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

Protecting your assets from a Medi-Cal Estate Claim

Dear Len & Rosie,

I'm a 60 year old woman. I’ve been on Medi-Cal for two years and just received a letter from them about getting reimbursed after I die. I would like to understand this better and to protect my assets (which are fairly modest) as much as possible. I do now own a home, but I have about $170,000 in various investments that I want to protect.

Portia

Dear Portia,

If you are on Medi-Cal and you own $170,000 in countable assets, then you are receiving Medi-Cal as part of the Medicaid expansion adopted by California after the Affordable Care Act (“ACA” or “Obamacare”) was enacted in 2010.  The Medicaid expansion opened up eligibility for non-nursing home Medi-Cal benefits for people under age 65 with low income, regardless of how much they own in assets. That’s the good news. You now have health insurance that you would otherwise not been able to afford without spending your life savings.

The bad news is that California is required to assert recovery claims against the assets of Medi-Cal recipients for benefits paid after age 55 or at any age for nursing home care. The letter you received from Medi-Cal, printed on bright yellow paper, is automatically mailed out to every Medi-Cal recipient on an annual basis.

If you do nothing, then when you turn 65, you’ll be enrolled in Medicare and you will lose your Medi-Cal under the ACA. Then, upon your death, the California Department of Health Care Services will assert an estate claim for the money it has spent on you between the date you obtained benefits and age 65 when you will be disenrolled.

The amount of this claim can be substantial, even if you are healthy and you receive little to no medical care, because most Medi-Cal recipients are provided for by managed care agencies for which Medi-Cal pays a monthly premium for each recipient.

What can you do? Not much as this time, unless you are willing to create an irrevocable trust, with someone other than you as trustee, and transfer your assets into the trust now. This creates a dilemma. You can avoid the Medi-Cal estate claim, but only if you give up control over your life savings.

If you were terminally ill or if you need nursing home care, then that may be a good idea, but for now, while you are healthy and independent, we feel that for most people giving up control of their financial lives is too much to pay to avoid Medi-Cal estate claims. For now, we recommend that you have a good durable power of attorney that empowers someone you trust to create an irrevocable trust for you and transfer your assets to it if you should ever become incapaciated.

Len & Rosie