Alarming Requests From My 85-Year-Old Stepmom: Should We Worry About Dad's $10M Trust?

Dear Quentin,

My dad established a life estate for my 85-year-old stepmom. The property’s present worth stands at around $10 million. Due to his use of an inexperienced attorney, he ended up with a standard trust arrangement. Since relations between our families haven’t been good, Dad chose a bank to act as the trustee.

As someone who will benefit eventually, I review the monthly statements. According to the trust document, my stepmom has the right to receive all the earnings generated by the trust. Additionally, funds may occasionally be withdrawn from the principal when needed for healthcare, upkeep, schooling, sustenance, among other things. Currently, the income produced is quite substantial; most of the assets are allocated towards stock investments, leading to returns that exceed what she can actually use.

She can definitely sustain herself with that income!

If she requests additional funds from the trustee for odd or arbitrary purposes, do you think they'll respond with "Of course"?" Is the bank genuinely committed to fulfilling their fiduciary duty towards all beneficiaries—current and future—or just paying lip service? Furthermore, considering the trustees collect fees, wouldn’t it be contradictory for them to state on the monthly statements' cover page that the main objective of the account isn’t about managing investments?

I hope someone can examine what the trustee is up to since I'm not particularly skilled at interpreting their wording or understanding every "disbursement to the beneficiary." Additionally, my outlook is quite pessimistic, and I doubt there'll be even a single dollar remaining considering everything that has transpired.

The Stepson

Related: My relative who was terminally ill fell deeply for their hospice nurse over four months. The nurse received the whole inheritance afterward. Is there anything I should consider doing?

Dear Stepson,

You have 10 million reasons to sleep soundly.

If your stepmother is 85 and the bank acts as the trustee, it seems unlikely that they could cause significant harm to your inheritance—especially if withdrawals have to be made solely for particular needs like medical costs or education. Even though you might not agree with your father’s choice of lawyer, having an impartial third party involved ensures proper monitoring and fairness.

If you're designated as a beneficiary following your stepmother’s passing and/or are considered an involved party, you might be entitled to request further information regarding the administration of the trust. This inquiry should remain free from bias or ill will. Simply because you disapprove of how your father structured his estate plan doesn’t imply that your stepmother is depleting the trust resources unfairly.

Considering her age, it's sensible to include distribution provisions. As stated by the wealth management division of U.S. Bank, "Emotional maturity varies from person to person." Additionally, they point out that not every beneficiary is prepared—emotionally or financially—to manage substantial funds. This applies to both you and your stepmother as well.

Distributions according to needs and ages aren’t rare occurrences. It’s probable that your father’s attorney acted under his guidance. "As such, age-specific distribution clauses are quite typical in trust funds," notes U.S. Bank. They suggest that in cases like these, one might release funds at scheduled intervals. This approach helps recipients slowly develop the skills needed for managing their sudden financial increase over time.

Not every request stems from a desire for revenge.

Your dad might have taken a more active role in communicating his intentions clearly to both the trustee and his beneficiaries. This would've helped you better anticipate your stepmom’s spontaneous demands made through the trustee, even if these requests adhered to the terms of the trust. It's important not to view each request as an attempt at retaliation.

Estate planning gets complicated for blended families, but this plan is not out of the ordinary, says Neil V. Carbone, trusts and estates partner at Farrell Fritz PC . “In general, a spouse will want to provide for the survivor for life, as was done here. For a trust to qualify for the estate tax marital deduction, it must require that the survivor gets all of the income.”

“It is also common for the trust to allow distributions of principal to the survivor, either in the discretion of the trustee or pursuant to an ascertainable standard, such as health, education, maintenance and support, as was done here,” he adds. “On the death of the survivor, the remaining trust assets will go to the next generation.”

Many states such as New York have embraced the Prudent Investor Act. As per this act, a trustee must invest trust funds aiming for total returns using contemporary portfolio management principles, ensuring asset diversity to support both income generation and capital appreciation, according to Carbone.

"This stands in opposition to the previous 'Prudent Man Rule,' which emphasized asset preservation, resulting in highly cautious investment choices that might generate income but didn’t facilitate an increase in the trust’s main fund," he explains. In this instance, prioritizing stocks aims to advantage the leftover beneficiaries.

The advantages of having corporate trustees

Some individuals instinctively avoid corporate trustees due to concerns about impersonal relationships and potentially higher fees," explains Carbone. "However, corporate trustees offer significant benefits since their role involves fulfilling numerous fiduciary responsibilities towards beneficiaries.

Transparency and accountability must prevail. In principle, the trustee is expected to closely examine significant or frequent incursions into the principal amount, which could reduce the interest for remaining beneficiaries. "It’s crucial that they maintain open communication with the beneficiaries and ensure they stay well-informed," he notes, adding that this practice is demonstrated through the provision of account statement copies to Stepson.

Seeing these expenditures listed in your father’s trust records can be quite distressing for you. Similarly, it must also be challenging for your stepmother, particularly if she is aware that you are reviewing these statements and assessing whether she requires funds like an additional $1,000 for dental work or $5,000 for home insulation. Nobody enjoys being closely monitored.

Furthermore, if you had talked to your father, it might have assisted you in accepting the reality that you'll need to wait for your own distributions. This arrangement was made to safeguard both your stepparent and yourself. Often, individuals require protection from the impulsive actions and dubious motives of others, particularly within blended households. Additionally, there is sometimes a necessity to protect them from their very own impulses.

Related: "We are extremely thankful": Our son plans to cover our mortgage before we retire. Could this have unintended consequences?

You can send your financial and ethical queries to The Moneyist via email at qfottrell@Cryptonesia.

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Past articles by Quentin Fottrell:

'She was like a mom to me during my upbringing': Now that my stepmom has remarried following my dad's death, how do I secure my inheritance?'

“I consider myself to be an upright individual”: Am I justified in asking my spouse if I will inherit his house upon his passing?

"Should this be considered ethical?" I plan to pass down our family home to my children from my previous marriage rather than to my current spouse.

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