When Siblings Act as Co-Trustees: Potential Pitfalls in Estate Planning
We’ve all heard horror stories about families that fall apart after the death of a parent. Siblings stop talking with each other or even end up suing each other. A son or a daughter cuts a parent out of his or her life. Obviously, the reasons for such breakups vary. But in my experience, the primary reason is that the death of a parent almost always raises difficult and emotional questions about status, love, power, and, of course, money. The best way to prevent family feuds over assets is to create an estate plan that works, and to avoid potential pitfalls in the process.
One underappreciated aspect of the estate planning process is deciding who to name as trustee, or whether there should be more than one trustee. This is a critical decision for all families and is a particular hazard for parents with more than one child.
When people with children set up their estate plan they often feel that they should treat them all equally. It’s tempting for parents to appoint siblings as co-trustees. That seems fair and natural. After all, not playing favorites is a healthy instinct when dealing with siblings. But as an experienced estate planning attorney, I regularly caution about the potential pitfalls of having siblings serve as co-trustees.
California Probate Code Section 16012
Understanding who makes a good trustee begins by knowing the legal standard that governs how trustees must interact with each other. In California that standard is set forth in Probate Section 16012. It provides that, if a trust has more than one trustee, each trustee has the duty to: (1) participate in the administration of the trust; and (2) take reasonable steps to prevent a co-trustee that from committing a breach of trust.
A good trustee needs to be able to be detail-oriented, communicate well, and exercise good judgement. There are elements of being a trustee that are a hassle. This includes obtaining copies of death certificates, communicating with the decedent’s bank, credit card companies, paying unpaid bills, dealing with landlords, mortgage, escrow, and title companies, as well as closing accounts from a wide array of vendors.
How to Write Your Estate Plan with Two or More Children
There are two primary considerations when siblings act as co-trustees. The first is do they have the skills, temperament, and time to do the work of the trustee well? In this context, working well means following the law, being diligent, and meeting deadlines in order to carry out the wishes of the person who died. Children and other family members are often highly motivated to help their surviving parent and to honor the memory of the parent who passed away. That is why family members, including children, are asked to act as trustees.
An additional set of issues often comes when more than one sibling act as co-trustees. How well do they get along and will they work well together? Co-trustees need to work together and divide up responsibilities. They need to be able to communicate with each other on a range of issues such as selecting a tax preparer or CPA. And when siblings live in different locations and time zones, it can create logistical problems.
In my experience, the dynamic between the siblings is often the critical factor in determining their success as co-trustees. Does the older sibling respect the younger? Do either of them have an axe to grind or harbor feelings that one is loved more by the parent? Can they communicate and act maturely about issues relating to money and finances?
In today’s world, with the increasing prevalence of blended families and same-sex couples, trustees may need to interact with an increasingly diverse range of people. And when siblings are co-trustees, it is important to assess whether they can overcome political, social, and personality differences. Will a sibling co-trustee be able to work well and be fair to a stepbrother or stepsister? We are all aware of families that can’t talk about politics or be civil to each other. That is one thing when you have to tolerate each other over the holidays. It is a whole other matter when you make disagreeable siblings co-trustees and put them in a situation where they have to share information, communicate transparently, and act fairly to each other.
What if One Child Doesn’t Want to Serve?
Sometimes a parent will feel they should name siblings as co-trustees, but one or more of the siblings would really rather not have the responsibility or take the time. Although it should be easy for them to bow out by declining to serve, they may feel bound to act as a co-trustee since it’s what their parents wanted. Making sure everyone who is asked to serve as trustee wants to serve is important.
What Happens if One Child is Estranged?
It is especially risky to appoint an estranged child as a co-trustee. That child may be out of the loop about what is going on in the family. There is also the risk that an estranged child will use the power and responsibility that comes with being a trustee and use that to settle scores with family members. Likewise, it is important that a child who is selected as a trustee be able to communicate effectively with an estranged sibling.
What if there is a Family Business Involved?
Many families have thrived because of a family-run business. Family businesses raise specific concerns when selecting trustees. For example, if one sibling is involved in the day-to-day running of a business and other siblings are not, it can be problematic to appoint siblings as co-trustees. The smooth running of the business is often dependent on ensuring that knowledgeable people continue to make decisions about the business.
Family-owned businesses can be hard to pass down from one generation to the next. When planning for the passing of the founder of a family business, it is important to consider whether children or other family members have the aptitude or interest to continue running the family business. If they don’t, it is possible to appoint a professional fiduciary who has experience running businesses and managing estates. Appointing a trust protector, such as an accountant or attorney, to oversee the actions of the co-trustees is another option.
Can a Sibling Contest a Trust?
In many instances, family members including siblings can challenge the provisions of a trust. This is especially true after someone passes and the sibling is mentioned in the will or is otherwise a beneficiary of the estate of the person who died. And when co-trustees are appointed, trustees not only have the ability to contest certain aspects of a trust, they may have the duty to do so. Specifically, if one co-trustee concludes that the other co-trustee(s) are breaching their duties, they have the obligation to take legal action against their co-trustee. This is a stark example of how family disputes over inheritances can spiral out of control, and selecting the right trustee(s) is so important.
When to Contact an Attorney
There are many examples of siblings working together harmoniously as co-trustees. Many siblings handle these responsibilities well. But don’t assume that designating siblings as co-trustees is required or necessary. Experienced estate planning attorneys are especially helpful when helping you evaluate the pros and cons of selecting siblings as co-trustees. You should also strongly consider contacting an experienced estate planning litigator if you are concerned that one or more of the co-trustees isn’t sharing information, is refusing to distribute funds from the estate, or is otherwise failing to fulfill their duties as a trustee. A lawyer can help you assess your rights, explore your options, and take steps to ensure that the duties of the trustee and the wishes of the deceased are performed as required by law.