Estate Planning

Serving as a Trustee of a Trust

Here is some basic information for a trustee.  It’s important that a trustee consult with a lawyer regarding the legal issues involved in being the trustee, and check with an accountant regarding the tax issues related to the trust.  A trustee may also need investment advice from a financial planner or a stock broker. 

Here are some basic definitions:

          Executor = the person/s or organization who is named in a will who serves as basically a “financial manager” (similar to a trustee) to manage the estate’s assets, pay debts/taxes, file tax returns, and deal with the beneficiaries

          Trustee = the person/s, or organization who serves as basically a “financial manager” to manage the trust assets, pay debts/taxes, file tax returns, and deal with the beneficiaries

          Trustor = also called grantor; also called settlor; means the person or persons who established the trust

How should the trustee act?

A trustee is basically a “financial manager”, a “fiduciary” who is acting on behalf of the Trustor/s to carry out the trust instructions.  There will be one or more beneficiaries. 

The trustee should follow the trustor’s instructions, but may have some discretion as to how to use trust assets on behalf of a beneficiary.

A trustee should…

          *  be impartial (not favor one beneficiary over another – unless the trust instructs a trustee to do so, such as giving a particular beneficiary the first right to purchase the home, first right to purchase a vehicle, or other such specific direction),

          *  be respectful to the beneficiaries

          *  be loyal to the beneficiaries (acting in the beneficiaries’ best interests  -- but this doesn’t mean that you must always do what a beneficiary requests)

          *  be honest with the beneficiaries and others the trustee deals with

          *  avoid self-dealing (such as purchasing assets from the trust, or selling his/her assets to the trust), unless fair to the trust and approved by the beneficiaries

           *  be up-to-date in keeping records of trust assets, payments, and distributions

          *  be prompt in providing information to the beneficiaries

          *  be prompt in filing tax returns

          *  be respectful, communicative, and cooperative with any co-trustees

          *  be the one to make decisions (along with any co-trustees).

          (Illinois law states in part that “The trustee has a duty not to delegate to others the performance of any acts involving the exercise of judgment and discretion, except acts constituting investment functions that a prudent investor of comparable skills might delegate under the circumstances.”)

 

What are the trustee’s duties?

          The trustee has various duties, obligations, and responsibilities, including….

          (a)  carefully read the estate planning documents (will, codicils, trust, trust amendments) and make sure that the trustee understands the documents (ask a lawyer for guidance and clarification if you aren’t sure about any of a document’s language)

                    *  know who the beneficiaries are

                    *  be aware if there are any requirements that a person must meet to qualify as a beneficiary (such as surviving the trustor by 30 days)

                    *  check to see if there are any specific bequests (items/assets specifically designated for particular beneficiaries), which could be specific dollar amounts, or specific financial accounts, specific stocks, specific pieces of real estate, or specific personal possessions

                    *  know when distributions are to be made to beneficiaries

                    *  understand what discretion, if any, the trustee has in deciding when to make distributions (possibly for educational expenses, medical expenses, support
and maintenance, etc.) – the use of trust income and trust principal

                    *  know how the trustee may benefit/help a beneficiary (if assets are to be held further in trust for the beneficiary)

                    *  be aware of any restrictions or limitations on the use of trust funds (particularly if there is a special needs trust established to help a beneficiary who is on government aid, such as Medicaid, or SSI – supplemental security income)

                    *  be clear as to a trustee is allowed to receive compensation (and if there are any limitations on such compensation) – and keep careful track of your time spent as trustee, particularly if you plan to receive compensation for serving as trustee

                    *  be aware of what is trust “income” and what is trust “principal” – if unsure, check with your lawyer and/or accountant

                    *  check with the beneficiaries to see if they (or family members) want to buy or receive any of the major assets (real estate, vehicles, stocks) before selling major items            Note:  You may also want to find out what family members desire to receive items of sentimental value, such as any family heirlooms.  You want to prevent arguments about the distribution of personal possessions as much as possible, and inquiring whether the beneficiaries about what personal items they might desire will hopefully lessen problems.  Of course, only one beneficiary might desire a particular asset (such as a grandfather clock), and there could be a problem if other beneficiaries believe that such item should be “valued” at a higher amount than what the value given such item by the beneficiary would desires to receive the item. 

