The Trouble with Trusts What Are Beneficiaries to Do When Funds Are Mismanaged?

Article excerpt

An on-the-job accident in 1985 changed David McCumber's life

forever. He was a year out of the Navy, 25 years old and helping

put up a traffic light on Wilson Boulevard when the pole touched

a high-voltage line. The surge of electricity that went through

his body was so destructive, he will never work again.

McCumber, a Jacksonville resident at the time, got a $1.1

million settlement as a nest egg from the maker of the equipment

and a trust was set up to hold the money, with a bank managing

the money.

The objective was to invest wisely, so he would have income

for the rest of his life, said his mother, Pat, who looks after

him. But somehow one of the investments was bungled.

She is trying to figure out what her next legal step should be.

Dealing with unsatisfactory trust management is a dilemma that

proponents of trust reform say is faced by thousands of

beneficiaries across the United States.

And they say the problem will only mushroom as aging baby

boomers start inheriting from their parents and making their own

long-term money management plans.

The complaints, say Standish H. Smith, founder of Heirs Inc.,

a non-profit support group for people having problems with their

trustees, include:

The trust is not delivering enough income for daily living

expenses.

The trust's assets are not growing fast enough.

High administrative expenses.

Questionable investment practices.

Problems terminating the trust.

Conflicting interests and disputes between beneficiaries.

Many trusts are managed by corporate trustees, typically

banks, and the trustees legally are in the driver's seat, said

Michael Naughton, who specializes in wills and trusts, and

teaches a course on trusts at Florida Community College at

Jacksonville.

The first step in dealing with an unsatisfactory corporate

trustee is understanding how the trustee business works, said

Naughton.

TYPES OF TRUSTS

A trust is a legal vehicle individuals can create to hold

property or money, typically for estate, inheritance and tax

planning.

There are about 50 different kinds of trusts commonly in use

today. Some are structured as "revocable trusts," which means

their creators can change them if they desire.

Others such as "testamentary trusts," which are typically used

for the multi-generational management and disposition of money,

can only be changed by trustees with the agreement of a court.

For banks, brokerages and firms that do nothing but manage

trusts -- often known as "trust banks" -- trusts are big business.

Fees run 1 percent to 1.5 percent of funds being managed and

minimum fees range from $2,000 to $4,000 per year for small

accounts.

NO RESPONSE

In McCumber's case, if his mother hadn't started wondering

about the performance of one of the bank trustee's investments,

McCumber's nest egg might have been hit for much more than the

$25,000 that was lost.

The objective had been to set up an investment account -- this

particular account was one of several set up -- that would both

grow in value and provide her son with income from dividends.

Pat McCumber was looking at year-end papers dealing with the

account in question and was puzzled by the numbers. She figured

out that her son had not been receiving dividends, but instead

had received $25,000 of his principal back.

"You were getting your own money back," she said.

And, if that wasn't enough, the bank charged the trust a

management fee. …