Trustee responsible for losses?

[gapdev]

What is the name of your state? California

My siblings and I are the beneficiaries of my father's Trust. He died over 4 years ago and the Trustee is only now starting to distribute the assets.

One of the assets is a Brokerage account that is currently worth $454,000.00. In early July 2007 we were asked how we wanted the distribution, Stocks or Cash. We told the Trustee that we preferred Cash and were then told that they would get right on it and sell the stocks. At that time, the Portfolio was worth $477,000.00.

Since we had not heard from the Trustee in over a month, I had to have my Lawyer contact the Trustee's lawyer to find out what the hold up was. The Trustee refuses to respond to my inquiries so the only way I can get a response out of him is through my lawyer. He told his lawyer that he "hopes to have the stocks sold by the end of August".

Of course, the stock market is extremely volatile right now. The portfolio, since July, has gone up as high as $535k. At the time we contacted the Trustee's lawyer, the stocks were worth around $500k. Right now they are down to $454k.

What is the Trustee's responsibility in all of this? It takes no longer than 1 day to sell stocks. You're broker cannot sit on sell orders, so why would it take the Trustee over a month to sell these stocks?

We of course cannot find out the status because he simply ignores us. When I get the lawyers involved it takes over a week for them to get in contact with each other and another week to get a reply from the Trustee.

If he hasn't sold the stocks yet, we will be taking a significant loss which we feel should be made up by the Trustee out of his own funds (or the bonding agency).

There are also other problems with the Trust but I'll save those for another message. This one is currently the most significant.

Thanks much for any insights you can share,

KennyWhat is the name of your state?

 

[tranquility]

You have included very little facts on which to help determine things. Focusing on numbers has no meaning. *Why* he did what he did does. State your concerns in a lawyer letter and ask for a response. That will guide your path. While I'd tell you to wait until after the distribution, you're not going to get the funds until you sign a release against the trustee, so you might as well start things now if you think the trustee breached his fiduciary duties.

 

[anteater]

What is the name of your state? California

My siblings and I are the beneficiaries of my father's Trust. He died over 4 years ago and the Trustee is only now starting to distribute the assets.

One of the assets is a Brokerage account that is currently worth $454,000.00. In early July 2007 we were asked how we wanted the distribution, Stocks or Cash. We told the Trustee that we preferred Cash and were then told that they would get right on it and sell the stocks. At that time, the Portfolio was worth $477,000.00.

Since we had not heard from the Trustee in over a month, I had to have my Lawyer contact the Trustee's lawyer to find out what the hold up was. The Trustee refuses to respond to my inquiries so the only way I can get a response out of him is through my lawyer. He told his lawyer that he "hopes to have the stocks sold by the end of August".

Of course, the stock market is extremely volatile right now. The portfolio, since July, has gone up as high as $535k. At the time we contacted the Trustee's lawyer, the stocks were worth around $500k. Right now they are down to $454k.

What is the Trustee's responsibility in all of this? It takes no longer than 1 day to sell stocks. You're broker cannot sit on sell orders, so why would it take the Trustee over a month to sell these stocks?

We of course cannot find out the status because he simply ignores us. When I get the lawyers involved it takes over a week for them to get in contact with each other and another week to get a reply from the Trustee.

If he hasn't sold the stocks yet, we will be taking a significant loss which we feel should be made up by the Trustee out of his own funds (or the bonding agency)...

While I have no sympathy for a trustee that has kept a portfolio of securities for 4 years (unless the trust instrument specifies that), I'd say that you probably have a snowball's chance in Miami in mid-July.

Any reasonably diversified equity portfolio has increased 60% - 75% in total return over the last 4 years. Were you kvetching about selling the equities 4 years ago? 3 years ago? 1 year ago? 6 months ago?

This should be Exhibit #1 for personal representatives and trustees:

1) Your job is not to be a stock picker/stock market timer. Unless the will or trust instrument restricts your freedom of action regarding risky securities, liquidate them as soon as possible.

2) Unless the will or trust instrument restricts your freedom of action, distribute the proceeds as soon as practicable. If the beneficiaries wish to invest in risky assets, let them do it.

3) Unless the will or trust instrument instructs you to do otherwise, do not waste time giving beneficiaries choices.

4) Unless the will or trust instrument instructs you to do otherwise, treat the beneficiaries like mushrooms. Provide them only the information that you are legally required to provide.

 

[tranquility]

1) Your job is not to be a stock picker/stock market timer. Unless the will or trust instrument restricts your freedom of action regarding risky securities, liquidate them as soon as possible.

Unless you (As trustee/executor) have specific, documented expertise, you *SHALL NOT* chose where to invest until after you have consulted a professional. Period. You don't *have* to follow his advice (You probably should though.), but you have to get it. Don't liquidate until after you get such advice. If you actually care (Although failure to do so would probably not be a breach.), you should see a tax professional as well.

