Fiduciary Duty of a Trustee.

Dear Len & Rosie,

Both of my parents have recently died. I am named as the trustee of their trust, which is worth only $700,000 including their home. My two sisters, brother and I get equal shares of everything. One of my sisters is a sue-happy harpy who never lent a hand to our parents but she’s the first one with her hand out now. Once, she even sued her friend when she tripped on the sidewalk in front of her friend’s home. I need to know what to do, and I don’t want to get sued. Please help.

Kathleen

Dear Kathleen,

You can’t prevent your litigious sister from suing you. Everyone gets a day in court if they want one. What you can do is to make sure that if you get sued, you win. As trustee, you owe your siblings a fiduciary duty. Think of it in this way - a fiduciary duty means that if anything goes wrong, it’s likely your fault. Your first priority is to cover yourself. Hire an attorney to represent you.

Keep meticulous records. Keep all account statements, all receipts and bills. Don’t conduct any business in cash without a receipt. Don’t fall into the trap of paying your children our spouse to clean up and paint your parents’ home to get it ready for sale. Your sister may fight you over every last dime you pay them. Hire a bookkeeper to prepare a trust accounting unless all three siblings waive their right to an accounting in writing. The last thing you want to do is to distribute everything and get sued six months later by your sister who told you at the time that everything was fine.

Treat all beneficiaries fairly, especially yourself. If you are going to distribute a portion of the trust before your parents’ home sells, keep enough cash to fix up the home if necessary to get it ready for sale. When making a distribution, everyone gets the same amount of money. You cannot favor one beneficiary over another.

You may even go so far as to file a court petition to approve the sale of the home, so your sister can’t argue later that you sold it for less than what it’s worth. If you plan on doing this, don’t sign a sales agreement without talking to your lawyer first, because it takes time to get court approval of a sale.

If your sister won’t waive the accounting and won’t approve it either, you should petition the court to approve of the trust accounting. The legal fees won’t make anyone happy, but the goal here is to protect you.

After the home sells and the accounting is waived or approved, you can distribute the bulk of the trust, but you’ll want to keep a reserve large enough to deal with the trust income tax return to be filed in the year after the home is sold. Remember, once you distribute the money, you ain’t getting it back even if you really need it.

One of the benefits of trusts is that if the trustee and all of the beneficiaries get along really well, you can cut corners and save time and money in administering the trust. That ain’t you. You have to do it the right way, not the easy way.

Len & Rosie