Before I answer that question, let me tell you a story.
There was an older couple who both had children from prior marriages. In a tragic twist of fate, the husband was diagnosed with terminal cancer about the same time that the wife was diagnosed with dementia. They decided to update their wills and trust one final time, and they each chose one of their children to be co-trustees after the husband passed away. They wanted to make sure that everything was fair.
The problem was that, after the husband’s death, the husband’s daughter was now in charge of more money than she had even been in control of before. She very quickly began to appropriate assets that were very clearly intended to go elsewhere, claiming either that they were intended for her and her brother all along (despite evidence to the contrary), or that she was reimbursing herself for years of support and care to her father (none of which was documented). She also paid herself trustee fees well in excess of the standard rate for the area, for everything from cleaning out the garage when prepping the house for sale to taking her stepmother out to lunch.
The wife’s daughter was, to say the least, quite upset by all this. Her mother was going to need years of ongoing care, and her stepsister’s actions raised a real concern over whether the trust would run out of money before her mother passed away. Attempts to reason with her stepsister fell on deaf ears; the stepsister felt completely justified and entitled to the money she had taken and the fees she was charging. So the daughter hired lawyers to go after her stepsister and save the trust.
The lawyers heard her case, and gave her some hard facts. Yes, what her stepsister was doing was unreasonable. Yes, the stepsister had likely breached her fiduciary duty. However, a trustee can only be removed by order of a court of law. That meant a trial, which would be time-consuming and expensive. Fees could and would be paid out of the trust, meaning that the trust assets would be depleted even faster than they were now. The daughter’s first concern was taking care of her mother. So, after much soul-searching and deliberating, the daughter reluctantly decided not to take this to court. There simply wasn’t enough money to justify it, and her mother had to be taken care of.
This is a personal story: the wife with dementia was my grandmother, and my mother was the co-trustee. It caused my mother a great deal of anger and frustration, and though my grandmother did not outlive her money in the end, my mother and her stepsister have never spoken since. The best way this could have been avoided, of course, would have been for my grandparents to have had a crystal ball, seen that the husband’s daughter was not a good choice for trustee, and chosen someone else. The second best way to have avoided this would have been to use a trust protector.
A trust protector is someone the trust appoints to oversee the trustee. There are many powers the trust protector can be given, but at a minimum they can look at the books, stay apprised of what the trustee is up to, and most importantly, they can fire the trustee if the trustee is not performing his or her duties properly. In short, the trust protector can keep the trustee accountable and remove them without the time and expense of a trial.
Of course, there are downsides too. Like the trustee, the trust protector can pay themselves out of the trust. If the trust protector is not trustworthy, they can do as much or more damage as the trustee. It really comes down to trust: how much do you trust your trustee to carry out their duties faithfully, and how much do you trust your trust protector to keep them in line?
If you would like to learn more, and see whether a trust protector is a good idea for your trust, you are welcome to email me at kaway@kawaylaw.com.