Dynasty Trusts are a Magnet for Trust Disputes and Litigation
Buffington Law Firm’s trust dispute attorneys have frequently assisted clients in dealing with problems involving the removal of problem successor-trustees or the need to force the dissolution of a trust. One form of trust that is particularly prone to trust disputes are so-called “Dynasty Trusts.”
A “Dynasty Trust” is a trust that is designed to live on after the trustor or trustors pass away rather than simply act as a vehicle to disburse the trustors’ estate after they die. Most trusts are designed to promptly disburse a trustor’s assets — typically but not always simply dividing the trustors’ estate among the trustors’ children and then dissolving. A Dynasty Trust, by contrast, is designed to keep the now dead trustors’ estate intact, and typically distributes income only to the beneficiaries. The basic notion is that the trustor or trustors (the people who originally created the trust estate) wish to exercise what lawyers sometimes call “dead hand control” over the beneficiaries. As one trustor allegedly said, a Dynasty Trust is designed to allow a dead trustor to exercise “control over the children from the grave.”
Dynasty Trusts are prone to problems which can be vexing to the beneficiaries. Often the successor-trustee of the Dynasty Trust will “milk” the trust for trustee fees. Other times the trustee favors some beneficiaries over others, exercising his or her “discretion” as trustee (Dynasty Trusts often provide for a wide latitude of discretion for the successor-trustee) in a way that beneficiaries believe is unfair. Self-dealing by trustees is common, where trustees sell trust assets to themselves or their relatives for knock-down prices. Usually in these situations the trustees utilize the financial resources of the trust to retain aggressive legal counsel with the objective of keeping the beneficiaries in check. It is not uncommon for trustees to use trust legal counsel to harass beneficiaries. Thus, the successor-trustee is essentially using the beneficiaries’ own money to retain legal counsel against them.
As a matter of Firm policy, Buffington Law Firm’s trust litigation attorneys believe that this type of “Dynastic” estate plan is usually a bad idea and a recipe for trouble. Dynastic estate plans usually represent an attempt by deceased parents to “keep the family together” by having the children of the deceased have their financial affairs intertwined in the trust, often with one of the children acting as successor-trustee. This ignores the fact that eventually the children lead separate lives with separate families, careers, and financial needs. In case after case involving Dynastic estate plans of this type, the following problems have emerged:
1. Sky-high trustee fees. The trustee of a Dynasty trust is invariably entitled to trustee fees. The trustee typically hires legal counsel to advise him or her on matters of trust administration — and legal counsel, representing the trustee, invariably advises that trustee fees may be high. Often very high. Often far more than the trust beneficiaries receive as distributions. The conflict of interest, in which a trustee hires a lawyer to advise the trustee as to what salary the trustee may pay him or her self, is obvious, and represents the worst form of moral hazard.
2. Sky-high legal fees. One good turn often deserves another in Dynastic trusts. Very high trustee fees always seem to be accompanied by high legal fees paid by the trust to the trustee’s attorney. It is far from rare that legal fees combined with trustee fees encompass most of the income of a Dynasty trust. This can leave little or nothing for the beneficiaries.
3. Lots of Legal Disputes. In our experience Dynasty Trusts and similar estate plans are magnets for litigation. Very commonly the trustee uses trust resources to bring litigation against beneficiaries. This jacks up legal fees and often trustee fees as well. Dynasty Trusts can be a recipe for misery and discord.
4. Misbehaving Successor-Trustees. Dynasty trusts often give discretion to trustees as to what distributions to make, when to make them, and so forth. Since trusts are usually not under the supervision of a court, the only check on the trustee is the trustee’s own lawyer, at least until the beneficiaries are forced to retain legal counsel. In our experience the successor-trustees of Dynasty trusts often behave aggressively towards the beneficiaries. When Buffington Law Firm is retained to help, what we usually find is a thoroughly “lawyered up” trustee abusing his or her discretion to the point where the beneficiaries have no choice but to either write-off their inheritances or retain counsel.
5. Tiny Distributions to the Trust Beneficiaries. In case after case involving Dynastic estate plans, we have been confronted by situations in which trust distributions to the beneficiaries are swamped by trustee fees and legal fees for the trustee’s attorney to the point where the beneficiaries receive at most de minimus benefits from the trust.
What Can Be Done?
Buffington Law Firm’s trust litigation team has repeatedly succeeded in solving the types of problems inherent in Dynasty trusts by representing the beneficiaries against the trustee and forcing reform of the trust pursuant to Cal. Probate Code Section 17200. Usually this has resulted in a court order that orders the trust dissolved or, alternatively, removal of the successor-trustee. The best outcomes usually result in both actions — dissolving and winding up of the trust and removal of the trustee. This allows the beneficiaries to get on with their separate lives.
If you are experiencing problems with a California living trust, Buffington Law Firm’s trust dispute attorneys have decades of experience dealing with such problems. We invite you to call us for a free legal consultation. All consultations are with experienced trust litigation attorneys, are completely confidential and protected by attorney-client privilege, and there is never any obligation.