                    *  make sure that any trust amendments are signed by the trustor/s

                    Be careful to make sure that you have all trust amendments (and that you understand what the newest amendments changed) or codicils (in the case of a will)

                    Be careful if you have reason to believe that the trustor wasn’t competent when the trust or trust amendment (or will/codicil) was signed

                    Be sure that the trustor’s signature is on the estate planning documents

                    *  Be very careful with investment choices

                    You may need to diversify the investments (it may be too risky to keep a large percentage of the trust assets invested in only one or a few different stocks)

                      Note:  A trustee doesn’t want to be held financially liable, or be criticized, because the trustee failed to diversify (and the value of the trust’s stocks plunges).  In other words, it’s okay to own hundreds of thousands of dollars of “ABC stock” when it’s your own money, but it isn’t okay when you are the trustee looking out for the trust beneficiaries. 

          (b)  notify appropriate persons and businesses of the death of the Trustor

(and have mail forwarded to the trustee)
                    *  financial institutions and investment advisers (banks, credit unions, stockbroker, financial planner, etc.)

                    *  insurance agent (to get forms for claiming any life insurance benefits, to discuss continued homeowner’s insurance)

                    *  auto insurance agent (to take trustor off auto insurance policies)

                    *  health insurance company (to stop premiums)

                    *  landlord (if the trustor was renting)

                    *  tenants (if the trust owns any rental properties)

                    *  credit card companies

                    *  health club (to stop charges)

                    *  auto club (to stop renewal)

                    *  civic organizations that the trustor was a member of (Lions, Rotary Club, Kiwanis, Exchange Club, Knights of Columbus, Elks, etc.)

                    *  providers of subscriptions (newspaper, magazines) to stop service

                    *  providers of services (lawn service, snow removal service)

          (c)  determine what are the assets in the trust

                    *  real estate (residential, rental, commercial, time shares)

                    *  financial accounts

                    *  investments (stocks, mutual funds, bonds, etc.)

                    *  business interests

                    *  personal possessions, including vehicles

                    *  outstanding loans due the trust or trustor

                    *  the contents of any safe deposit boxes

                        Note:  A trustee may want to have another person present when the trustee opens and inventories the contents of a safe deposit box (to protect the trustee against claims that the trustee

took any of the assets, or disputes about what the safe deposit box contained). 

          (d)  determine if the trustor had any of the following

                    *  any accounts with ebay, paypal or other such companies

                    *  direct withdrawals set up for the payment of bills

          (e)  determine what assets are payable to the trust, such as

                    *  life insurance proceeds

                    *  annuities

                    *  regular IRAs

                    *  Roth IRAs

                    *  401k plans

                    *  403b plans

                        And then take steps to have such assets received by the trust, possibly over time in the case of IRA proceeds payable to the trust.  You may want to check with an accountant about the tax consequences, and possibly plan to take distribution over a period of years (particularly if the asset is high in value). 

          (f)  determine if there are any of the following

                    *  passwords for voice mail

                              Home phone

                              Cell phone

                    *  passwords for computers

                    *  combinations for any locks or home safe

          (g)  safeguard the assets, take possession of certain assets if appropriate

                    *  take possession of valuable/important personal possessions, such as

                              burial instructions / documents

                              keys (possibly changing locks)

                              credit cards and recent credit card statements

                              checkbooks

                              savings accounts passbooks

                              recent financial statements

                              mortgage payment booklet

                              promissory notes

                              cash

                              checks

                              stock certificates

                              savings bonds

                              treasury bonds

                              insurance policies

                              burial plot titles

                              jewelry

                              laptop computers

                    *  take possession of the decedent’s vehicles (or possibly just the keys and the vehicle titles)

                    *  take possession of important documents (deeds, trust document, etc.)

          (h)  determine and pay the decedent’s valid debts in a timely manner

                    Here is a partial list of the debts that might need to be paid.

