Real Property vs residual estate (money)

[Just Mike]

What is the name of your state? California

I am the Trustee of a Living Trust for an older man who is currently living in a rest home. I am also his POA and his agent for health care. He could easily live another 5-10 years and I hope he does. He has dementia problems but his health is fairly good.

It is my job to protect the assets in the trust and provide money for him to live the rest of his life on. That is my main objective and responsibility while he is alive.

He owns a ranch in Central California and has money in a Schwab account. After his death the trust gives the ranch to 3 people and whatever money is left after paying attorneys etc. goes to 3 other people.

He has an inheritance coming in next year from an aunt who passed away a couple years ago. That money he will recieve will become part of the money portion of his estate to be used to "his" benefit while alive.

The amount of this inheritance he will recieve is about 250 grand. I believe I can make improvements to his ranch (plant almond trees) at a cost of around 200 grand and in turn make more money for him to exist on while alive than if I left that money invested in the stock market.

If I decide to do this then that money I spent to make the improvement would then become "the ranch". So, the 3 people would get less money someday than they would have (most likely anyway) if I had not made the ranch improvements. The 3 people that split the income from selling the ranch someday would obviously get more than if I had not made the improvement.

Is my thinking on this correct? Is this the proper thing to do? I am obligated to the beneficiaries but in my thinking that comes into play after this man passes away. During his lifetime I am obligated to him to make the most money I can for his benefit.

 

[curb1]

JustMike,
That seems like a transfer of wealth from one set of beneficiaries to another. You don't know how long he will live so you are guessing about the return on "your" investment. If he lived for three years, you have made a great shift in assets of the beneficiaries, for what reason? Does he need the income 5-10 years down the road to survive? If not, don't do it. You will be starting a war. What would the beneficiaries say if you were to pose this question to all of them? I doubt all would agree that you are doing this in their best interest. What is your reason to do this, the stock market has been doing great?

 

[seniorjudge]

We can't really answer the question because we don't know what the trust says.

But the general rule is that you must be more careful with these assets than with your own stuff.

Google fiduciary duty to read up on your responsibilities.

You should conduct your business with the view that you may have to justify literally every penny you spend to a judge.

 

[anteater]

Mike.. buddy.. you seem intent on shimmying out on a long, thin limb as a trustee. With a gaggle of beneficiaries standing around with chain saws.

Now, I don't know nuts about almonds, But if the returns promise to be greater than a diversified stock and fixed income portfolio, that tells me that the risk is also higher. Tread carefully.

Ditto what seniorjudge said.

 

[Just Mike]

JustMike,
That seems like a transfer of wealth from one set of beneficiaries to another. You don't know how long he will live so you are guessing about the return on "your" investment. If he lived for three years, you have made a great shift in assets of the beneficiaries, for what reason? Does he need the income 5-10 years down the road to survive? If not, don't do it. You will be starting a war. What would the beneficiaries say if you were to pose this question to all of them? I doubt all would agree that you are doing this in their best interest. What is your reason to do this, the stock market has been doing great?

With the exception of myself and the Trust Attorney no one knows who the beneficiaries of the trust are and won't until he passes away.

My job is to take care of this man while he is alive not to attempt to save as much money as possible for the beneficiaries of the trust after he dies. At least that is the way I see it. I am not going to deny him in order to reward those after his death. He earned it and inherited it so it is his to take care of him.

I do understand what you are saying however. Yes, he does need the income 5-10 years down the road to survive. I am going to take the conservative road and assume he will live for another 10 years, not that he will die next year.

Guessing about the return on an investment is about how it generally goes. The stock market might be doing real good today or this week but as I have seen several times over that is not something you can count on. Generally, real estate and almonds are something you can count on. At least way more than the stock market.

This is just something I am contemplating. I wouldn't do it without the approval of both the trust attorney and the accountant I have handling this trust.

 

[Just Mike]

Mike.. buddy.. you seem intent on shimmying out on a long, thin limb as a trustee. With a gaggle of beneficiaries standing around with chain saws.

Now, I don't know nuts about almonds, But if the returns promise to be greater than a diversified stock and fixed income portfolio, that tells me that the risk is also higher. Tread carefully.

