Nearly 10 years ago, my in-laws put their co-op in a trust, making their youngest child, a widow, the trustee and the power of attorney. No copies of the trust were given to my husband and his brother, the other two beneficiaries.?
My father-in-law passed away three years ago and my mother-in-law, who at first was in assisted living, is now in a nursing home. (Since the trust was over five years old, Medicaid is paying for the nursing home.) The apartment was sold one year ago for $1.5 million.?
Unfortunately, my in-laws took a reverse mortgage to subsidize their meager pensions, and that company recovered almost $700,000. After fees for lawyers, the real-estate agent, the co-op board, etc., there was $585,000 left, which was put in a trust checking account.??
“‘My sister-in-law, after the sale of the apartment, pulled back on communication. She won’t answer her cell or house phone. She won’t respond to messages.’”
Now to the problem: My husband, myself and my brother-in-law have all helped and supported their sister along the way, taking responsibility for selling stock and getting their mom into a great assisted living community.?
However, since my mother-in-law first went to assisted living over two years ago, my sister-in-law never visited her. My sister-in-law, after the sale of the apartment, pulled back on communication. She won’t answer her cell or house phone. She won’t respond to messages.??
She has blocked us from time to time on texts and phone calls. We have now heard that she is planning to move out of state, keeping her whereabouts secret. We have not seen any financial statements, and the bank says only a trustee has access to that information.?
We don’t want to get involved in a long, expensive legal fight. We don’t know if the money’s gone. That may be the reason she has stopped all communication. She has always had problems, but she was my in-laws favorite child, so she has all the power.??
My husband is the second POA, but the bank wants us to legally prove she is unfit before we can change her as POA. Do we have any recourse? What can we do?
Up a Creek Without a Paddle
Dear Up the Creek,
I suspect your husband is a “successor” trustee rather than a “second” trustee. A second trustee is appointed to share the responsibilities. They may have different skills: one trustee, for example, might have a legal background while the other could be accounting whiz. Your sister-in-law, like all trustees, has a fiduciary duty to act in the best interests of the beneficiaries: a duty of loyalty (to carry out the terms of the trust), confidentiality, prudence (manage the trust with care) and duty to inform and account.?
The second trustee also acts as a safeguard to ensure ethical and accurate management of the trust, pay the relevant taxes, and can also help bypass any family drama by not showing favoritism to one sibling. Being a trustee comes with a lot of work, but they also have a lot of power in overseeing the trust. That sounds great in theory, but it can also lead to conflict, especially when there’s a large amount of money and several interested parties involved.??
A successor trustee, which is probably the case here given that your sister-in-law appears to hold all the cards, does exactly what it says on the tin: that is, they succeed the original trustee should they pass away or otherwise become incapacitated. Either way, the trustee must abide by the “declaration of trust,” which lists the assets and outlines the terms of the trust on behalf of the grantor (your husband’s father or mother). A trustee does not act based on their own whims.
Petition the court
Most trusts and state statutes governing the administration of trusts entitle the beneficiaries to a copy of the trust and a periodic accounting of the assets, says Mike Fiffik, an attorney in Green Tree, Pa. and a member of LegalShield, a network of attorneys. “At the very least, you should send a written request to your sister-in-law — with proof of mailing — for an accounting. If she does not provide them, you can petition the court to compel her to provide an accounting.”?
“If you truly believe your sister-in-law is incapable of continuing as trustee, you should petition the court to remove and replace her,” he adds. “Once the petition is filed, you will have the ability to obtain important information such as a copy of the trust, account information and information about your sister’s medical condition relevant to her capacity to serve as trustee.? The process is often traumatic for families and expensive.”
However, if you were successful you should be able to recoup your legal expenses, and ensure that the trust is not mismanaged. Perhaps your sister-in-law is not fully aware of her responsibilities, or she may be on a power trip, or she may have other issues that impede her ability to carry out the terms of the trust. Taking legal action is always a last resort, but it’s best to act while the trustee is contactable. If she disappears, you will need to petition the court.
Check out?the Moneyist private Facebook?group, where we look for answers to life’s thorniest money issues. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
Previous columns by Quentin Fottrell: