Questions to Ask Before Serving as Trustee

Being asked to serve as the trustee of the trust of a family member is a great honor. It means that the family member trusts your judgment and is willing to put the welfare of the beneficiary or beneficiaries in your hands. 

But being a trustee is also a great responsibility. You need to accept your responsibility fully informed and with your eyes wide open. Here are six questions to ask before saying "yes":

• May I read the trust? The trust document is your instruction manual. It tells you what you should do with the funds or other property you will be entrusted to manage. Make sure you read it and understand it. Ask the drafting attorney any questions you may have.

• What are the goals of the grantor (the person creating the trust)? Unfortunately, many trusts say little or nothing about their purpose. They give the trustee considerable discretion about how to spend trust funds with little or no guidance. Often the trusts say that the trustee may distribute principal for the benefit of the surviving spouse or children for their "health, education, maintenance and support." Is this a limitation, meaning you can't pay for a yacht (despite arguments from the son that he needs it for his mental health)? Or is it a mandate that you pay to support the surviving spouse even if he could work and it means depleting the funds before they pass to the next generation? How are you to balance the needs of current and future beneficiaries? It is important that you ask the grantor while you can. It may even be useful if the trust’s creator can put her intentions in writing in the form of a letter or memorandum addressed to you.

• How much help will I receive? As trustee, will you be on your own or working with a co-trustee? If working with one or more co-trustees, how will you divide up the duties? If the co-trustee is a professional or an institution, such as a bank or trust company, will it take responsibility for investments, accounting and tax issues, and simply consult with you on questions about distributions? If you do not have a professional co-trustee, can you hire attorneys, accountants and investment advisors as needed to make sure you operate the trust properly?

• How long will my responsibilities last? Are you being asked to take this duty on until the youngest minor child reaches age 25, in other words for a clearly limited amount of time, or for an indefinite period that could last the rest of your life? In either case, under what terms can you resign? Do you name your successor, does the trust  or does someone else?

• What is my liability? Generally trustees are relieved of liability in the trust document unless they are grossly negligent or intentionally violate their responsibilities. In addition, professional trustees are generally held to a higher standard than family members or friends. What this means is that you won't be held liable if for instance you get professional help with the trust investments and the investments happen to drop in value. However, if you use your neighbor who is a financial planner as your adviser without checking to see if he has run afoul of the applicable licensing agencies, and he pockets the trust funds, you may be held liable. A well-respected Massachusetts attorney who served as trustee on many trusts used a friend as an investment adviser who put the trust funds in risky investments just before the 2008-2009 stock market crash. The attorney was held personally liable and suspended from the practice of law. So, be careful and read what the trust says in terms of relieving you of personal liability.

• Will I be compensated? Often family members and friends choose to serve as trustees without compensation. If the duties are especially demanding, however, it is appropriate for trustees to be paid for service. The question, then, is how much. Professionals generally charge an annual fee of 1 to 2 percent of assets in the trust. So, the annual fee for a trust holding $1 million would be $10,000. Institutions and professionals generally charge a higher percentage for  smaller trusts and a lower percentage for larger trusts. If you are performing all of the work for a trust, including investments, distributions and accounting, it would be inappropriate to charge a similar fee. If, however, you are paying others to perform these functions or are acting as co-trustee with a professional trustee, charging this much may be seen as inappropriate. A typical fee in such a case is a quarter of what the professional trustee charges, or .25 percent (often referred to by financial professionals as 25 basis points). In any case, it's important for you to read what the trust says about trustee compensation and discuss the issue with the grantor.

If after getting answers to all these questions you feel comfortable serving as trustee, you should accept the role. It is an honor to be asked and you will provide a great service to the grantor and beneficiaries.

For a list of things to do after being appointed a trustee, click here.

For more on the different kinds of trusts, click here.

COPD Patients Discharged to a Skilled Nursing Have Two Times the Risk of Death Within Year Compared to Those Who Go Home

According to a study recently reported in McNight's, patients who go to a skilled nursing facility after being hospitalized for chronic obstructive pulmonary disease (COPD) are about twice as likely to die within a year: 

"The probability of death within 180 days was nearly 34% for COPD patients discharged to a SNF, versus roughly 16% for those who were sent home, the investigators determined. These numbers were 46.5% and 24%, respectively, at a year after hospital discharge. These statistics are for patients hospitalized with a diagnosis-related group (DRG) code of 190, but DRGs of 191 and 192 had similarly high rates."

Patients who go to a SNF likely have more severe COPD, multiple chronic conditions and poorer overall physical functioning, the study authors acknowledged. Still, the authors suggest, based upon the findings, that more robust interventions might improve the mortality of this group. Further research could determine which patients are likely to benefit from more intensive management and which might be candidates for hospice and palliative care.

The investigators analyzed Centers for Medicare & Medicaid Services data for about 500,000 patients in Ohio during 2008 and 2009. They are affiliated with not-for-profit hospital group OhioHealth, and presented their findings last week.

You can read more about the study here. 

Man Can't Challenge Discharge of Brother's Debt for Mom's Care under Filial Responsibility Law

A bankruptcy court has ruled that a man does not have standing to prevent the discharge of his brother's debt owed to their mother's assisted living facility under the state's filial responsibility law. In re: Skinner (Bankr. E. D. Pa., No. 13-13318-MDC, Oct. 8, 2014).

Dorothy Skinner lived in an assisted living facility until she was evicted for non-payment. The facility sued Ms. Skinner's sons, Thomas and William, under Pennsylvania's filial responsibility law. The court entered a default judgment against Thomas for $32,224.56. Thomas filed for bankruptcy and sought to discharge the debt.

William filed a claim in the bankruptcy court, arguing that Thomas's debt is non-dischargeable because it resulted from fraud and embezzlement. William argued that Thomas used their mother's assets for his personal expenses, so if William is liable to the assisted living facility, he is entitled to be reimbursed by Thomas.

The U.S. Bankruptcy Court, Eastern District of Pennsylvania, dismissed the claim, holding that William does not have standing because he is not a creditor of the debtor. According to the court, even if Thomas's actions injured Mrs. Skinner, that conduct was directed at Mrs. Skinner and her property, not at William. The court rules that William "may not invoke a cause of action that belongs to his [m]other to remedy the [Thomas's] liability for the Support Claim."  

Of course, underlying this case of one sibling fighting another is the liability created by filial responsibility; the siblings are jointly and severally liable.  Joint and several liability means that the creditor, in this case the assisted living facility, can enforce and collect the debt from the siblings jointly, or any one or more of the siblings severally.  If one sibling is unable to pay, the full debt falls to the other(s).  The assisted living facility can collect the full debt from any one of the siblings who is most likely to pay quickly.  Hence, one sibling seeks to stop a bankruptcy court from exonerating the other, leaving the sibling that does not file for bankruptcy solely responsible for the debt.  

Filial responsibility will only create more instances of familial discord and conflict as circumstances cast these obligations to fall inequitably among family members. Moreover, the court suggested that the Pennsylvania law does not allow for an action for contribution or reimbursement; if one family member is held responsible and another is not, the responsible family member may not be able to do anything about it.  Bottom line: parents' efforts to treat children equally or equitably will likely be sacrificed on the altar of Medicaid resource recovery in a filial responsible world. 

To read more about filial responsibility, click here, here, here, here, and here.