2) Unless the will or trust instrument restricts your freedom of action, distribute the proceeds as soon as practicable. If the beneficiaries wish to invest in risky assets, let them do it.

There are many considerations regarding the timing of distributions. "As soon as practicable" is a big mouthful. It does *not* mean as soon as you get the funds.

3) Unless the will or trust instrument instructs you to do otherwise, do not waste time giving beneficiaries choices.

The problem is that following the beneficiaries' wishes does not protect you at all. You can ask them and try to accomodate, but you still must live up to your fidicuary duties.

4) Unless the will or trust instrument instructs you to do otherwise, treat the beneficiaries like mushrooms. Provide them only the information that you are legally required to provide.

Sadly, this is often the best course. You have to make your own choice on the matter, but less is usually best when talking about problems from beneficiaries.

 

[anteater]

Unless you (As trustee/executor) have specific, documented expertise, you *SHALL NOT* chose where to invest until after you have consulted a professional. Period. You don't *have* to follow his advice (You probably should though.), but you have to get it. Don't liquidate until after you get such advice. If you actually care (Although failure to do so would probably not be a breach.), you should see a tax professional as well.

Tranq -- My only disagreement with your comments would be with the "Don't liquidate until after you get such advice." Although I probably should qualify my comments to say that I had in mind "normal administration" of wills and trusts where it is intended that probate or trust assets will be distributed to the beneficiaries as soon as the deceased's affairs are wrapped up.

In my opinion, unless the will or trust directs in-kind distribution of securities or otherwise restricts the ability to do so, the PR/trustee should liquidate as soon as possible. Not to do so is only inviting a potential headache. Any "financial professional," whether calling themselves a planner, advisor, or broker. that does not advise this, should make certain that they have been paying their E&O premiums.

Sadly, this is often the best course. You have to make your own choice on the matter, but less is usually best when talking about problems from beneficiaries.

Yep, in the best of all possible worlds, the PR/trustee would make every effort to keep beneficiaries informed, above and beyond the law's requirements. It is truly unfortunate that this can often end up in a boatload of kvetching from the bene's.

 

[tranquility]

Tranq -- My only disagreement with your comments would be with the "Don't liquidate until after you get such advice." Although I probably should qualify my comments to say that I had in mind "normal administration" of wills and trusts where it is intended that probate or trust assets will be distributed to the beneficiaries as soon as the deceased's affairs are wrapped up.

There are many reasons why one should not sell securities as a matter of course.
1. Why cause a taxable scenario if one is not required? (Obviously, probably more of an issue in a trust.)
2. You need to make sure there is no specific bequest related to the security.
3. You need to make sure there are not seperate income and corpus beneficiaries and the sale would not favor one over the other.
4. You need to make sure the sale is for the benefit of the trust and not for the benefit of the trustee. [Conflict of interest rules.](In all cases, trust/trustee can refer to estate/executor as well.)
5. Of course, any sale must be at arm's length. The trustee should not profit from it, nor should it be a prohibited transaction.


Most of those can still be accomplished with a quick sale, but there is risk. If a diversified portfolio is doing well, if a trustee were to sell it all and put it in T-bills it could be a problem unless the trustee had received advice from a financial professional recommending that. My only point is few things should be done by rote when being the fiducuary of another. There are many traps, both subtle and obvious, to any action. Thinking before acting is necessary.

 

[gapdev]

Hey guys,

My lawyer has stated several times that she has never encountered a Trustee such as this one. She has never had to contact the Trustee's attorney in order to obtain information about the affairs of the trust.

You also keep forgetting it has been over 4 years. We are currently preparing Court Papers to have him removed.

You also keep forgetting that these stocks were left by my Father to his children. They were not left to the Trustee to do with as he pleases. When asked how we wanted the distribution, we said Cash. The process to sell stocks takes less than a day. It does not take 2 months.

The guy is in Breach in more ways than one. The question was whether or not we can sue him because he has not sold these stocks in a timely manner.

Keep in mind that he takes 1.6% of the current market value of the Trust assets. The longer he keeps the stocks in the Trust, the longer he keeps paying himself and the higher the dollar amount. He has already overpaid himself for 10 months because he had the Apple stocked overvalued by 1 million - didn't even notice that the Trust value increased by a million dollars but that didn't stop him from increasing his fee.

Not sure why I'm being made out to be the bad guy here.

Kenny

 

[tecate]

You might look up the word "laches." Despite everyone sitting on their rights for 4 years, if the trustee hasn't served any accountings, you can object to his or her acts when the trustee finally files one. But my guess the judge will wonder why you let this slide for this long and factor that into his or her decision on how much, if any, to surcharge.

