Buffington Law Firm’s California Trust Litigation attorneys have handled numerous cases involving so-called “Dynasty Trusts” as well as alternative forms of estate plans similar to these. A “Dynasty Trust” is an estate plan in which the trust does not simply distribute assets, wind up, and dissolve when the trustors pass away –the way wills usually work. Instead, the trust is set up to live on for an indefinite period after its creators die, retaining most assets of the estate in the trust, and usually paying mainly income only to the beneficiaries. This type of trust is designed to control the beneficiaries even after the trustor passes away. Perhaps the trustors believed that their children are irresponsible with money. Lawyers sometimes call this type of scheme “dead hand control” as the “dead hand of the past” is controlling the trust, its assets and income, and thereby the beneficiaries.
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 entwined 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 confronted with sky-high trustee and legal costs within a trust, Buffington Law Firm’s trust litigation attorneys can usually help. Give us a call today for a free legal consultation directly with one of our experienced trust dispute attorneys. All consultations are protected by attorney-client privilege, and there is never any charge or obligation.