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I’m 49 and my wife 51. We both managed to save and invest wisely in the marriage of only 14 years. We have now invested $ 4.2 million together. We both plan to work at least another 10 years in well-paid jobs and invest as much as possible. We will also both inherit some money, which will further help us in our goal of real wealth.
Heredity is the only problem. My father on my side is the trustee of a generational trust that his parents set up for him, my brother, and me. He is allowed to invest the foundation capital and live on the proceeds, but if he dies, the capital goes to my brother and me. He invested the capital in normal vehicles such as ETFs and stocks through an asset planner, which I also use.
“He may invest the foundation capital and live on the proceeds, but if he dies, the capital will go to my brother and me.”
However, he used the trust to build himself a house in which he wanted to live for his third wife. He kept the construction of the house a secret and did not inform my brother or me that he was building it. When we found out, all hell broke loose. He rented the house to friends of his wife while he pondered what to do next.
Fast forward about 15 years later. These friends still live in the house and pay below market rent. We’ve never pushed him too much on the matter, but over the past few years we’ve let him know that our wish is for him to sell the house. Now the local housing market is white hot so we pushed it again.
“It turns out that our financial advisor’s wife is friends with my father’s wife – and probably the tenants too.”
It turns out that our financial advisor’s wife is friends with my father’s wife – and probably the tenants too. Overall, I am satisfied with our advisor, but I recently pointed out this conflict of interest. My father is scared of his wife, so he informed my brother and me that he will continue to rent the house to their friends. He claims he asked for more rent, but they can’t afford it.
This is obviously a violation of its fiduciary duty to maximize the trust’s profits. The house is in the trust’s name and I will inherit it. At that point, we’re going to sell it, so it could be worse.
Am I greedy to ask for the house to be sold and eviction from tenants I don’t know? His wife contributed nothing to their marriage and has little to no savings. I don’t see why I should have my inheritance milked, even if I can.
After all, I live in America’s most expensive city and don’t own a house, so it’s not difficult to say that if I can ever hope to own one, I need as much money as possible.
Upset in California
It’s not a question of greed. It is a question of doing the right thing. As such, I’m on #TeamExasperated. No, you are not greedy. Your relative financial security will relieve you of any immediate act of desperation, but should not be a reason to turn a blind eye to managing the trust.
If what you are saying is true, it would be difficult to hold your father accountable without doing the same to his – and your – financial advisor. This can give you leverage now and also give food for thought in case you decide to move the matter further. In any case, the advisor should be the first to go.
There are three open questions that will determine what happens next: Did your father need your and brother’s permission to withdraw this money and invest it in a house? Do the rules of the trust allow capital withdrawal for this type of investment? And does this agreement violate his and / or your financial advisor’s fiduciary duties?
Your father acted clandestinely and suspiciously, and he and your financial advisor should know better than to rent an apartment to friends well below market price. Both acted inappropriately, secretly and at best ethically questionable.
“Your relative financial security will set you free from immediate despair, but it shouldn’t be a reason to turn a blind eye to the management of the trust.”
Another factor to consider: Did your father take this action in good faith – or was it a fraud and breach of fiduciary relationship? Relief clauses in a trust limit the liability of the trustee.
“Courts will not enforce an exculpatory clause if circumstances show that the inclusion of the clause in the trust was due to fraud or abuse of a trust relationship. There are a number of factors that courts will consider in determining whether the inclusion of an exculpatory clause was inappropriate, ”said Smith, Gambrell & Russell law firm.
Connie Yi’s law firms more bluntly summarize the trustee’s responsibilities, saying that it must act “with due regard to the rights and legitimate expectations” of the beneficiaries.
“A trust creator names beneficiaries because he or she wants them to receive selected benefits. A trustee who engages in acts that do not lawfully promote the rights of a beneficiary or who fails to take action that advance the interests of a beneficiary in the manner intended by a settlor may become the subject of litigation over the rights of the beneficiary enforce, “says the law firm. In effect, this means filing an application to the probate court for the trustee to be dismissed.
The good news: You are financially not dependent on this investment. You’re in good shape for someone your age, and you can afford to wait until your father dies – assuming he dies before you – to sell the house. It will likely continue to appreciate in value, and it could be a wise investment either way.
However, should you decide not to legally remove your father as a trustee, you are left with the current status quo: a dispute between you and your father over this property and the certainty that the trust will ultimately bear the can for lost rent and value .
Also read: I want to take out life insurance for my husband. He says Hell will freeze over before he’s worth more dead than alive
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