Writing Your Tulsa Estate Planning Blog

Special needs trusts are vital for the support of people with disabilities. They are not perfect, however, as it can be difficult for a beneficiary to change the trustee.

Special needs trusts offer substantial benefits for those people who have them.

They allow a beneficiary to have access to income, while remaining eligible for government benefits.

However, in exchange for that benefit, the trusts are very restricted. They must be created in hyper-specific ways and the beneficiary’s ability to control the assets in the trust is limited.

Technically, the beneficiary cannot distribute or manage the trust assets.

That means a third-party trustee is needed.

If the trustee is not up to the job or intentionally mishandles the trust, it can be difficult for the beneficiary to change the trustee, as the Wills, Trusts & Estates Prof Blog discusses in “Can the Beneficiary of a Special Needs Trust Change the Trustee?”

A beneficiary of a special needs trust can petition a court to have the trustee removed and another appointed. However, this can be a difficult process and many people with special needs are not able to handle the complex legal issues of filing a petition with the court, let alone arguing for a trustee change.

This could potentially stick a beneficiary with a bad trustee and no recourse.

It is, therefore, important that special needs trusts be drafted with this problem in mind.

Trustees must be chosen carefully and, in cases where the beneficiary is of diminished capacity, it should be clear on who else can petition to change the trustee.

Reference: Wills, Trusts & Estates Prof Blog (Sep. 27, 2017) “Can the Beneficiary of a Special Needs Trust Change the Trustee?”

After years of preliminary matters, a breach of trust case against the McClatchy Trust is finally being argued in court.

James B. McClatchy wanted to keep his media company as an independent company that was not owned by a larger media empire.

To that end, he created a trust, of which he was initially the sole income beneficiary that prohibited the McClatchy majority ownership from being sold to a larger enterprise.

His son Carlos McClatchy is now suing, claiming that the terms of the trust were violated in 2006.

The Sacramento Bee reports on this development in “San Francisco trial weighs breach-of-trust claims by McClatchy family member.”

The suit centers around the McClatchy purchase of another media company, Knight Ridder Inc., in 2006.

Carlos McClatchy claims the purchase caused a decline in value in McClatchy’s common stock and subsequently caused the company to stop paying dividends.

The trust points out that at the time of the purchase, James B. McClatchy was the sole income beneficiary of the trust and he supported the purchase.

It also claims that, at the time dividend payments were stopped, there was a financial crisis that was responsible for the stoppage.

It is not clear which party is in the right. The court will have to settle that.

What this illustrates is that trustees need to be careful with how they handle trust assets.

Even if current beneficiaries agree to trustees’ plans, future beneficiaries can always object and cause problems later.

Reference: Sacramento Bee (Sep. 13, 2017) “San Francisco trial weighs breach-of-trust claims by McClatchy family member.”

A case in New York is a good reminder that it is very important to make sure that trusts details are specific, in order to make the settlor’s wishes crystal clear.

The story had a Hollywood beginning. A schoolteacher and a wealthy real estate investor met through a singles ad, fell in love, got married and had a child.

From that beginning, things quickly turned south.

According to court records filed by the child of that marriage, Elizabeth Marcus, her mother refused to sleep with her father after she was born. The two divorced after a few years and the father passed away, when Marcus was nine years old.

The father did not want his ex-wife to receive any of his assets and instead left half his estate in trust to Marcus. Another child from a previous marriage received the other half.

The trust was originally overseen by Citibank, but after fighting for several years, the mother took control of the trust in 2003, according to the Daily Mail in “Daughter sues her ‘self-involved’ mother for ‘frittering away more than $13m of her inheritance – so she could buy cars and a $6m mansion next to Gwyneth Paltrow in the Hamptons’.”

Marcus is suing her mother now, claiming that her mother has stolen her inheritance to buy expensive items for herself, including a mansion and fancy cars. Most of the original inheritance is now alleged to be gone.

The mother, of course, denies the accusations.

The missing piece of the puzzle from the reports is how the mother was able to gain control of the trust, if the father did not wish her to have it. He might have neglected to be clearer about his wishes in the trust documents.

Reference: Daily Mail (April 23, 2017) “Daughter sues her ‘self-involved’ mother for ‘frittering away more than $13m of her inheritance – so she could buy cars and a $6m mansion next to Gwyneth Paltrow in the Hamptons’.”

Even great amounts of family wealth, can easily be lost by future generations who do not preserve and add to it as the original wealth generator did.

James Jewett Stillman’s greatest lasting achievement was running the bank that eventually grew into Citigroup. However, he had another legacy.

Stillman also had a large and valuable collection of art and an estate he wanted to be preserved for use by the public. If everything had gone according to plan, the art and the estate would have been preserved for generations.

However, everything did not go according to plan.

His heirs are now trying to auction off the art, because they need the money to save the estate, as Bloomberg reports in “New York Banking Royalty’s Heirs Are Unloading Art to Save the Family Estate.”

The source of the problem, in this case, appears to be that trustees who were charged with running the estate have squandered millions of dollars over the years. The estate’s funds have run so low, that the heirs have no choice but to sell something. Therefore, they have chosen to sell the art.

The immediate lesson to be learned? It is very important to choose trustees carefully and to make sure that trust documents are carefully crafted to make squandering money difficult.

However, there is also a more important lesson that wealth does not last forever, unless it is properly maintained. Had it not been the trustees who squandered the wealth in this case, it might have been the future heirs.

Reference: Bloomberg (April 4, 2017) “New York Banking Royalty’s Heirs Are Unloading Art to Save the Family Estate.”