Privacy of Trusts Challenged

A post recently in the Wills, Trusts and Estates Prof Blog mentioned a paper written by Frances H. Foster, the Edward T. Foote II Professor of Law at Washington University in St. Louis. The St. Louis connection lets me finally post one my favorite photos I took during a trip there several years ago.

But I digress. I have not read the full article, but the gist of it, from the Prof Blog, is that the issue of trust privacy has not been properly addressed by reformers, and that the "human cost" of trust privacy should be considered when discussing how the laws related to trust privacy should be reformed.

Presumably, the main concern here is that because trusts are private, they can be created and administered outside the purview of interested parties. So family members, heirs and relatives would not be able to know who the beneficiaries of a trust were, how the trust assets are to be distributed, and what the trustee is doing with the trust assets.

Living tusts, unlike wills, do not go through probate when the settlor, or trust creator, dies. This means that there is no automatic court supervision of the management and distribution of a trust on the death of the settlor, as there is with a will. That does not, however, mean that the court never gets involved with trusts. When a settlor dies or when a trustee changes, California Probate Code section 16061.7 requires the trustee to notify the beneficiaries of a trust, the heirs of the settlor, and where the trust is a charitable trust subject to the supervision of the California Attorney General, the Attorney General. This allows these parties time to challenge the trust, for example. California law also requires trustees to prepare accountings of the trust administration, which is designed to keep beneficiaries up to date on the trust's inner workings. Interested parties can also contest the trust in much the same way that they can challege a will.

While it is true that there is no automatic court supervision of trusts, there are many court procedures for making sure that individuals' interests are protected in a trust. It is certainly debateable whether a trust must be made public in the way that a will is when many of the challenges available to a will are also available to a trust.

Investing Prudently Amid Turmoil

Regardless of how a trust is structured, a trustee has a fiduciary duty to invest the trust assets. With all the chaos in the markets these days (look here for the gloom), a trustee may be inclined to look at their mattress as the safest investment vehicle. As any student of the markets knows, however, there are always opportunities amid the crises.

Take stocks, for example. While the Dow has dropped about 10% from its all-time high of 14,279.96 on October 11, 2007, it is only down 2.4% from where it was a year ago. And the U.S. isn't the only place to invest money. European stocks have been pounded over the past year, but the markets in South America, South Africa, Hong Kong, Indonesia and India have all performed very well (this doesn't however take into consideration any erosion of returns cause by the declining dollar, which is another float in the parade of horribles).

Commodities, which include oil, corn and gold, are almost universally way up. It's impossible to know when anything is at the top of its price, but I think it is safe to say that the current upward price pressure cannot last much longer. Once the prices get too high, demand will fall off, and the prices will begin to drop. There is already some indication that demand for gasoline, which is comfortably over $4.00 a gallon here in California and is the only reason anyone cares about the price of oil, is beginning to fall. Commodities such as corn, soy and other food crops will probably be the object of government intervention at some point if their prices don't level off, and there is some amount of speculation built into their price because of their potential as an alternative to oil as a fuel source.

What is a trustee to do? Don't panic, you are a trustee after all. Look to the professionals. Ask your financial advisor for help. If you don't have one, get one. Make sure the trust allows you to hire an advisor and to pay them out of the proceeds of the trust. It's part of your job as a trustee.

I could go on about how and where to look for opportunities. They are out there. If you are a fiduciary, it is important to surround yourself with a trusted financial advisor who can help navigate these waters, which seem filled with sharks, icebergs, alligators, and what have you.

The mattress is never as good as it looks, anyway.