Self dealing?

[maidao2001]

What is the name of your state? CA

My father passed away and my brother is trustee of the estate. I am successor, and both of us, along with my sister are the beneficiaries of the trust. The trust was written 12 years ago and left an unfinished mess. The only item actually assigned to the trust was his home. Everything else, (stocks, accounts, vehicles and a pending patent all valued over $100,000) were not.
Several years ago my brother, having maxed his own bad credit (he declared bankruptcy some time back) got a loan from my dad. I know this since my sister showed me the contract/loan agreement Dad drafted that my brother and his wife signed. My father took a second mortgage on his home to get the money to make the loan. When I asked my brother about the remainder of the loan he said he wasn’t going to pay it back , emphasizing that it no longer existed nor had it been notarized. Unfortunately we have no copy of it.
What formal action can be taken to hold him accountable? Would the paper trail that exists in my father’s accounts showing a deposit made from the proceeds received from the 2nd mortgage, the subsequent monies paid out to my brother in a large lump sum for the loan and a fairly regular stream of small monthly deposits for payment loan be obtainable and admissable? My sister and I would testify having seen the contract, and I am sure if my brother’s wife (signed the contract) had to testify under oath she would admit to it’s existence.What is the name of your state?What is the name of your state?

 

[Dandy Don]

Did your father leave a last will and testament?

Who was the beneficiary of the other assets in the estate (stocks, accounts, vehicle and patent)? What was the total value of the estate not including the house?

How much is the second mortgage for?

The company holding the 2nd mortgage will be most interested in how your father' estate was handled. If your father's estate was probated, then public notice about the estate should have appeared in the local newspaper and if the mortgage company saw it they should have notified the executor about this outstanding debt. IF they didn't see it, or if no probate was filed, then you have an obligation to notify the mortgage company about this so they can go after your brother or the executor for their money. Then brother won't get off so easily.

Only problem is if there was not or is not enough money in the estate to pay off the outstanding debt, the home may be repossessed from the trust and the trust beneficiaries will obviously not be entitled to benefiting from the sale.

DANDY DON IN OKLAHOMA ([email protected])

 

[maidao2001]

Re: self dealing

My father did leave a last will/pourover will.

Beneficiary of all assets in the estate not including the house is the trust, to be disbursed in the same manner as instructed in the trust. Valued at around $180,000

Re: second mortgage. I mis-stated, it was actually a home equity line of credit that my father took to loan my brother the money. I'm pretty sure that my brother will be paying that off once the house is sold, since as trustee he can be held accountable. He's greedy enough to steal from us (my stance so far has been tactically submissive) but not enough to risk suit by a bank backed by a battery of legal representation.

Since my last post my brother informed me that he contracted a lawyer to act as trust administrator so they could, in his words "protect him" (vs. the estate?) Apparently there is a way for all of the untitled assets to avoid probate if the beneficiaries sign an affidavit that states that we attest that we in fact knew all untitled assets would be titled if not for my father's sudden, unplanned death.

My thinking is that I suggest that he can attest in writing that he will pay off the rest of the loan out of his share of the estate before receiving his disbursement otherwise I won't sign anything and in turn will sue him for fraud and/or breach of contract regarding the loan?

Also - Would the trust administrator have any legal obligation to both the trust (protection of assets / acting in the best interest of all beneficiaries) and the State (defrauding to avoid taxes) to report him if they were informed of my brother's intention to defraud?

Thank you again for your responses - am curious what your response was to my other post as well. https://forum.freeadvice.com/showthread.php?t=329612

 

[tranquility]

A "pourover" will, by my understanding, is usually used to add to an already created trust of all the assets which are left once the estate is divided by other means (like community property). The will pours over the excess into a trust. The trust is irrevocable since the grantor has died. I don't see how the beneficiaries can prevent this by any signing of afidavits. You must explain more about what you are talking about.

The executor has a fiduciary duty to protect the estate and to make sure dad's wishes are carried out. He has the right to hire a lawyer and pay for him through the estate's assets.

You think you can prove up a loan. You get a lawyer, that you paid for, and then sue the brother, as executor, for the breach which results from him not protecting the estate. (By failing to collect all the assets.) He pays the cost through the estate and you pay your cost all by yourself. After a big old fight that is sure to cost thousands or tens of thousands of dollars to each side, the court will come to a conclusion as to whether you proved your suspicion that a loan was forgiven by the executor for his benefit.

If you win, you get brother to return the note to the estate. Then you continue the suit to prove the forgiveness was a fiduciary breach. You do this to make the executor's attorney's fees the brother's responsiblity. Even if things go well, you are going to be out the cash you put up for a lawyer.

