surely as a lawyer, you must know the difference between the legality of a law, and the enforceability of a law.

if a law is passed in america that you can not draw elephants on your wall, then it is illegal to draw elephants on your wall in america. whether anyone can find you drawing elephants on your wall is a completely different issue. however, if you mistakenly invite me in your home, and i snitch on you, you could be legally forced to take the elephants off your wall.

you are guilty of dramatizing and overstating, regarding your fairy statement. i did not say that there was no liability. i said that those assets are MUCH BETTER PROTECTED than their own assets. and they are.

we differ on the merger issue. as i explained in a prior post, as long as the instructions in the trust do not allow the beneficiary/trustee to spend the money like it was his own, then there is separation and no merger. my research on the net has backed this up with findings from judges.

we are not gonna solve our issues about merger, for sure. it comes down to a very simple difference of opinion. you say there is no separation when trustee and bene are the same. i say there is separation due to the instructions in the trust. and i do not think either one of us is gonna budge on that point !!!!

the trust protector aspect just makes things more complicated and does not solve anything. it is very much a concept of watching the watchers. who are we gonna trust ? someone needs to be the one who has the ultimate control. that someone had better be the guy who owns it.

the reason why i mentioned the kids in standing, is just to demonstrate that at least we are discussing a small percentage of the trusts out there.

 

[TrustUser]

all my research about trust protectors says that the bene has the right to fire the trust protector. and the trust protector has the right to fire the trustee. so the bene ultimately has the ability to fire the trustee.

so we wind up with who do we have to watch over the trust protector ? the watcher of the trust protector ?

again, who watches the watchers ?

in a well-written trust, there is always language about hiring and firing a trustee. in the mom and pop trusts, it is always the beneficiary. i have seen hundreds of them, and never have i seen anything else.

i put one up for you earlier in the thread.

 

[tranquility]

come on tq,

your statement about saudi arabia ??? that is so weak, it needs supports just to stand up !! the law only applies in saudi arabia, as they have no jurisdiction here.

not following the instructions is illegal - i will say once again. it is part of the trustee law of AMERICA. and surely as a lawyer, you must know the difference between the legality of a law, and the enforceability of a law.

if a law is passed in america that you can not draw elephants on your wall, then it is illegal to draw elephants on your wall in america. whether anyone can find you drawing elephants on your wall is a completely different issue. however, if you mistakenly invite me in your home, and i snitch on you, you could be legally forced to take the elephants off your wall.

you are guilty of dramatizing and overstating, regarding your fairy statement. i did not say that there was no liability. i said that those assets are MUCH BETTER PROTECTED than their own assets. and they are.

we differ on the merger issue. as i explained in a prior post, as long as the instructions in the trust do not allow the beneficiary/trustee to spend the money like it was his own, then there is separation and no merger. my research on the net has backed this up with findings from judges.

we are not gonna solve our issues about merger, for sure. it comes down to a very simple difference of opinion. you say there is no separation when trustee and bene are the same. i say there is separation due to the instructions in the trust. and i do not think either one of us is gonna budge on that point !!!!

the trust protector aspect just makes things more complicated and does not solve anything. it is very much a concept of watching the watchers. who are we gonna trust ? someone needs to be the one who has the ultimate control. that someone had better be the guy who owns it.

the reason why i mentioned the kids in standing, is just to demonstrate that at least we are discussing a small percentage of the trusts out there.

Please cite the law you are talking about regarding not following the trust as being "illegal".

As to merger, you are simply wrong.

http://www.maximumassetprotection.com/publications/downloads/Whitepaper_%5BUse_of_Trusts_in_Asset_Protection_-_General_Structures%5D.pdf

When a debtor is the sole beneficiary and the sole trustee of a trust, the trust�s protective
benefits are lost because the trust is deemed terminated and the beneficiary holds trust
assets free of trust.
18
This happens because of the doctrine of merger � the debtor now
holds all the equitable interests in the trust in his capacity as the beneficiary, and all the
legal interests in his capacity as the trustee. When the equitable and legal interests are
vested in one person, there is no longer a trust relationship and that person can fully
dispose of the property as any other person.
California has a limited anti-merger statute which provides that when the settlor of a trust
is also the sole trustee and the sole beneficiary the trust is not merged or terminated if it
names one or more successor beneficiaries.
19
The intent of this statute is to insulate a
trustee of living trust from personal liability when acting in his capacity as a trustee.
20
Because the California anti-merger statute has little relevance when drafting asset
protection trusts, such trusts should not have the same one trustee and beneficiary. This
may be avoided by naming a co-trustee, by adding another beneficiary, or by picking a
jurisdiction with a strong anti-merger statute.
A beneficiary of a trust includes any person who has a present or future interest in the
trust, vested or contingent.
21
In Ammco Ornamental Irona creditor of a beneficiary, who
was also the sole trustee, attempted to challenge the spendthrift clause of an irrevocable
trust by arguing that under the doctrine of merger the trust terminated. The debtor-
beneficiary held a life estate, and on his death the trust corpus was to be distributed to the
beneficiary�s children pursuant to a testamentary power of appointment held by the
beneficiary. The court held that when the remainder beneficiary is in existence and
ascertained and the remainderman�s interest is not subject to a condition precedent, the
remainder interest is vested in such beneficiary.
22
The fact that the interest of the
remainder beneficiary was subject to a complete divestment (due to lifetime distributions
to the current beneficiary), did not change the remainder beneficiary�s status as a
beneficiary of the trust.
23
Consequently, the children of the debtor-beneficiary also
qualified as the beneficiaries of the trust, and the doctrine of merger was inapplicable.