                    *  funeral, burial, and cremation expenses

                    *  medical expenses (not covered by insurance)

                    *  dental bills (not covered by insurance)

                    *  real estate taxes

                    *  homeowner’s insurance premiums

                    *  association fees (such as condo association fees)

                    *  utility bills (gas, electric, water, phone, etc.)

                    *  credit card debts

                    *  mortgages and home equity loans

                    *  vehicle loan payments

                    *  vehicle lease payments

                    *  student loans

                    *  private loans (such as money borrowed from a family member)

                    *  unpaid fees for services provided (accounting, legal, lawn services…)

                    Note:  It’s possible that the trustor also signed to guarantee another relative’s mortgage, car loan, promissory note or other type of debt.  You may want to check with family members about this issue to see if the trustor was a co-signer / guarantor of any loans/debts.

                    Note:  You may want to check with a lawyer to determine if a debt needs to be paid.  If a probate estate isn’t opened, then Illinois law gives creditors 2 years from the date of the decedent’s death to make a claim for monies owed. 

          (i)  upon the Trustor’s incapacity, incompetency, or death, determine if the Trustor had any upcoming appointments that need to be cancelled

                    *  decedent’s employer (or former employer)

                    *  with accountant

                    *  with stock broker

                    *  with financial planner

                    *  with doctor

                    *  with chiropractor

                    *  with dentist

                    *  with eye doctor

                    *  with lawyer

                    *  with beautician/barber

                    Determine if the trustor had a schedule/planner (possibly in his/her computer)

          (j)  file appropriate tax forms with the government

                    *  income tax returns

                    *  estate tax returns (if applicable)

                        Note:  A trustee can be held personally liable for interest and penalties due because of the late filing of tax forms (income tax, estate tax, gift tax).

                        Note:  Another tax issue is whether the decedent is waiting for any tax refunds which haven’t been received yet. 

          (k)  keep written records of the time spent as trustee (especially if the trust lets the trustee charge for serving as trustee, and the trustee plans to charge a fee)

                    *  list date, time, place, who you met with, and what was done

          (l)  notify and deal with any tenants of rental properties

                    *  determine whether there is a written lease or an oral lease

                    *  determine how much the rent is

                    *  determine when the rent is due

                    *  determine whether there is a security deposit being held (and how much)

                    *  determine what the landlord must pay for and what the tenant must pay for, such as utilities (gas, electricity, water, garage pickup, lawn services, etc.)

                    *  determine when the lease ends

                    *  notify tenants of the decedent’s death or incapacitation

                    *  inform tenants of how they contact you

                    *  inform tenants of where rental checks should be mailed/delivered

                    *  inform tenants of who should be contacted in an emergency or when repairs are needed

                    *  determine if any repairs are needed

                    *  if the property will be sold, be sure to inform the tenant properly (and notify the tenant that the lease won’t be renewed if that is desirable)

          (m)  determine if there are any outstanding contracts / leases

                    *  a contract with a realtor for the listing of real estate

                    *  a contract for the sale of any real estate

                    *  a contract for any home repairs

                    *  a contract for any home improvements

                    *  a contract for the lease of a vehicle

Who might the trustee have to deal with?

          Here is a list of the professionals that the trustee might deal with:

                    *  lawyer

                    *  accountant

                    *  financial planner

                    *  stockbroker

                    *  real estate agent

                    *  real estate appraiser

                            If certain real estate won’t be sold right away, and is not designated to be transferred to specific beneficiaries, then the trustee might want to hire a real estate appraiser to appraise such real estate (so that the trustee will know the “basis” of such real estate). 

                    *  insurance agent

                             The trustee should check with the insurance agent who handles the homeowner’s insurance, to make sure that the agent is aware of the Trustor’s death (or incapacity), and to make sure that the appropriate homeowner’s insurance coverage applies (and to inform the insurance agent where to send premium notices or other correspondence).  Some insurance companies will charge more if the home is vacant, or may not provide coverage. 