Ditto what seniorjudge said.

No, I am not intent on doing anything to irritate beneficiaries. I am just asking questions and getting answers. I think that is what this forum is about, right

I guess my point is that the "trustor" is not dead yet. So, right now his trust is to benefit him, not beneficiaries that are named in his trust. I would surely hope when I am in his shoes that the person I choose as "trustee" doesn't keep me locked in a basement with bread and water in an attempt to "save the money" for my heirs.

 

[curb1]

JustMike,
You said previously, "His Will gives the "whole" of his estate worth about $1.5 million to the "trustee" of his "living trust". "

Add to that the $250,000 he will be inheriting and he should be able to live quite comfortably for the next 10-15 years. He is most likely getting at least $20,000 per year in Social Security. Your fudiciary function is not to maximize his assets and risk. It doesn't need maximizing. $1.75 million in assets would throw off $87,000 per year just with the most conservative U.S. Treasury Bonds/Notes. Plus the $15,000-20,000 in Social Security his annual income would be over $100,000, without even touching the principal.

 

[Just Mike]

JustMike,
You said previously, "His Will gives the "whole" of his estate worth about $1.5 million to the "trustee" of his "living trust". "

Add to that the $250,000 he will be inheriting and he should be able to live quite comfortably for the next 10-15 years. He is most likely getting at least $20,000 per year in Social Security. Your fudiciary function is not to maximize his assets and risk. It doesn't need maximizing. $1.75 million in assets would throw off $87,000 per year just with the most conservative U.S. Treasury Bonds/Notes. Plus the $15,000-20,000 in Social Security his annual income would be over $100,000, without even touching the principal.

Actually, his ranch is worth about 1 million and it generates 8,000 per year in the current land lease minus taxes, water costs etc. He gets exactly 480 bucks per month in Social Security and he has 150,000 bucks in a Schwab account that generates about 500 bucks per month income. He made a loan a few years ago that gives him 2,000 bucks per month in income also. The picture is not nearly as rosy as you painted it but obviously you don't have the facts. His inheritance will come in very handy to help with his expenses which will undoubtedly go up up up as his condition worsens with age and he needs more care. His current annual income is actually around 38 grand minus taxes. The home costs are about 26 grand per year so that doesn't leave a lot of room. My intent is to take care of him without touching principal but that remains to be seen of course.

If the need arises to take care of him I can always sell the ranch and use that income to take care of him. My POA specifically states I have that power in addition to any other powers that he himself could do if he were able. That about covers everthing I believe.

I appreciate all the comments.

 

[anteater]

No, I am not intent on doing anything to irritate beneficiaries. I am just asking questions and getting answers. I think that is what this forum is about, right

I guess my point is that the "trustor" is not dead yet. So, right now his trust is to benefit him, not beneficiaries that are named in his trust. I would surely hope when I am in his shoes that the person I choose as "trustee" doesn't keep me locked in a basement with bread and water in an attempt to "save the money" for my heirs.

I was not suggesting that you were intentionally going to irritate the beneficiaries, nor that you have some duty to save money for the heirs. (And I am definitely not prescribing bread and water.) Simply that your actions in administering the trust could be open to question by the beneficiaries.

I don't know almonds and whether your faith in them is justified, but I have my doubts that sinking $200K of an 83 year-old's money in almond trees would withstand scrutiny under the Prudent Investor Act.

 

[curb1]

The best advice I could give would be to immediately sell the ranch. He has no use for it at this time, or in his future. The value of it would take care of him for the rest of his life, without touching the principal. If you are primarily concerned (and you give indication that you are) for his welfare, that is a "no brainer".

 

[Just Mike]

Yes, I have considered the idea of selling his ranch when the need arises. Leasing the land does not produce that much income. However, if I sell the ranch I would assume the three beneficiaries who were to share the ranch would then be totally out of the picture and the money left over would go to the three beneficiaries who are to share the residual estate. Talk about coming after me with a chainsaw, those three would probably hire a hit man to take me out for sure.

Obviously before I would do that I would consult with both the Trust Attorney and the Accountant.

I appreciate the comments from all of you. I am learning a lot. It is way more interesting than flying jets and I can do this at home