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WE ARE NOW IN THE PROCESS OF “FIXING” ANOTHER “BROKEN” TRUST AGREEMENT!  This is another of one of my regular rants on poorly thought through trust agreements.  I have “ranted” on them before.

Trust Agreements are popular – and, possibly with some coming changes in the federal tax laws, they may become even more popular.

Today’s trust fiasco deals with a trust established for the benefit of a minor child until that minor child reached an age of majority (here 25/30-years old).  As with many trusts, the trustee (think the trust manager) is a trust department of a large institution (think national bank).

First, let us be candid about institutional trustees.  These institutions manage a lot of trusts, big and small.  The fees vary dramatically, and often the departments are at best, marginally profitable.  So, as a result, the “best and the brightest” at these institutions avoid working in the “trust department” in a manner similar to your avoiding Covid-19.  And those unfortunate souls assigned to the trust department are charged to do “as little as possible.”  Stated another way, these institutional managers are more often than not “managers of last resort” to be called upon only when family members (who are often otherwise designated as trustees) are totally incompetent and totally corrupt.  Often, in hindsight, it appears that a “trained monkey” could out-perform the typical bank trust department.  Actually, it does not appear that way – it is that way!

Irrespective, if you find yourself stuck on relying on an institutional trustee, get a good attorney to make sure that there is a trust agreement that actually works to the benefit of the beneficiary (your loved ones).  Because in all likelihood, the beneficiary will find it very challenging in dealing with his or her institutional trustee.

Here is an all to common scenario and an all to common poorly drafted trust agreement.

The owner of real estate, including substantial oil and gas interests, established a trust for the benefit of minor children.  The owner’s real estate interests were conveyed, by various deeds, into “DON’T LIKE TO WORK VERY HARD BANK,” as trustee of the Trust For the Benefit of My Minor Child.

Like all things, one day the trust will end, and the Trust contains certain language regarding that –

“….When such person [trust beneficiary] reaches the age of 25-years, ½ of the then remaining balance of the trust shall be distributed outright to him; when such person reaches the age of 30-years, the entire remaining balance shall be distributed outright to him….”

Well, “junior” grew up and the trust ended.

This clause works pretty well for cash – the trustee just mails a check to the beneficiary.  And it may work well for stock and bonds brokerage accounts – the brokerage company just changes the name on the account to the trust beneficiary, in his individual capacity.

But you do not just “distribute” real estate.  You do not walk into a room (a very big room) with one’s 200 acres of land or one’s house and hand it over.  You need a deed.  And getting that “institutional trustee”, who is losing business and a client, to prepare and execute a deed is like “getting a monkey to write a novel” – very hard indeed.  Count on it taking time, count on it being done when the institutional trustee “gets around to it,” and, unfortunately, consider the possibly of an interim period of time where the real estate’s income is somehow “mysteriously misplaced.”

So let us talk a little about that interim income.  You can bet your bottom dollar that the payor of that income will continue to pay the institutional trustee or simply no one, until presented a valid, properly recorded deed from the institutional trustee to the trust beneficiary or other very, very clear document is presented.  So, here are two additions to the above rather thoughtless trust termination clause, that will help the trust beneficiary:

“….When such person [trust beneficiary] reaches the age of 25-years, ½ of the then remaining balance of the trust shall be distributed outright to him; when such person reaches the age of 30-years, the entire remaining balance shall be distributed outright to him….  The Trustee shall, within thirty-days of the person reaching the age of 25-years or 30-years, as applicable, execute and record a deed or deeds conveying real estate interests heretofore held in trust to the person [trust beneficiary] and arrange for notice to be sent to all affected parties so that all income associated with real estate is properly paid to the person [trust beneficiary].  If revenues are inadvertently remitted to the Trustee, these revenues are to be the property of the person [trust beneficiary], and the Trustee shall promptly remit these funds to the person [trust beneficiary].”

Even better, make the distribution automatic, along the following lines:

“….When such person [trust beneficiary] reaches the age of 25-years, ½ of the then remaining balance of the trust shall be distributed outright to him; when such person reaches the age of 30-years, the entire remaining balance shall be distributed outright to him….  Insofar as real estate held by the trust, the trust shall automatically terminate, and the real estate shall become the property and titled in the name of the person [trust beneficiary] without any further action by the Trustee or the person [trust beneficiary].       The Trustee shall, upon request of the person[trust beneficiary]  execute and record a deed or deeds conveying all real estate interests heretofore held in trust to the person [trust beneficiary] and arrange for notice to be sent to all affected parties so that all income associated with real estate is properly paid to the person [trust beneficiary].  If revenues are inadvertently remitted to the Trustee, these revenues are to be the property of the person [trust beneficiary], and the Trustee shall promptly remit these funds to the person [trust beneficiary].”

Just who is writing these trust agreements?  If you have real estate interests in Texas, you should consult with an attorney familiar not only with Texas wills and trusts but also with Texas real estate law when drafting a will or a trust agreement.  Otherwise, you can rest assured that distributions, as they come do, will come with associated costs and headaches.

The Wilhelm Law Firm assists in the preparation of wills and trusts, with a particular emphasis on providing services where substantial real estate interests are involved.

by Jack M. Wilhelm

Edward Wilhelm and Jack Wilhelm provide tremendously high value legal assistance to a large number of very desirable clients.

THE WILHELM LAW FIRM, 5524 Bee Caves Road, Suite B5, Austin, TX 78746; (512) 236 8400 (phone); (512) 236 8404 (fax); www.wilhelmlaw.net

DISCLAIMER: The information on this site is not intended to and does not offer legal advice, legal recommendations, or legal representation on any matter. You need to consult an attorney in person for legal advice regarding your individual situation.