“Trust fund babies” is a term that easily
evokes mental images of young people unburdened by work or other responsibilities and backed
by a secure income. The term itself is somewhat disparaging. It paints with a broad brush. Still, the term is a good lead-in to a discussion
of the particular challenges that trust fund babies may face in estate and trust disputes. A “trust fund baby” is a beneficiary whose
parents, grandparents, or other relatives have placed substantial assets in a trust
fund for his or her benefit during the beneficiary’s lifetime. While income from the assets is part and parcel
of the trust process the calculated distribution of the income can be arbitrary. This leads to some problems, as does the allowance
or disallowance of principal invasion. So, why do I know about such things? I’m not a trust fund baby. I’m a baby boomer – practicing law since 1976. Our California based law firm focuses on estate,
trust and elder financial abuse litigation. We’ve represented plenty of trust fund babies. It’s a natural part of representing abused
trust beneficiaries, financially abused elder and their families. And, I’ve got more than passing interest in
this. I’ve written two books that touch upon the
elements and causes of trust disputes: The Wolf at the Door – Undue Influence and Elder
Financial Abuse; and Alzheimer’s, Widowed Stepmothers & Estate Crimes – Cause, Action,
and Response in Cases of Fractured Inheritance, Lost Inheritance, and Disinheritance. My books, interviews, daily practice and writings
cover a lot of ground in trust related issues. I’ve shied away about writing about trust
fund babies because the term can be too radioactive – too pejorative. But lately I’ve been reading Janny Scott’s
2019 book The Beneficiary: Fortune, Misfortune, and the Story of My Father, and I’ve decided
that I should talk about this subject. It’s a subject that draws us in. People want to hear about it. They may be a trust fund baby, a friend or
just fascinated by the subject. Let’s recognize that generalizations can be
dangerous. Individual variations abound. Our efforts at clarity might unwittingly distort. So, this disclaimer – again: Trust challenges
associated with trust fund babies may share some commonalities but have many, many variables. Experiences for all of us are a little different. I’ll share some of mine. I’ll keep confidentiality intact – I’ll have
to generalize. It all starts with a trust maker – a trust
maker is sometimes referred to as the grantor, settlor or trustor of the trust. A parent trust maker necessarily has an intent,
disclosed or undisclosed, that motivates him or her to set aside assets in trust to benefit
their children or grandchildren. This intent predominates in trustor support
for the nature and extent of beneficiary distributions while the trust maker is alive. The trust maker’s influence is felt he retains
trustee duties during his lifetime or delegates them to a third-party trustee. Common intent includes provisions that:
A trust fund baby’s education is paid for; Children or grandchildren’s hobbies are often
endorsed with financial backing; and These hobbies might include travel, skiing,
horses, hunting, aviation or a host of other recreational pursuits. Trust fund baby disputes are often triggered
at the incapacity or death of the trust maker. Someone else takes over as trustee. It might be a family member, an accountant
or a geographically and emotionally remote financial institution. It’s one thing to have a grandson beneficiary’s
horse stable fully funded while grandpa is living and quite another when his accountant
takes over as the trustee at grandpa’s death. Trust fund babies experience surprise when
activities long sponsored by a parent or grandparent are cut off by a successor trustee not invested
in the emotional life of the beneficiary. Institutional, professional or even family
member trustees may ignore the trust maker’s intent. A trust maker establishing a trust for a child
or grandchildren usually intends that the money should go for more than mere subsistence. While alive, there can be a recognized tension
between providing too much – a pattern encouraging nonproductivity – or too little. The trust maker can handle the tension. It can be a problem like that faced by the
Three Bears in the Goldilocks story – the porridge might be too hot, too cold or just
right. It’s hard to strike the balance. Most trustors want their heirs to lead a productive
and meaningful life. This intent can be lost in the bureaucracy
of a trust committee. Institutional trust employees understandably
are not emotionally invested in the lives of trust beneficiaries. Sometimes this works – sometimes it doesn’t. The institutional trustee might simply default
