Picking A Trustee | The Case Of The Stuttering Pig
One of the most important decisions you will make as part of drawing up a trust is picking a trustee. A trustee’s duties can continue for generations. Being a trustee requires expertise in collecting estate taxes, paying bills, and managing money for the beneficiaries. Trustees also have a legal obligation to follow instructions and act with the interests of the beneficiaries in mind, which is called a fiduciary duty.
What Is A Beneficiary
A beneficiary of the trust is sometimes named as the trustee. This has differing tax benefits or pitfalls for that trustee and can become complicated if there are multiple beneficiaries only one of whom is named the trustee. Family members are also frequently named as the trustee. One of the downsides of designating a family member as the trustee, which is also a downside of having a beneficiary named as trustee, is that the matters of administering the trust may be more financially complex than the trustee is skilled to handle. Of particular note regarding family trustees is that families often have conflict between the families’ various members and regardless of whether the trustees have a stake in the trusts’ administration, family conflict can contribute to increased havoc in the administration of the trusts. Almost no more painful situation arises than when a family member trustee is also one of the beneficiaries of the trust.
The Case OF The Stuttering Pig
This tale is as old as time and is perhaps most entertainingly illustrated in the classic Porky Pig cartoon, “The case of the stuttering pig,” which was first aired in 1937. While not explicitly a tale demonstrating the dangers of choosing an interested trustee, the lesson is applicable to family members or beneficiaries serving as trustee.
In this “case,” Porky along with siblings Patrick, Peter, Percy, Portis, and Petunia, are visited by the friendly family lawyer, Lawyer Goodwill. As if the lawyer’s name isn’t descriptive enough, Lawyer Goodwill arrives at the siblings’ shared residence to read the will of their Uncle Solomon, who had recently passed and left the entirety of his assets to the siblings. There is an additional provision of the will in which Uncle Solomon directs that, should anything happen to the porkly siblings, Lawyer Goodwill, naturally, retains the assets of the estate.
Shortly after reading the will and apparently discovering his “good fortune,” Lawyer Goodwill, who presumably until this point had been a much-loved family friend, retreats to a dark basement to imbibe a mixture labeled “Jekyll and Hyde Juice.” Soon after, he transforms from a portly family layer adorned in a pink coat to a menacing figure with a dark cape and darker motivations. In rapid succession, Patrick, Peter, Percy, Portis, and Petunia disappear leaving only Porky to deal with the nefarious Lawyer Goodwill who at this point has “disposed of” Porky’s siblings in order to amass the financial wealth left behind Uncle Solomon.
Money Is A Powerful Motivator
While it is unbelievable that a family member or beneficiary will transform as dramatically as Lawyer Goodwill did, a good lesson is contained in the cartoon: Money makes people do crazy things. Even the trusted family accountant or lawyer may not be so easy to trust when extensive trust assets are at issue.
In contrast to Lawyer Goodwill’s obvious method of getting to the estate, bad trustees often have craftier and less obvious methods of enriching themselves from their position as trustee. These trustees may purchase and sell certain assets in order to receive kickbacks from insurance. More savvy trustees may sell off trust assets in order to liquidate a portion of the trust and draw a fee from the more liquid assets.
If the beneficiaries of the trust in question are able to discover the wrongdoing, oftentimes they are faced with the difficult position of having to bring a suit against the trustee in order to recover any improper fees or to recoup any losses from the trustee’s improper activities. The high cost of litigation should be something people balance with the cost of employing a bank to manage the trust, which is usually a bit higher than would be charged by a family member or beneficiary. Banks are regulated by law and, unlike family members, banks are typically disinterested parties when it comes to the administration of the trust. The costs of managing the trust with a reputable financial institution is likely to be easier to bear than the heartache of discovering a family member’s betrayal and fronting the legal costs for the ensuing litigation.
You Can Watch The Whole Thing Here
Unlike Porky and his family, it is unlikely, any of us can hope to rely on the “guy in the third row” to save us from ne’er-do-well trustees. You can see the entire short, “The stuttering pig” here: http://www.dailymotion.com/video/x22059s
Mr. Vernon handles the litigation and arbitration of complex business and financial disputes, with an emphasis on securities fraud and securities arbitration, throughout the United States.