Home' Island Sun : ISN 100215 Contents 37
ISLAND SUN - OCTOBER 2, 2015
When my children were young, I used to read Dr. Seuss
books to them. One of their favorites was The Cat in
the Hat Comes Back. You may remember the plot
where the devious cat causes pink spots all over the house
while mother is gone. When the kids get scared that the mess
can’t be cleaned up, the cat reveals one cat after another inside
ever-decreasing sized hats one on top of the other, kind of like a
Russian Matryoshka doll. All of the little cats cause an even big-
ger mess before eventually cleaning up before mother returns.
Wearing more than one hat can become a problem in an estate
plan as well. An example of this is when someone is both a trustee for their deceased
loved one’s trust and is also a beneficiary of that same trust. Let me give you an example:
Suppose that father’s trust is held for the benefit of Stephanie, his second wife.
Stephanie is to get income for the rest of her life, and if the income is insufficient for
her needs, the trustee can invade the principal of the trust for her health, maintenance,
and support. Upon Stephanie’s death, then the trust terminates back to father’s chil-
dren, Alex and Andy. Stephanie is not Alex and Andy’s mother. Stephanie is also the
trustee of the trust.
Here Stephanie is wearing “two hats.” As trustee of the trust, she has a responsi-
bility not only to her own needs – to provide herself income and possibly invade the
principal of the trust for her own benefit – but she is also supposed to be watching out
for the needs of the remaindermen beneficiaries, Alex and Andy. It would appear that
Stephanie has a conflict of interest, which is quite common in these scenarios.
A trustee would have to balance the investments for both income (which benefits
Stephanie) and growth (which benefit Alex and Andy). As a beneficiary, Stephanie
would want to weigh the investment portfolio to maximize the income earned so that
she has more money to spend every month. But when a trustee invests for income,
that is usually at the expense of growth. Alex and Andy want the trustee to invest for
growth, since they want the trust to increase in value during Stephanie’s lifetime, if not
only to keep pace with inflation.
Keep in mind that every dollar that Stephanie spends – especially principal dollars
of the trust – is one less dollar that Alex and Andy will one day receive as inheritance.
Even if Stephanie has a loving relationship with her step-children, legally she and they
have adverse legal interests. What they will want from the trust is in direct conflict.
Stephanie, therefore, is vulnerable. If she acts too much in her own favor, the Alex
and Andy could sue her for breach of her fiduciary duties. What if Stephanie has a
true medical emergency and invades the principal of the trust for many thousands of
dollars? The trust seems to indicate that this is okay, but would your opinion change if
Stephanie had millions of her own outside of the trust?
This is where good drafting comes into play. The trust could read, for example, that
when making principal distributions the trustee should consider the other income and
resources available to the beneficiary. It may also read that the trustee is to favor the
income beneficiary’s needs over those of the remaindermen, or vice versa. It’s not a
bad idea for the grantor of the trust to direct his attorney to write an “intent” clause:
“It is my intent that the trustee first consider the needs of my wife should she sur-
vive me, over the needs of my children, even to the extent of the exhaustion of the
trust funds. In making these decisions, however, my trustee shall consider the outside
income and resources available to her,” for example.
Yet another good idea is to name an independent party as a co-trustee to weigh
in on investment and distribution decisions. This may serve Stephanie well, by taking
some of the responsibility off of her shoulders.
There are many ways to “skin the cat” in this type of situation. A “standard” trust
that does not delve into the grantor’s priorities and intent could actually cause more
problems than it solves.
©2015 Craig R. Hersch. Learn more at www.sbshlaw.com.
Two Hats by Craig R. Hersch, Florida Bar Board Certified
Wills, Trusts & Estates Attorney; CPA
Email: email@example.com • www.gregweglarz.com
State Certiﬁed General Contractor License # CGC A05420
One Builder Serving Sanibel & Captiva for over 35 years
• Custom Residential Construction
• Remodeling Projects
• Design Team with Construction Drawings
• Plans Through Completion of Project
• Commercial • Residential
• Faucet/Toilet Upgrades & Replacement
• Water Heaters • Water Leaks • Garbage Disposals
• Backflow Repair • Sewer Back-Up
• Repipe • Drain Clogs/Cleaning
• Remodels/New Construction
24/7 EMERGENCY SERVICE
2244 Periwinkle Way, Suite 13, Sanibel, FL 33957
“. . . . for all your plumbing needs.”
Proudly serving Sanibel & Captiva Islands
Dark Skies Compliant Fixture Installation
Panel Upgrades • Switches • Power Distribution • Equipment Wiring
Outdoor Appliance Wiring • New Construction • Troubleshooting
Lighting Design & Installation • Smoke Detectors • Lamp Repair
Electrical Maintenance • Residential • Management Companies
Electrical Testing • Relocation Services • LED Lighting
Ceiling Fan Installation & Repair • Receptacles
Meters • Service Upgrades • Code Upgrading
Friendly Service - Competitive Pricing
2244 Periwinkle Way, Suite 13, Sanibel FL 33957
Links Archive ISN 092515 ISN 100915 Navigation Previous Page Next Page