to no – to skimpy – to short and cold communications with beneficiaries. I’ve seen too many cases where it looks like
the successor trustee is more invested in its fees than the real intent of the trust
– providing financial benefits to the beneficiary. It particularly strikes me as odd when an
institutional trustee’s annual charges exceed the allowance of income to trust beneficiaries. When trust fund babies challenge the actions
of successor trustees, there are a few looming problems. One is that the trustee may use the assets
of the trust for defending its actions – even its wrongdoings. There are, of course, legal procedures to
challenge this. The procedures themselves are lengthy, consume
a lot of attorney time and rapidly become expensive. A trust fund baby’s income may come wholly
from the trust or may be mixed with career and other investment earnings. To the extent that the primary income is from
the trust, the limitation of that income may also limit the beneficiary’s liquidity – liquidity
needed to fund a trust accounting, surcharge or trustee removal challenge. So, when trust fund babies seek out attorneys,
they generally have the choice of using an hourly, contingency or hybrid fee approach
to mount the challenge. Each fee arrangement has its own advantages,
disadvantages, required disclosures, processes and nuances. Discussions between the beneficiary and their
attorney should explore the particularities of fee arrangements. California has both statutory and ethical
rules that govern attorney-client fee arrangements. All Hackard Law attorney-client fee agreements
must conform to these statutory and ethical requirements. Contingency fees are arrangements where the
client pays fees to a lawyer only if the lawyer handles the case successfully. This arrangement only works economically where
money or valuable assets are being claimed. In trust and estate-related contingency fee
arrangements, the attorney agrees to accept a fixed percentage of the total recovery. If the case is won or resolved, the lawyer’s
fee comes out of the recovery. If the case is lost, neither the client nor
the lawyer gets any money, and the client will not be required to pay the lawyer for
the work that was done on the case. Costs are an important part of the attorney-client
fee arrangement. Many times, clients will advance costs, like
filing fees, deposition fees and expert fees. This is a matter of contract between the attorney
and client. The obstacles of retaining an attorney to
recover inheritance or trust beneficiary assets can be overwhelming to a client. Contingency fees may be an efficient and effective
step to overcoming these obstacles and allow for the civil prosecution of trust accountings,
trustee removals, trustee surcharges and trust modifications. Trust fund baby disputes may differ in tone
than undue influence trust disputes. Trust fund babies usually have at least a
vested interest in an existing trust. The dispute may involve an accounting, unreasonable
trustee compensation, insufficient beneficiary income and/or principal distributions or other
elements of trustee wrongdoing. However, characterized or quantified, the
beneficiary usually has existing vested rights. Trust challengers in undue influence cases
have often been frozen out of a trust. They may be former beneficiaries who have
seen their beneficial interests vanish by the wrongdoing of a third party – a third
party who ends up with all or a substantial amount of the trust maker’s assets. These cases start with no vested rights whatsoever. The battle is over invalidating the trust
or making the wrongdoer accountable for their wrongdoing in the taking of assets from the
trust maker during lifetime or by estate planning changes effective at the maker’s passing. In any event, the wronged beneficiary usually
starts at zero. Litigation involves getting past zero. A typical abused heir or beneficiary is often
older than the trust fund baby. It’s not at all unusual that challengers to
unduly influenced trusts are elders themselves. While I’ve been reticent in the past to talk
about trust fund babies, I hope that these observations help to clarify how trust fund
baby challenges are a little different than other trust challenges. Hackard Law represents California, United
States and international clients in California based trust, estate and elder financial abuse
litigation. We choose to take substantial cases where
we think that we can make a significant difference and there are wrongdoers that can be made
financially accountable for their wrongdoing. Most of our cases are filed in the Probate
and Superior Courts of Los Angeles, Orange, Santa Clara, Monterey, San Mateo, Alameda,
Contra Costa and Sacramento Counties. If you would like to tell us about your case,
call us at 916 313-3030. We’ll be happy to hear your story. Thank you for listening.