When Heirs Get Tough With Trustees

(Dow Jones) Dealing with demanding heirs comes with the territory for trust and estate advisers, but the amount of time and energy spent on them seems to be growing.

The term "trust fund baby" may be cliched, but advisors say there's some truth to its connotation of an exaggerated sense of entitlement. Even when those babies grow older, some still act like brats, believing they not only inherited money but the right to treat an advisor or a trustee like a servant. More often than ever, advisors are dealing with heirs behaving badly.

In the recent case of W.A.K., II v. Wachovia, a minor sued Wachovia Bank, and lost, over its handling of a trust created by his grandmother. His main complaint was that the bank didn't diversify stock held in the trust; his grandfather was serving as co-trustee, and both his grandfather and father had approved the holding of the stock.

The case is on appeal, according to Bowlman T. Bowles, a lawyer for W.A.K. II, on the question of whether a professional trustee has a duty to educate a co-trustee about diversifying investments. Whether or not one sides with the grandson, some advisors see it as showing an heir making unreasonable demands.

Angry heirs don't always sue, but many vent over the phone and in person. A rise in rudeness now may stem from economic hard times, with people feeling desperate about the need to draw on a trust or worried that its investments are dwindling. A trust officer at a bank is often on the front line fielding calls, but an estate attorney may also be acting as trustee.

An heir may call a series of meetings, with dialogue getting more and more heated.

In one case, an advisor got urgent requests from the parent of a child named in a trust, pressuring for disbursements that weren't warranted. The person grew frantic, saying a catastrophe would occur if they didn't get the money, according to Dana G. Fitzsimons, a partner at McGuireWoods in Richmond, Va. Eventually, the trust officer hired Fitzsimons to help him deal with the parent's demands.

Professional trustees are trained to handle hostility and usually manage to keep a cool head. Sometimes, one who keeps a stiff upper lip with a beneficiary makes the mistake of venting to another, who turns around and repeats the conversation.

"The worst thing you can ever do as a trustee is get mad," says W. Bjarne Johnson, an attorney at Church, Harris, Johnson & Williams, in Great Falls, Mont.

Instead, an advisor needs to stay calm, take a deep breath and explain the situation, sticking to the facts. Addressing the problem often makes it vanish. Given a rational explanation of why something can't happen, a troublesome person may fade away.

Fighting with a client, on the other hand, can escalate tensions and backfire. The bottom line is that everyone must follow the dictates of the documents in the end, and that an angry heir may simply not have the authority to get what he wants.

Trust officers at a financial institution listen, collect information and then may take the request-say, to withdraw more money-to a committee that looks it over and decides whether it is consistent with language in the document.

Often, the most demanding heirs are those with the most tenuous relationship to the deceased. "It's some kind of inverse relationship," said Johnson. "The more remote they are, the more insistent-they just know that Aunt Margaret wanted them to have this or that."

Indeed, grandchildren, as in the Wachovia case, are more likely to sue over an estate than children of the deceased, according to Fitzsimons. This is where one sees lawsuits to compel large distributions, to support a lavish lifestyle or avoid having to work.

Many people have a very simplistic view of a trust. "This money was for me and I want it," they think, not understanding some complexities.

This makes life hard for advisors, who often must keep various loyalties straight. A trust may provide lifetime income for a spouse or child, leaving what is left over to others, known as remaindermen. In that case, the trustee has to balance the needs of direct beneficiaries with those of the remaindermen, making sure assets are invested to grow.