Are trustees or beneficiaries responsible for expenses?
By Ilyce Glink and Samuel J. Tamkin
Q: Before my father died, he and his second wife established a living trust for their house. In the trust document, my stepbrother and I were designated co-trustees. I am a 50% beneficiary and my stepbrother and stepsister are 25% owners each.
In order to file the updated deed, the county required us to have an inspection and to make certain repairs to the property. We have other expenses associated with the property, including the annual home insurance premiums and real estate property taxes. We’d like to sell the home this year.
So far, I have footed the bill for almost all of the expenses of owning and maintaining the property. I’d like to know who should pay me back and for which expenses. Who is responsible for paying these expenses — the two trustees (50/50) or the three beneficiaries (50/25/25)? A: Let’s start with the hidden question in your letter relating to filing the updated deed and the trust that holds ownership to the property.
At one point, your father owned the home in his own name. Sometime later, he set up a living trust. For the living trust to work, your father’s assets had to change from being held in his name to the name of the trust.
He would have changed his bank and stock accounts from his personal name to the name of his trust. More importantly, he would have had to convey his ownership of the home to the trust. In most places, the transfer of the home should have been a simple task that would have required that he sign a deed to convey his ownership interest in the home into the trust.
Now, in some places, local municipalities may require the payment of a fee in order to do this. Some may even require a home inspection prior to allowing the transfer of the ownership of the home into the trust. The municipality in which the property is located required repairs to the home to meet the requirements of the local municipal building code.
We suspect this is what happened. While alive, your father would have still owned the home, but the home would have been held in his living trust.
Once the title to the home was put into the name of the living trust, your father would likely have been both the trustee and the beneficiary of the trust. You and your stepbrother were likely named successor trustees. Upon your father’s death, you and your stepbrother became co-trustees of the trust. Likewise, your father would no longer be the beneficiary of the trust and you and your two stepsiblings became the beneficiaries of the trust.
In your capacity as trustee, you act on behalf of the trust. As a beneficiary of the trust, you are one of three owners. The trustee should not be personally liable for the debts and expenses of the trust. Any expenses incurred by the trust should be paid out of the trust assets. So if the trust also has some of your father’s bank accounts, the expenses for the home could be paid out of those accounts.
A well-drafted trust agreement should have details about how the trust should be managed and how the trustee should deal with any expenses. Read over the trust document carefully to understand what you are expected to do and how and when expenses incurred by the trust are paid and reimbursed.
When a living trust only holds a home, the trustee might pay out money for expenses, but the trustee should be reimbursed for those expenses by the owners of the trust. In your case, you should bear 50% of the expenses and your stepsiblings should each pay 25%.
If you haven’t kept an ongoing list of the expenses you’ve paid on behalf of the trust, we encourage you to create one right now. Make sure you can document all the expenses you’re claiming for reimbursement.
You can then present a list of the expenses to your stepsiblings, and ask them to reimburse you for their share of the expenses.
If they’re unable to give you the cash today, you should be able to subtract the expenses from the proceeds when you sell the property.
The net proceeds, minus all expenses including your reimbursements, would then be split among you and your stepsiblings.
Of course, there could be complicating factors in your situation. So, consider speaking with the estate attorney who drafted the trust or another estate attorney. The trust may have specific language as to how and when the home may be sold and may also provide for specific reimbursement to the trustees if they pay out any money to cover expenses for the home.
The trust may also provide for some compensation to the trustees for the time they spend on trust affairs.
Ilyce Glink is the CEO of Best Money Moves and Samuel J. Tamkin is a real estate attorney. Contact them through the website ThinkGlink.com.
A reader sent me today’s deal from a team-of-four match. It furnished support for my opinion (which I cherish against almost universal opposition) that the modern, dominant
“game-forcing two-overone” bidding style has its shortcomings.
At one table, NorthSouth stopped safely at four spades. North’s bid of two diamonds suggested to South that the hands fit together poorly, so South took a conservative view.
West led the ten of diamonds: king, ace, ruff.
South then cashed the
A-K of trumps.
When West threw a diamond, South had to be careful. He led a heart to dummy’s king and returned a heart. East couldn’t gain by ruffing a loser; he discarded, and South’s ace won. South then led a club to the king, threw a club on the queen of diamonds and led a third heart. East had to discard again, and South won and ruffed his last heart in dummy with dummy’s last trump. He lost two trumps and one club. Well played!
In the replay, North-South were using and North had to respond 1NT to one spade. A response of two diamonds would have forced to game, and North’s hand was too weak to force. South liked his controls and jump-shifted to three hearts, and then North tried to catch up by jumping to four spades.
South could -- maybe should -- have settled for a five-club cue bid, and then he might have survived. But unlike the first South, he didn’t know that North had values in diamonds and hoped that North might have useful values elsewhere. So South took a chance and jumped to six spades. Alas.