                    *  appraiser for valuable personal possessions

                             The trustee may need to consult with, and hire, an appraiser if there are personal possessions of significant value (such as artwork, jewelry, coin or stamp collections, antiques, etc.). 

What are some mistakes that a trustee should avoid making?

          Here are a few examples of mistakes that a trustee shouldn’t make (the list could be much longer).

          Mistake # 1:  A trustee should not forget to file applicable income tax returns. 

          Mistake # 2:  A trustee should not close the trust without filing a final report with the beneficiaries.

          Mistake # 3:  A trustee should not sell a trust asset (such as a piece of land) to himself, his child, his friend, etc., without giving the other beneficiaries the option to purchase the real estate at a higher amount (or at the same amount with better terms, such as if the buyer is making payments over time).  Be careful of “self-dealing”.

          Mistake # 4:  A trustee should not let the decedent’s vehicles be driven, as an accident could subject the trust and the trustee (along with the vehicle’s driver) to a lawsuit if there is an accident that causes any property damage, injuries, or deaths. 

If a vehicle is designated for a specific beneficiary, then the trustee (or the executor) should take the appropriate steps to transfer ownership of that vehicle to such person. 

(If there is a waiting period before the beneficiaries are determined, then the vehicles should not be driven during such time period, as use of the vehicles puts the trust and the trustee at risk of a lawsuit.)

          Mistake # 5:  A trustee should not discard or donate personal possessions without checking to find out if such items are desired by any of the beneficiaries. 

          Mistake # 6:  A trustee should not forget to keep insurance on real estate owned by the trust.

          Mistake # 7:  A trustee should not throw away paperwork/records that a beneficiary may ask to see (such as checks, bank statements, etc.). 

What powers does Illinois law give to a trustee?

          Illinois law (760 ILCS 5 – Trust and Trustees Act) gives a trustee various powers (some of which are listed below):

          *  sell real estate  (760 ILCS 5/4.01)

          *  enter into leases  (760 ILCS 5/4.02)

          *  borrow money  (760 ILCS 5/4.03)

          *  grant easements, subdivide, improve and enter into contracts involving real estate  (760 ILCS 5/4.04)

          *  make decisions as to stocks, bonds or other securities  (760 ILCS 5/4.07)

          *  pay taxes and reasonable expenses  (760 ILCS 5/4.08)

          *  purchase & keep in force insurance of an appropriate nature  (760 ILCS 5/4.03)

            *  delegate to a co-trustee for any period of time any or all of the trustee’s rights, powers and duties  (760 ILCS 5/4.10)

          *  execute contracts, notes, conveyances and other instruments  (760 ILCS 5/4.12)

          *  continue a business (760 ILCS 5/4.23 and 5/4.24)

How often do I need to provide the beneficiaries with a report?

          Unless the trust specifies differently, a trustee should provide an annual report to the beneficiaries.  Illinois law (760 ILCS 5/11) reads in part, “Every trustee at least annually shall furnish to the beneficiaries then entitled to receive or receiving the income from the trust estate, or if none, then those beneficiaries eligible to have the benefit of the income from the trust estate a current account showing the receipts, disbursement and inventory of the trust estate.  A current account shall be binding on the beneficiaries receiving the account and on such beneficiaries’ heirs and assigns unless an action against the trustee is instituted by the beneficiary or such beneficiary’s heirs and assigns within 3 years from the date the current account is furnished.”

What can the Trustor (grantor) specify in a trust?

          Illinois law (760 ILCS 5/3) states in part, “A person establishing a trust may specify in the instrument the rights, powers, duties, limitations and immunities applicable to the trustee, beneficiary and others and those provisions where not otherwise contrary to law shall control, notwithstanding this Act.  The provisions of this Act shall apply to the trust to the extent that they are not inconsistent with the provisions of the instrument.”

If the trust document doesn’t specify about compensation for a trustee, can the trustee charge a fee for his/her services?

          Illinois law states (760 ILCS 5/7) that “The Trustee shall be reimbursed for all proper expenses incurred in the management and protection of the trust and shall be entitled to reasonable compensation for services rendered.”