In the alternative, you can try to get brother removed from the executor position. You have the same results eventually, it may just take longer and you need to find someone who will do the job.

Either way is a hassle and both ways are expensive to you up front. If the loan is big, see an attorney and bring a large check to start. If the loan is not big, eat the loss and move on.

(Stop talking about fraud, I don't see any fraud here and the claim hurts your position.)

 

[maidao2001]

Re: tranquility's response

In California, if untitled assets amount to $100,000 or more, even with a pourover will they must go through probate. Apparently this can be avoided if all of us beneficiaries sign an affidavit attesting that we know they were titled. I believe you misunderstood what I wrote. That means everything else but the house will be probated unless I sign off, along with my brother and sister.

I'm curious why removing my brother for breach of fiduciary duties would be such a long expensive fight if I was able to prove he had a loan as well as proof that he intends not to pay it back. I have read up a little more about contracts and have written evidence in the form of e-mails where he admits to owing the debt. Since the bank accounts with the paper trail showing the evidence I described in previous e-mails will be going through probate there is more evidence and finally, as I have also mentioned the debt is owed by both my brother and his wife and if put on the stand she would admit to the debt.

This is not the only evidence I have of him in breach of fiduciary duties.

Then I become the trustee. (I don't think you got that part either) at that point he can decide if he wants to fight the contract and pull out of his pocket to do so while I spend trust money to try and collect. Or, he can simply agree to pay it by having me deduct it from his portion of the estate.

While I certainly don't want to spend countless time and emotion fighting him, I could care less about the money, it's about honoring my father (he would have never had my brother sign anything if he didn't want legal recourse should my brother default) and honoring myself in two ways - by not letting my brother steal from me without fighting back (all the forgiveness in my mind won't help my heart to forgive making "moving on" as you put it more difficult than fighting back, for me that is) as well as doing what I can to prevent my brother from behavior that is a terrible example to his three kids. The reason why there is so much corruption and exploitation these days is because when it comes down to weighing the consequences between holding someone accountable and the costs to do it vs not holding someone accountable and not paying those costs most people will take the latter.

Regarding your remark of my use of the word "fraud"
defined: A deception deliberately practiced in order to secure unfair or unlawful gain.
I'm not in court or presenting a case or pretending to be a lawyer. For purposes of discussion I am using the term correctly.

I also suggest that you read all posts thoroughly before replying since you got a few pertinent details wrong.

Your tone is extremely dismissive and demeaning and certainly is discordant with the name you use "tranquility"

 

[mkawahara]

Accountability

In California, a pourover will applies to assets acquired after the creation of the trust. Usually, it is used for cars or other personal property that's not worth revising Schedule A of the trust.

However, if there are assets in the settlor's estate that wasn't listed in the trust schedules but should have been (like securities or other investments owned when the settlor was living) you can file a "Heggsted Petition" with the probate court so that those assets will be confirmed as part of the trust.

The cost of the petition may be less than the cost of probate. And certainly, since probate takes years and most trust instruments require distribution within months, a Heggsted could expedite distribution.

As for your brother's loan, if you can show that he indeed owes money to the estate then you can work that out with him during distribution (which, from what you are saying, is probably unlikely). You might have to compel him to either pay the debt or offset his share against what he owes to the estate. That can be tricky because his is trustee.

It's not possible to remove a trustee because you think he will be a bad trustee based on his current or past circumstances or past behavior. I know this because I had the same concern and was unable to remove the trustee. You have to wait for the trustee to act badly while administering the trust. Just him saying "I won't repay my loan" won't do it. In my case, all I had to do was wait and the trustee screwed up as I expected and I was able to file a petition for removal as I planned. I will bet that you will find the same thing. Just be patient.

The probate court in California does have probate referees who can help determine values of assets (like a loan made by the settlor). The court will make the determination as to if the trustee should be surcharged and if so, how much. If the house is at stake, you should at least talk to your attorney about your situation and concerns.

But for your own well being, take it one step at a time. It is frustrating, but you have to follow the procedure even if your brother won't. It would be best to settle the assets first and see if a Heggstead is appropriate or if the pourover applies. Tell your attorney about needing to place assets in the trust and that there is a loan out to your brother. If you are able to include the loan as one of the estate assets then you could have a much stronger position.

Oh, and in California, if you have to go to court because the trustee screwed you and you win your case, you can ask the court to make the trustee pay your legal costs. Per statute the court will grant at least some reimbursement of your legal fees out of the trustee's share of the estate. The intention of that statute is to remove the cost of a court action as a barrier to holding a person accountable. Also the case "Estate of Reade" established that the estate needs to pay the beneficiary's attorney costs if an attorney is needed. That also is intended to remove cost as a barrier to accountability.