I'm 49 and my wife 51. We both managed to save and invest wisely in our marriage of only 14 years. We have now invested $ 4.2 million together. We both plan to work for at least another 10 years in well-paid jobs and invest as much as possible. We will also both inherit some money, which will further help us in our goal of real wealth.
Inheritance is the only problem. For my part, my father is the trustee of a generational trust that his parents set up for him, my brother, and me. He is allowed to invest the foundation capital and live on the proceeds, but if he dies, the capital goes to my brother and me. He invested the capital in normal vehicles such as ETFs and stocks through an asset planner, which I also use.
"He may invest the foundation capital and live from the proceeds, but when he dies, the capital goes to my brother and me."
However, he used the trust to build himself a house in which he wanted to live for his third wife. He kept the construction of the house a secret and did not inform my brother or me that he was building it. When we found out, all hell was going on. He rented the house to his wife's friends while he was deciding what to do next.
About 15 years later in fast forward. These friends still live in the house and pay below market rent. We've never pushed him too much on the subject, but over the past few years we've let him know that our wish is for him to sell the house. Now the local housing market is white hot so we pushed it down again.
"It turned out that the wife of our financial advisor is friends with my father's wife – and probably also with the tenants."
It turns out that our financial advisor's wife is friends with my father's wife – and probably the tenants too. Overall, I am satisfied with our advisor, but I recently pointed out this conflict of interest. My father is scared of his wife, so he informed my brother and me that he will continue to rent the house to their friends. He claims he asked for more rent, but they can't afford it.
This is obviously a breach of its fiduciary duty to maximize the trust's profits. The house is in the trust's name and I will inherit it. At this point we will be selling it, so it could be worse.
Am I greedy to ask for the house to be sold and eviction from tenants I don't know? His wife contributed nothing to their marriage and has little to no savings. I don't see why I should have my inheritance milked, even if I can.
After all, I live in America's most expensive city and don't own a house, so it's not difficult to say that if I can ever hope to own one, I need as much money as possible.
Upset in California
It's not a question of greed. It is a question of doing the right thing. As such, I'm on #TeamExasperated. No, you are not greedy. Your relative financial security will relieve you of any immediate despair, but should not be a reason to turn a blind eye to the management of the trust.
If what you're saying is true, it would be difficult to hold your father accountable without doing the same to his – and your – financial advisor. This can now give you leverage and also food for thought should you decide to move things further. In any case, the advisor should be the first to go.
There are three open questions that determine what happens next: Did your father need your and brother's permission to withdraw this money and invest it in a house? Do the rules of the trust allow a capital withdrawal to be used for this type of investment? And does this agreement violate his and / or your financial advisor's fiduciary duties?
Your father acted clandestinely and suspiciously, and he and your financial advisor should know better than to rent an apartment to friends well below market price. Both acted inappropriately, secretly and at best ethically questionable.
"Your relative financial security will relieve you of any immediate despair, but it shouldn't be a reason to turn a blind eye to the management of the trust."
Another factor to consider: Did your father take this action in good faith – or was it a fraud and breach of fiduciary relationship? Relief clauses in a trust limit the liability of the trustee.
“Courts will not enforce an exculpatory clause if circumstances show that the inclusion of the clause in the trust was due to fraud or abuse of a trust relationship. There are a number of factors that courts will consider in determining whether the inclusion of an exculpatory clause was inappropriate, ”said Smith, Gambrell & Russell law firm.
Connie Yi's law firms more bluntly summarize the trustee's responsibilities, saying that it must act “with due respect to the rights and legitimate expectations” of the beneficiaries.
“A trust creator names beneficiaries because he or she wants them to receive selected benefits. A trustee who engages in acts that do not lawfully promote the rights of a beneficiary or who fails to take action that advance the interests of a beneficiary in the manner intended by a settlor may become the subject of litigation over the rights of the beneficiary enforce, "says the law firm. That effectively means asking the probate court to remove the trustee.
The good news: You are financially not dependent on this investment. You are in good shape for someone your age, and you can afford to wait until your father dies – assuming he dies before you – to sell the house. It will likely continue to appreciate in value, and it can be a wise investment either way.
However, should you decide to legally remove your father as trustee, the current status quo remains with you: a dispute between you and your father over this property and the knowledge that the trust will ultimately bear the can for the lost rent and value.
Also read: I want to take out life insurance for my husband. He says, "Hell will freeze over" before he is worth more dead than alive
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