Trusts usually state that beneficiaries are entitled to the “income”, whereas distributions of the “principal” may be discretionary (or mandatory if the Trustor so desires). 

How do I know what is “income” and what is “principal”?

          Illinois law states (760 ILCS 15/4) the following:

          “Income and Principal Defined.

          (a) Income is the return in money or property derived from the use of principal, including return received as:

 (1)  rent of real or personal property, including sums received for cancellation or renewal of a lease;

 (2)  interest received, including sums received as consideration for the privilege of prepayment of principal except as provided in Section 8 on premium and discount;

 (3)  income earned during administration of a decedent’s estate, as provided in Section 6;

 (4)  corporate distributions, as provided in Section 7;

 (5)  accrued increment on bonds or other obligations issued at discount, as provided in Section 8;

 (6)  receipts from business and farming operations, as provided in Section 9;

 (7)  receipts from disposition of natural resources, as provided in Sections 10 and 11;       

          (b)  Principal is the property which has been set aside by the owner or the person legally empowered so that it is held in trust eventually to be delivered to a remainderman, while the income is in the meantime taken or received by or held for accumulation for an income beneficiary.  Principal includes:

(1)  consideration received by the trustee on the sale or other transfer of principal or on repayment of a loan or as a refund or replacement or change in the form of principal;

(2)  proceeds of property taken on eminent domain proceedings;

(3)  proceeds of insurance upon property forming part of the principal except proceeds of insurance upon a separate interest of an income beneficiary;

(4)  stock dividends, receipts on liquidation of a corporation or other corporate distributions, as provided in Section 7;

(5)  receipts from the disposition of bonds or other obligations, as provided in Section 8;

(6)  receipts from the disposition of natural resources, as provided in Sections 10 and 11;

(7)  receipts from other principal subject to depletion, as provided in Section 12;

(8)  any profit resulting from any change in the form of principal;

(9)  any allowances for depreciation established under Section 9 and paragraph (2) of subsection (a) of Section 14;

(10)  receipts from the granting of options.

          (c)  After determining income and principal in accordance with the terms of the instrument or this Act, the trustee shall charge to income or principal expenses and other charges as provided in Section 14.”

What other things are important to know about trusts and serving as a trustee?

          1.  A trust can be governed by the laws of one state, and be administered by a trustee in another state.  The trust may be responsible for paying federal income taxes, and income taxes to various states where it has investments.

          2.  If the trust document allows the trustee to receive compensation for serving as trustee, then such compensation will be taxable income to the trustee.

          3.  After a trustor’s death, generally Illinois law allows claims to be filed against the trustor’s estate for 2 years (unless a probate estate has been opened, which can reduce the time period to file claims).

          4.  If a trust has more than $600 income in a calendar year, then the trustee must file a federal income tax form (form 1041) with the IRS. 

What specific suggestions can you give a trustee?

          File the decedent’s will (if that hasn’t been done by someone else) with the  courthouse in the county where the decedent was last living (a lawyer can do this for you).

          Make sure that the trust has a tax number (FEIN) from the IRS, especially if the trust will continue into the future (an accountant or lawyer can help you get this). 

          Determine whether there are any refunds due the Trustor (income tax returns that haven’t been received yet, etc.).

          Determine what services should be cancelled (phone, satellite/cable tv, newspapers, magazines, etc.).

          Determine whether the Trustor had a safe deposit box.

          Promptly inform insurance companies of the trustor’s death (especially to cancel health insurance policies, start the process to collect on life insurance benefits payable to the trust, inform the insurance company of who is residing in any real estate, determine what insurance should be keep on any vehicles)

          Provide the annual report (account) to the beneficiaries.  You might ask them to sign that they receive such report. 

          Provide the final report (account) to the beneficiaries.  You might ask them to sign that they receive such report. 

What general comments can you tell me about how revocable trusts are taxed?

          1.  The income of a revocable trust is added to the trustor’s other income, and a form 1040 is filed with the IRS.

          2.  If the trustor is a grantor trust, then some trust income or all trust income is attributed to the trustor (grantor), and the grantor pays taxes on such attributed income. 

