The Hidden Risks of Being an Estate Trustee: A Real-Life Threat of Lawsuit After Closure…

Dear Mr. Miller:

I think I’m in trouble.  I acted as the trustee for my Aunt’s estate a number of  years ago.  Several of her named beneficiaries had died before she did so we were dealing with their kids and kids-kids.  Cousins of mine, but second and third so somewhat distant from me and people who I did not know really well.  Anyway, we closed the estate seven years ago and everyone got their shares after expenses and taxes.  I simply sent everyone the checking account statement showing what was in it at the end, divided by 5, the number of beneficiaries that existed, and sent each of them a check for the appropriate amount.  Seemed simple and all was good.

Earlier this month, I received a letter from one of the cousins.  It started off with a simple question:  My Aunt owned a house that was worth about $2 million when she died so how come each of them only got $250,000.  They each should have received $400,000, so what happened to the other $150,000 this cousin was owed?  And a statement at the end that he had seen an attorney and was ready to sue me.

I’m dumbfounded.  There was a mortgage that had to be paid, real estate broker’s commissions and closing costs, taxes, attorney and CPA fees, etc.  Isn’t it obvious that if someone dies with a certain amount, the beneficiaries are going to receive something less after all is said and done?  What do I do?

Trustee Who Thought All Was Closed

The Truth Behind ‘Easy’ Trusteeships: Time, Effort, and a Lifetime of Worry
How Long Can They Come After You? Decoding the Legal Clock on Trustee Duties
The Real Scorecard of an Estate: Why Your Bank Statement Isn’t Enough
When Missing Papers Meet a Loud Accusation—Proving the Cash Didn’t Vanish
Crunching the Numbers: Could Fees and Debts Eat Up That Missing Cash?
The Eternal Paper Trail: Why You Never Toss a Single Estate Receipt
Need a lifeline? Pick up the phone before the papers fly

Dear Trustee

The Truth Behind ‘Easy’ Trusteeships: Time, Effort, and a Lifetime of Worry:  Now you know why those who say handling the estate as a trustee is easy–there’s nothing to do.  Most of those individuals have never acted as a trustee.  And now you know why Trustees are entitled to fees.  There is a tremendous amount of energy and time that can go into it in many, if not most, cases.

How Long Can They Come After You? Decoding the Legal Clock on Trustee Duties:  And then there is the liability.  So how long does this liability last, i.e. can your cousin still sue you or has the statute of limitations run out?  That depends.  First, no matter what, there are exceptions to everything so there is no 100% certain cut off.   If there was a court order, then when the judge made his ruling settling the estate that cuts off rights to sue.  If not, then if a fiduciary accounting (more on that later) was served on all beneficiaries, then three years after that.  And if a release was signed by the beneficiaries, then upon receipt of the releases (depending on how it was written and what accompanied that document).

The Real Scorecard of an Estate: Why Your Bank Statement Isn’t Enough:  A fiduciary accounting is sort of a financial report of what has occurred in the estate from the start date of the report to its end date.  It shows all of the receipts, all of the disbursements for expenses, all of the sales with gains and loses, and all of the distributions to beneficiaries.  Unfortunately, the final checking account statement probably does not meet those requirements.

When Missing Papers Meet a Loud Accusation—Proving the Cash Didn’t Vanish:  At this point, the cousin thinks you stole approximately $750,000.  If you have the financial records of the trust, you can have a fiduciary account prepared now and show the cousin where the money went.  If you go to court, you will want to do that anyway.  If you don’t have the records, you can see if the bank still has the statements going back that far.  If both of those possibilities are dead ends, then there is probably no way you can have that report prepared.

Crunching the Numbers: Could Fees and Debts Eat Up that Missing Cash?:  I don’t know how large the balance due was on the outstanding mortgage so I can’t tell whether $750,000 (5 beneficiaries x $150,000 shortage) makes sense or not.  But you still may have records of the sale and pay off of the mortgage.  With that, and your right to pay yourself maybe 1-2% of the value of the estate as trustee fees, you may have covered most of the $750,000.  Short of that, you will have to rely on potential statute of limitations arguments.

The Eternal Paper Trail: Why You Never Toss a Single Estate Receipt:  This is why I tell clients it is imperative that they should keep the records of the Trust.  And the answer to “how long?” is forever.  This includes bank statements, tax records, real estate and other sales records, invoices from attorneys, CPAs, etc.  These are generally called “the source documents.”  Yes, these documents can take up a lot of space in paper form.  But you don’t have to keep them in that format.  You can go to many UPS, Fed Ex, or other stores and have them scanned and placed on a small little flash drive.  You can then keep that flash drive (but back it up) or place the files on your computer.  Just make sure you back up your computer periodically (of course, you should be doing that anyway).

Need a lifeline? Pick up the phone before the papers fly:  Give us a call at 760-436-8832 so we can take a look at your situation, what records you still have, and help you out of this mess.