A will is a legal document in which a person, known as the testator, sets forth his or her wishes about how to distribute an estate’s assets, pay debts, care for any minor children, and handle other issues after the individual dies. Most often, the testator also appoints one or more executors to administer the estate and names guardians for minor children in a will. A will also might create one or more trusts and name the trustees.
The will should appoint one or more executor(s) of the estate. An executor manages the estate through the probate process and eventually distributes the estate to the beneficiaries. Since the executor manages the estate through the probate process, the choice of the executor or executors is important. Anyone can be named as executor, the only requirement is that he or she is an adult and a U.S. citizen or permanent resident.
I regularly point out that naming the wrong people as executors or trustees can ruin even the best estate plan. Most people put little thought into these decisions, often casually naming their oldest adult child or sibling. They don’t realize the burden of being an executor or trustee, even for relatively simple estates.
A good executor or trustee is also important for probate. Probate is the legal process that ensures your debts are paid and legal title to your assets is transferred to the appropriate heirs and beneficiaries. If you have a will, the probate process will determine whether the will is authentic and valid. During the process, the chosen executor will be appointed to administer and distribute the estate. The chosen executor will then be the point person for most processes during probate and for distributing assets, even if there is a probate lawyer present.
This article points out the dangers of casually naming a trustee. This mistake ultimate cost the estate $1.2 million.
The dangers are to the estate, the beneficiaries, and even to the person named executor.
Escher appointed her cousin, Specht, as executor, six months before her death in a simple three-page will drawn up by an estate lawyer, Mary Backsman. When Escher died, Specht returned to Backsman, who indicated that she would take care of everything. Specht, then 73, had never served as an executor (even when her husband died), held no stock and had never been in an attorney’s office.
Backsman, a lawyer with 50 years of experience, was privately struggling with brain cancer and failed to follow through on the work. Meanwhile, Specht got probate notices that deadlines were being missed, even a warning call from another family about Backsman.
In addition to this example, another lesson can be taken from the Disney estate plan fiasco. Walt Disney’s wealth was placed in a trust for the benefit of his grandchildren.
Particularly, the Lund line’s trust of the Disney family totaled up to $400 million. The trust schedules principle distributions, 20 percent, to the grandchildren when they reach certain 35, 40, and 45 for each every five years. It also contains a standard provision that the distributions can be withheld by the trustees if they believe one or more of the grandchildren hasn’t displayed sufficient financial maturity. The trustees withheld payments from two of the three grandchildren but made distributions to one of the them, despite a history of drug abuse and other bad behavior. Now there are lawsuits and accusations filling the courts. It’s a clear example of the importance of selecting the right trustees and having a good process for replacing trustees.
At the same time, Michelle herself began to grow wary of her father and stepmother. The prospect of being kidnapped by her father was raised to her. At a later deposition, Michelle testified: “I had a lot of people talking to me about the possibility of what might happen.” She added about her stepmother, “I’ve learned some things about her that just don’t make me feel secure,” probably referring to unsubstantiated rumors that had begun to surface that Sherry allegedly commissioned a hit man to kill her ex-husband William Blair, who lived to talk about it. Michelle consequently hired two bodyguards to physically bar Bill and Sherry from visiting at the hospital and had her father removed as her health care proxy.
A breathtaking flood of litigation followed. Brad sued trustee Wilson’s wife, Gloria, for allegedly assaulting him at Michelle’s hospital (Gloria Wilson admitted trying to hug him). Sherry sued Michelle’s best friend since childhood, Dominique Merrick, with claims that she started the hit man rumor. (Sherry lost the case when it was traced to a family lawyer instead.) And most importantly, the other trustees sued to remove Bill from their fold, based on an allegation that several years earlier, Bill had used trust money to score some $3.5 million in kickbacks from a real estate deal.
Among other contentions, Brad’s legal team asked why, in light of granting drug addict Victoria her $20 million, the trustees refused to hand down money to Brad, known for his frugality. They asserted that the trustees did this for their own gain. Take Michelle. Why did she get her share of the trusts and not Brad? “The answer is simple,” said Brad’s lawyers. The sister’s distribution went into the same bank, First Republic Trust Co. (FRTC), that already had been handling the money, “ostensibly to be professionally managed,” they said — meaning that FRTC would continue to receive more than $675,000 a year in management fees from the trusts. Brad hadn’t set up an asset management program for his distributions, potentially denying FRTC the ability to receive a cut.
On March 25, Judge Beckloff issued a proposed decision, one that made it clear that the trustees weren’t keeping Brad from his money so that they could earn more for themselves. “The court is not persuaded that the Trustees have acted to withhold Mr. Lund’s birthday distributions for fee-generation purposes,” wrote Beckloff. “The court is convinced that the Trustees sincerely believe that Mr. Lund does not have the maturity and financial ability to manage and utilize a substantial trust distribution. The Trustees are legitimately concerned about Mr. Lund’s ability to protect himself from those around him who may wish to take financial advantage of him.”
Brad’s team can claim one small victory. The judge agreed that proper steps should be taken to remove FRTC as the institutional trustee in favor of Mutual of Omaha Bank.