          3.  Section 6012(a)(4) of the Internal Revenue Code states that a trust must file a tax return if the trust has taxable income, or gross income of $600 or more. 

What general comments can you tell me about how irrevocable trusts are taxed?

          1.  The income of an irrevocable trust could be taxed to the trust (if the trust retains income and doesn’t distribute it to the beneficiaries), or taxed to the beneficiaries (if they receive the income from the trust). 

          2.  The trustees must file federal form 1041 with the IRS.

          3.  Section 6012(a)(4) of the Internal Revenue Code states that a trust must file a tax return if the trust has taxable income, or gross income of $600 or more. 

          4.  Irrevocable trusts have their own income tax chart to determine how much in taxes is due the IRS.

Can a trustee use trust funds to pay attorney’s fees when asking the court to construe (interpret) provisions of the trust?

          Generally, a court will not allow attorney’s fees unless a specific statute (law) or agreement provides for them.  A notable exception exists when the trustor’s (or testator’s) intentions in the trust (or will) are so ambiguous that court interpretation of the document is necessary when the trustee are faced with adverse claims to trust assets, or when there is an “honest difference of opinion” as to the correct construction of the trust (or will). 

          In Stein v. Scott (625 N.E.2d 713, 192 Ill.Dec. 558) the court didn’t allow the defendant’s request to use trust assets to pay her attorney’s fees, stating that the judges didn’t believe that the trustor’s “intent was no unclear as to justify an award of fees”.

 What are some interesting Illinois cases regarding trustees?

Stein v. Scott (625 N.E.2d 713, 192 Ill.Dec 558 – decided Aug 19, 1993 – Appellate Court of Illinois, First District, Fourth Division):   The co-trustees (Stein and NBD Trust Company of Illinois) brought a court action to seek the court’s determination as to the meaning of certain parts of the trust document.  Iola Ralph’s Trust provided for her two children; Arleigh Stein and Randilyn Scott, with the share for Stein to be distributed outright to her, and the share for Scott was to be held in trust as she was physically disabled and had to use a wheelchair.  The trust forbid any payments to Scott that would decrease the amount of government benefits that she was qualified to receive.  Scott made a claim for reimbursement for monies she had supposedly spent on herself for her “care, maintenance and support” from the time that her mother Iola Ralph had died.  The trust stated in regards to Scott’s share, “the trustee may in the trustee’s discretion pay to, or use for the benefit, of {Randilyn Scott} so much or all of the income and principal of her share as the trustee from time to time deems necessary or advisable” for her supplemental support and care (meaning beyond what government benefits she receives). The court determined that the trustee’s could consider all of Scott’s financial resources in making the decision as to how trust assets could help her.  The appellate court stated in its decision, that the trust “confers upon the trustees unfettered discretion to determine if and when Scott should receive trust funds, and in what amount.  It imposes no restriction s to how this determination should be made, except that any distribution must be “over and above the Benefits {Randilyn Scott} otherwise receives or may become entitled to” because of her handicap”.

Brown Brothers Harriman Trust Co. LLC v. Bennet (827 NE2d 1001 – 1995 – First District):  The court determined that the trustees’ fees and investment advisors’ fees could be paid as the trustees so determined, from trust income and/or principal because the trust agreement allowed the trustees such discretion.  If the trust agreement did not provide the trustees with such discretion, then Illinois’ Principal and Income Act would require dividing such fees between the trust income and the trust principal. 