As to more, it seems like you're trying to protect assets with a self-settled trust. I know that's not possible in California, but, maybe you have a state where it is not a problem?

 

[TrustUser]

i dont know what you mean by self-settled ?

but as a general rule, the trustor is not protected.

the asset protection only comes to fruition when the trustor dies, and the trust lives on with its new beneficiaries.

these new beneficiaries are the ones that can benefit from asset protection.

 

[TrustUser]

look up basic trust law. when someone takes on the job of trustee, he takes on the legal responsibility to follow the trust instructions.

research on the net says over and over that one can avoid the merger issues by not allowing a sole trustee/beneficiary DISCRETION over distribution of income.

in other words, the language of the trust specifically states how the income is to be distributed, without giving the trustee any leeway to use his own discretion, thereby completely severing the individual from his position as trustee.

 

[TrustUser]

why do you think that other beneficiaries have recourse against a trustee who disobeys the instructions of the trust ?

easy answer - because the trustee has legal obligations to obey the trust.

those obligations do not disappear if the trustee becomes sole beneficiary, because the instructions of the trust do not disappear.

so once again you are forced to make the incorrect argument that the enforceability of a law has something to do with the legality of the law.

a law is a law. basic trust law dictates that a trustee is obligated to follow the instructions of the trust. and he can get in big trouble if he does not follow them.

 

[tranquility]

i dont know what you mean by self-settled ?

Google "self settled trust".

but as a general rule, the trustor is not protected.

Generally, yes. But, 14 states allow some level of them with 4 holding the majority that are created for asset protection purposes.

look up basic trust law. when someone takes on the job of trustee, he takes on the legal responsibility to follow the trust instructions.

Once again, and for the final time, what law? The law where the beneficiary has the only standing to sue? Or, some criminal law? What law? This is a core of what we are talking about. The state is not going to step in and arrest a trustee for doing what the beneficiary wants. The beneficiary will be equitably estopped from suing the trustee for doing what he wants him to unless that causes damages.

research on the net says over and over that one can avoid the merger issues by not allowing a sole trustee/beneficiary DISCRETION over distribution of income.

in other words, the language of the trust specifically states how the income is to be distributed, without giving the trustee any leeway to use his own discretion, thereby completely severing the individual from his position as trustee.

Cite a legal resource. The point you are missing is that if the beneficiary can fire the trustee at will, he will find a trustee to breach the trust.

why do you think that other beneficiaries have recourse against a trustee who disobeys the instructions of the trust ?

They are the only ones with standing to sue on the trust instrument.

a law is a law. basic trust law dictates that a trustee is obligated to follow the instructions of the trust. and he can get in big trouble if he does not follow them.

I'm done here as all those who want to learn have enough to further their knowledge. Others can use "basic trust law" understanding if they'd like.

 

[Zigner]

...basic trust law dictates that a trustee is obligated to follow the instructions of the trust. and he can get in big trouble if he does not follow them.

Let's look at reality. Who is going to get the person "in big trouble" if the sole beneficiary is also the trustee? Who is going to sue the trustee for not following the terms of the trust? The beneficiary? The grantor?

 

[TrustUser]

i am also resting my case.

zigner, i have already answered that question throughout this thread. the enforceability of the law has nothing to do with whether it is a law or not.

it is obviously a law, cuz that is why a trustee can get in big trouble if he disobeys the trust.

you and tq seem to think that the law disappears just because there may be no one to get him in big trouble.

there are lots of criminal acts that we can do that have even less of a chance of anyone finding out about them.

does this mean that they are no longer criminal acts ? of course not. it just means that there is a good chance that we may get away with them.

but if someone finds out, we can be legally held responsible and punished.

check and checkmate.