 

[tranquility]

As to equitable defense of laches, how would the failure to act over the 4 years cause some harm to the trustee? How has he changed his position to his detriment due to the lack of complaint?

While you may not have seperate causes of action against each failure to timely account for the assets, you still have a breach if he didn't account. I don't know enough facts to determine if there was a breach or multiple breaches. But, if he did fail to live up to his duties, I don't see how the beneficiary's prosecution would be estopped because he didn't complain earlier.

 

[Dandy Don]

It is doubtful that the trustee will be held responsible for the decrease in the value of the portfolio (since trustees are given wide latitude and can not be held liable for what happens in the stock market), but much more problematic is the fact that he has delayed making distributions to the beneficiaries which nearly borders on breach of fiduciary duty. Clearly looks like he is stalling so he can continue to collect his trustee fee.

Does the trust mention any timeline or conditions as to when it is to be dissolved?

Does the trust exempt the trustee from having to post a trustee's bond?

What other assets are in the trust besides the stock? Are you saying that beneficiaries have received no distribution whatsoever?

Were you aware as a beneficiary that you have the right to request an annual accounting statement (for each year that the trust has been in existence) and copies of tax returns, but that you must do so by sending the trustee a CERTIFIED LETTER requesting this information, or you could ask your attorney to do so.

Glad you are taking steps to get him removed/replaced, but it won't be easy.

DANDY DON IN OKLAHOMA ([email protected])

 

[tecate]

tranquility, one of the OP's complaints is payment of trustee's fees even though the trustee should have distributed the trust ASAP after the terminating event. Now its 4 years later, so to force the trustee to disgorge any inappropriate fees, OP will need to object to a future accounting showing payment of "any" trustee's fees past what the OP feels is a reasonable time to wind up and distribute. I'm agreeing with what seems to be your and anteater's general thoughts, and note that especially if the trustee presided over an appreciating brokerage account, a judge may not sustain many objections because the beneficiaries sat on their rights. Since this is a DIY site, I only thought the OP may wish to read about one reason why a judge may not give he or she 100% of any surcharge sought, even if the trustee doesn't allege this specifically.

OP has already filed something; my guess is it contains a demand to account. I hope OP revives this post later on to let us know what happens.

 

[anteater]

There are many reasons why one should not sell securities as a matter of course.
1. Why cause a taxable scenario if one is not required? (Obviously, probably more of an issue in a trust.)
2. You need to make sure there is no specific bequest related to the security.
3. You need to make sure there are not seperate income and corpus beneficiaries and the sale would not favor one over the other.
4. You need to make sure the sale is for the benefit of the trust and not for the benefit of the trustee. [Conflict of interest rules.](In all cases, trust/trustee can refer to estate/executor as well.)
5. Of course, any sale must be at arm's length. The trustee should not profit from it, nor should it be a prohibited transaction.

A bit belated reply... No disagreement. Although with #1, there should not be much in the way of tax consequence if the sale is made quickly. And, I think that the trade-off is worth it, considering the PR/trustee's duty to preserve the assets and avoid the risk of the assets depreciating in value.

Most of those can still be accomplished with a quick sale, but there is risk. If a diversified portfolio is doing well, if a trustee were to sell it all and put it in T-bills it could be a problem unless the trustee had received advice from a financial professional recommending that....

Here is where I part company. That a diversified portfolio has done "well" says absolutely nothing about the future, particularly when one is talking about a relatively short time frame.

I consider myself to be a "financial professional," although some people I know may disagree. (But, at least, I stayed at a Holiday Inn Express alst night.) Of the group that most people would regard as "financial professionals," 50% would not know what a fiduciary responsibility is if it came up and bit them in the rear. Of the other half, 25% would run away screaming at the mere mention of the term. Of the remaining 25%, maybe half would understand the risks of a six-month to, maybe, 2 year time frame.

 

[BlondiePB]

Without anyone reading the entire trust document, IMO, we all do not know exactly how the trust is to be handled and the latitude given to the trustee. This does not excuse the trustee from providing the beneficiaries an accounting and a copy of the trust document (if beneficiaries do not have a copy).

A true story here:

After the passing of a ward, I still had a lot to due before I could be discharged and hand the estate over to the PR's attorney. In this time due to the volatile market, the portfolio was losing money. To prevent further loss, I wanted to liquidate the portfolio. The broker very wisely told me to call my guardian attorney, who then called the PR's attorney. The PR's attorney called the PR.

The PR didn't want the portfolio liquidated. My guardian attorney obtained this in writing along with me not being responsible for any further loss due to the market dropping when the estate was handed over to the PR after my discharge by the court.

Yes, there was a further loss by the time those monies were turned over to the PR and were liquidated by the PR's attorney.