People set up trusts in order to protect assets and conserve them for beneficiaries. This protection is achieved by appointing a trustee to manage, invest, and distribute trust property. In an ideal world, the trustee acts wisely and in the beneficiaries’ best interests, and the beneficiaries are grateful for the trustee’s services and make only reasonable requests for distributions from the trust. In the real world, however, this relationship is often fraught with tension. There are some things that trust makers, trustees, and beneficiaries can do to keep the trustee-beneficiary relationship running smoothly.
Tension Between Trustees and Beneficiaries
There are a number of areas in which tension predictably arises between beneficiaries and trustees. Beneficiaries may feel slighted that their access to assets is limited, and seek greater control. Trustees take their role as gatekeeper seriously and may act very conservatively out of concern that beneficiaries will dissipate trust assets. This conflict leads to frustration and mistrust on both sides, particularly if the trustee is a family member with whom the beneficiary also has a non-business relationship.
Another area in which conflict arises is that of the trustee’s fees. In Colorado, trustees are entitled to reasonable compensation for their services and reimbursement for out-of-pocket expenses. If the trust doesn’t specify how compensation is to be paid, there exists the potential for conflict between trustees and beneficiaries, especially if an atmosphere of mistrust already exists between the two. Trustees and beneficiaries may also disagree over how trust assets are managed and invested.
Perhaps the most overarching source of conflict is poor communication. Colorado trustees are required to establish and maintain financial records and to provide regular accountings to beneficiaries. Accountings are due at least annually under Colorado law, but may be required more frequently by the terms of the trust. Accountings should detail the trust’s income, disbursements and indicate opening and closing balances for all accounts. Failure to meticulously account for the trust’s activity may lead beneficiaries to suspect the trustee is hiding something or being careless with their assets.
Less formal communications can be the source of conflict, too. A trustee who does not explain clearly why a beneficiary’s request for disbursement has been denied can cause resentment to fester. Similarly, a beneficiary who fails to make a reasonable case for a disbursement may be seen by a trustee as demanding or untrustworthy.
Preventing and Resolving Conflict
A trust document that is clear, detailed and specific can remove a great deal of the potential for conflict. However, such clarity may come at the price of flexibility the trustee needs to manage the trust to the best advantage. Choice of trustee is also important in reducing the likelihood of conflict. For some trusts, it makes sense to have a family member or trusted friend act as trustee. However, intertwining personal relationships, which may carry existing emotional baggage, with the business relationship and control issues of a trust, is a recipe for disaster. Get the advice of an attorney who has created numerous trusts before appointing a trustee.
Once a trust has been established and a trustee appointed, conflict can best be managed by keeping open lines of communication. Simply put, beneficiaries are more likely to be confident in a trustee if he or she is transparent about actions on behalf of the trust. If a beneficiary has concerns about a trustee’s actions or motives, a face-to-face meeting can often provide the clarification needed to defuse conflict. A beneficiary may not agree with a trustee’s decision, but may be more willing to abide by it if he or she understands the rationale behind the decision.
If direct communication between trustee and beneficiary is not productive, conflicts can often be resolved through mediation, which is usually quicker and more cost-effective than litigation. Mediation involves a neutral third party who helps the trustee and beneficiary identify potential resolutions to a conflict. Litigation is costly, both financially and emotionally, and should be avoided unless absolutely necessary.
Whether you are planning to create a trust and want to avoid conflict between trustees and beneficiaries, or you are a beneficiary or trustee trying to resolve an existing conflict, you need guidance tailored to your particular situation. Contact the experienced estate planning and probate attorneys at Davis Schilken at 303-670-9855 to arrange a consultation at one of our two locations in The Denver Tech Center and Golden, Colorado. We look forward to working with you.