-CUSTOMER VALUE-

Trust – Should You?

Involuntary Redistribution of Assets (IRA)

Guarding Against Guardian Abuse

How the Goods Are Gotten When the Will Gets in the Way

Final Thoughts

Involuntary Redistribution of Assets (IRA) actions in which probate instruments or probate venues are used to loot assets of the dead, disabled or incapacitated are a growing threat to the property rights of hard-working Americans and their heirs’ or beneficiaries’ rights of inheritance.  Living trusts are regularly touted by attorneys as a flexible estate planning document and a means by which to minimize legal fees, but they are also another instrument through which IRA can occur.

As with the guardianships, powers of attorney and wills, honest management and execution as per the stated wishes of the trust founder is a critical factor. Without a commitment to integrity, today’s legal system and moral environment offer the opportunity for a high degree of IRA gamesmanship. Within this context, the estate arrangements, final wishes or distribution of assets can undergo a complete redistribution that is in no way reflective of the founder’s plan.

A trust is generally a private legal instrument that receives no routine court oversight. Trust theory touts language that outlines the trustee’s fiduciary duties and responsibilities to the beneficiaries. While sounding good on paper, the validity of trust management is realistically commensurate to the trustee’s level of integrity and desire for honest dealings with the beneficiaries.

If a trustee is viewed as having breached his/her responsibilities, beneficiaries can initiate a legal proceeding. As with contested guardianships and wills, the trustee will use trust resources to fund their side of any legal proceedings. The beneficiaries, on the other hand, must personally absorb their legal expenses. In some cases, a trustee can be held personally liable for his/her actions, but the same dilemma emerges as discussed with other estate cases in which how far does it make sense to go in pursuing legal action that is financially and emotionally exhaustive? And the IRA counterparts are ready to wait you out while simultaneously using your assets to compensate themselves for time spent on efforts contrary to your best interests.

Leaving the unethical trustee to their own devices can facilitate the depletion of financial assets. A court proceeding, however, can also provide trustees a guise under which to diminish trust assets. Increased trust management fees as well as legal fees can be assessed throughout the course of a legal dispute. It’s quite conceivable that beneficiaries could “win” in a court of law only to find that the trustee, as a matter of performing his/her “duties” with relation to the resolved legal battle, significantly reduced or even depleted the trust assets. The “losers” (trustee and their lawyers) end up with the trust assets. The “winners” (beneficiaries) are left with a stack of legal bills. Some victory!

Estates or trusts of any amount, even $500,000 or less, can be attractive to IRA practitioners. As any prolonged litigation (and count on your IRA adversaries for prolonged litigation) can easily run into six-figure expenditures for each side, IRA victims often recognize the absence of cost effectiveness in going to court. Much can be spent with little or nothing gained. Some attorneys may advise that certain estate amounts are not enough to fight over so the IRA family should “let it go” and save themselves additional grief and expense. Collectability of any judgments rendered becomes another issue – might another legal battle be required to actually secure funds awarded?  Involuntary Redistribution of Assets practitioners know how to target and maximize these opportunities.

Betrayal can take on many different forms as illustrated by the New York Surrogate Court overseeing the estate of Leona Helmsley, once known as the “Queen of Mean.”  With her August 2007 death, Helmsley’s final directive was to leave her estate, in the form of the Leona M. and Harry B. Helmsley Charitable Trust with an estimated value of $3 – 8 billion, “to the provision of care for dogs” along with another catch-all category granting broader discretion to the trustees.

The first reversal of Helmsley’s wishes came in June 2008.  Of Helmsley’s four grandchildren, two were included in her will as well as made executors (along with others) of her estate while two were excluded from any inheritance.  An estate contest from the disinherited grandchildren prompted estate executors to settle the dispute quickly by “amending the will.”

Executors changing a will to include otherwise omitted heirs is a blatant disregard of the decedent’s wishes, but per news reports, that’s what happened with the move approved by the New York Attorney General as well as a judge.  How does this discounting of the clear intentions of a decedent not now set a dangerous precedent that could jeopardize the rights of inheritance of the deceased and other potential heirs?

Then, there was Trouble, Helmsley’s Maltese.  At the same time as the will “amendment,” the $12 million set aside for the care of Trouble was reduced to $2 million.  Upon Trouble’s death, any unused money was designated to be transferred into the Helmsley charitable trust.  Why once again, did a legal precedent have to be established in which a decedent’s expressed wishes were disregarded?  In due time, the same outcome would have been achieved yet with a course that included honoring Helmsley’s wishes.

In February 2009, Judge Troy K. Webber of Surrogate’s Court in Manhattan ruled that the Helmsley trustees may distribute the money as they see fit.  In a ruling he wrote “The court finds that the trustees may apply trust funds for such charitable purposes and in such amounts as they may, in their sole discretion, determine.”  Perhaps the trustees and the court were disinclined to worry about honoring Helmsley’s wishes as her beneficiaries – the dogs – presumably can’t hire attorneys to fight such a ruling.  Perhaps unexpected was “man’s best friend” actually having friends and, in this case, they have surfaced as three of the country’s most prominent animal welfare organizations.

The Humane Society of the United States (HSUS), the American Society for the Prevention of Cruelty to Animals (ASPCA) and Maddie’s Fund are asking a Manhattan court to force Helmsley trustees to honor Helmsley’s expressed intentions.  According to the groups, “less than $100,000 of the initial $136 million Helmsley grants have gone to dog welfare.”

Trusts can be a helpful estate planning tool, but in the wrong hands – and those hands are out there – administration of these instruments can be executed so as to completely circumvent intentions of the trust founder.  The legal industry will advocate the use of a “qualified estate planner” to help prepare a plan for the final distribution of your assets.

Few in the industry, however, will talk candidly about the problems created when that planning takes an unpredictable turn at the hands of that “qualified” professional.  And as the Helmsley case well demonstrates, today’s courts also seem willing to redistribute assets opposed to upholding the wishes of a decedent.

Leona Helmsley used her resources to create a trust that, upon her death, was to distribute her wealth as per specific instructions.  Brooke Astor and J. Howard Marshall II engaged in similar estate planning activities yet their estates (and beneficiaries) have also been harmed due to Involuntary Redistribution of Assets actions.  If the estates of high profile people with significant holdings can be so boldly challenged in a manner contrary to their clear intentions, what chance do people of more modest means and their heirs have in standing up to the same type financial assault occurring in courthouses across this country?