Whalen v. Whalen (577 N.E.2d 859; 217 Il.App.2d 557 – 1991 – Third District)  Mother died and her will stated that 2 trusts (a martial trust and a residual trust) were to be established for father (her husband).  Father was entitled to all of the trust income.  Father could receive trust principal for his welfare, maintenance and health.  Father was serving as the trustee.  The remainder beneficiaries were the five children per stirpes (meaning after the father died, the five children were the next beneficiaries if they were alive then).  Two of the children wanted an accounting from their father as the trustee of the 2 trusts, and he refused to provide an accounting.  The two children sued him.  The court ruled that the children (as remainder beneficiaries) were entitled to an accounting.  The court decided that the children were vested remainderman and the court stated, “At common law, a trustee has a duty to render an accounting at reasonable times to the income beneficiaries and vested remainderman”.  The court ruled that even though a child may die before the father (and thus not become a beneficiary), the children were still entitled to an accounting from the father as trustee.  Illinois law states in part (and the court quoted this section in is decision), “Every trustee at least annually shall furnish to the beneficiaries then entitled to receive or eligible to have the benefit of the income from the trust estate an account showing the receipts, disbursements, and inventory of the trust estate.” 

What are some interesting other cases involving trustees’ issues?

In the 1994 Virginia case of Nationsbank of Virginia v. Estate of Grandy (248 Va. 557, 450 S.E. 2d 140 – Virginia 1994), the court decided that the trustees had made a proper decision (within their discretion as trustee) to not use trust principal to pay for the beneficiary’s hospital bills and medical expenses.  The trustees had declined to use trust principal for such bills/expenses based on the fact that the beneficiary had substantial assets that could be used to pay such costs.  The court determined that use of the trust principal was purely discretionary.  The court ruled that the trustees “acted reasonably in exercising their discretion.” 

In the 1994 Montana case of Matter of Estate of Lindgren (885 P.2d 1280 – Montana 1994), the beneficiary asked the trustee to pay for the beneficiary’s nursing home expenses, and the trustee refused to do so.  The trustee claimed that the beneficiary should first use her assets.  The trust document stated that the trustee had the discretion to pay as much of the trust assets “as Trustee deems necessary for her support, care and health during her lifetime.”  The Montana Supreme Court determined that the trustee must pay for the beneficiary’s living expenses and medical expenses. 

W. Averill Harriman, former New York governor and diplomat, died in 1986 and left $65 million to his loved ones: one-half to his second wife Pamela and one-half in trust for his descendants.  There were several trustees: Pamela Harriman, attorney Clark Clifford, attorney Paul Warnke.  The trustees invested in speculative investments (a New Jersey resort and a shoe sole factory), and the investments turned out to be bad choices.  When the value of the trust beneficiaries (the descendants) learned that the trust value had plunged from $25 million to $3 million, they sued the trustees.  It was claimed that the trustees didn’t properly investigate the properties that they were investing in.  Pamela Harriman and the beneficiaries settled, where she reportedly paid them $15 million. 

  **  See article: “Recent Liability Issues Facing Trustees and Executors” – Trusts & Estates, May 1996 issue

In the 1995 New York case of Matter of Lincoln First Bank (630 N.Y.S.2d 472 – N.Y. Sur. 1995), the decedent owned stocks of about $3.2 million when he died in 1973.  Of such amount, about $1.8 was in Kodak Eastman stock.  While Lincoln First Bank was administering the estate, the value of Kodak stock stopped drastically from $148 per share to only $45 per share.  The Court determined that the bank (as co-executor) should be charged $6 million for improperly keeping such large amounts of Kodak stock (and not diversifying).  The Court stated that the bank should have held about 5% of its stock in Kodak shares.  This was a case where a co-executor was criticized and suffered damages because of maintaining a significant percentage of blue chip stock. 

  **  See article: “Recent Liability Issues Facing Trustees and Executors” – Trusts & Estates, May 1996 issue

In the 2007 case of  Matter of the Revocable Trust of Margolis (Minn. App. No. A06-1018, 5/22/2007) Naomi Margolis set up a revocable trust, which named her husband Jack as a co-trustee. After Naomi entered a nursing home, Jack indirectly used her trust assets to pay the nursing home expenses.  After Naomi’s death, Jack’s stepson claimed that Jack had breached his fiduciary duties by using her trust funds to pay for her nursing home expenses.  The appellate court determined that Jack was in violation of a Minnesota statute that prohibited him from using trust funds to pay for expenses that as a spouse he was required to pay.

  **  See summary in “The Elderlaw Report” 7/8/07