Mark Cornwall: The Post-Recession Trustee - Noozhawk.com

Accusations of fraud and deceit against Goldman Sachs Group whirled across the headlines last weekend, calling them “a narrative for the economic crisis” that has besieged the country. Another two trusted gentlemen of Wall Street, John Paulson of Paulson & Co. and 31-year-old Frenchman Fabrice Tourre, made a $1 billion betting against the mortgage bubble they created and heralding the investment as a golden opportunity — when, in fact, it was intentionally made of junk and designed to fail.

As those two sociopaths made a $1 billion off us everyday people, life has gone on. People have died without estate plans, and others are trying to figure out whether they will have an estate to plan. Yet others are trustees of specific trusts in which they have the duty to obey the desires of the dead trustor, and the responsibility of prudent financial dealings to preserve the trust principal while trying to make the live beneficiary of the trust happy.

But there comes that day when the beneficiary has almost outlived the value of the trust. That is the day when the trustee goes to his or her financial adviser who has been helping preserve the trust capital for the past 20 years.

There have been huge reversals in the stock market, as well as the mortgage, secondary and trust deed markets. The adviser calculates the sum of expenses against the amount of money and earnings left in the trust, and with shock and awe the trustee can see there is only enough money for the 76-year-old beneficiary to live two more years at her rate of spending. He was told she had only five years to live when he took over the trust, so she is already 15 years ahead. The trustee started with $450,000 and made her more than $4 million, which she has lived on for 20 years. Now, because of alleged criminals such as Paulson and Tourre, she has only two years worth of money left.

There is only one thing to do. She must downsize — and do so immediately.

Now comes the hard part. The trustee must go to her home and tell her she must sell it because the mortgage is barely worth the value of the home. She must find something else, perhaps a rental for a single person and her dog. She has no need for a three-bedroom, two-bathroom house built in the 1960s. Her weekly allowance also must be cut. In short, the time has come for her to realize that money is finite, and frugality must become her lifestyle. Who knows how long she will live?

Unfortunately, she doesn’t understand a word the trustee is telling her about all this finance stuff, which is why she has a trustee in the first place. There are many rules and comments in the 2008 “Guide to the California Rules of Professional Conduct for Estate Planning, Trust and Probate Counsel” published by the State Bar of California, and more laws, rules and regulations in the Probate Code defining how a trustee should be managing his or her duties as a trustee. But there are no rules or suggestions on how to handle this situation.

The trustee could resign his position to a bank, and it would be happy to tell the beneficiary where to go — whether she likes it or not. Or, the trustee could drag the beneficiary into court and have the judge issue orders he believes are in the beneficiary’s best interest, such as having a conservator assigned to her. That would definitely put an end to a 20-year relationship with a client or old friend.

There is no easy answer. The law books are filled with words such as “reasonable,” “prudent,” “timely” and “fair,” and long lists of duties that must be initiated and observed. The nonprofessional trustee or fiduciary has no idea what the dead friend got him into when he asked him to be a trustee.

Whatever the case may be, if you are the trustee, you must get the job done in a favorable manner for the beneficiary — whether she likes it or not.

— No opinion herein is a “marketed opinion” and no information provided herein can be used to avoid tax penalties for which the taxpayer would otherwise be responsible. Mark S. Cornwall has lived in Santa Barbara for more than 30 years and practiced law here for 25 years. He is accepting new clients. His book, Estate Planning: The Heroes Way for Baby Boomers, can be purchased via his Web site, www.MarkCornwall.com; Amazon.com; or locally at Chaucer’s and Borders bookstores. To schedule an appointment, contact him at mark@babyboomerpublishing.com or 805.845.7558.