"The mother asked, 'Where's my $10,000?'" She didn't talk to the daughter, who was just performing her fiduciary duty, for months, Harrison says.
Harrison thinks the key to avoiding problems is to review trust documents once a year and ask if anything has changed. It's not about the trusts being ill-conceived.
"I don't see too many poorly written trusts," she says.
Christopher Parr at Parr Financial Solutions Inc. in Columbia, Md., says he has the kind of story that keeps an advisor up at night. He had a client, a former state employee with a large pension, whose wife had been a relationship manager at a corporation and enjoyed a large IRA. Both were about the same age transitioning into retirement. They had forged a "Brady Bunch" family years before in a marriage that had lasted 30 years.
"The family raised them all together in a very nice way and they were all equal in their own minds. It was like having a single family with four children." The couple's trust held after-tax assets and the wife's sizable IRA, meanwhile, named all four children as co-beneficiaries.
Some things were amiss, however. The husband was in poor health and frail. There were worries about his ongoing mental capacity. While they were anticipating this future problem, his wife suddenly took ill. A couple of years younger than her husband, she got a diagnosis of breast cancer. She passed away within the year.
"At that point, he's the sole trustee," Parr says. The client named the most financially responsible daughter as the successor trustee, and everything could have been fine at that point, says Parr.
Then, within a year, the father claimed he found "the love of his life" and remarried. This was the third marriage for the new spouse, Parr says, who had outlived her other husbands and built up inherited assets.
Though the client had followed Parr's advice to have a prenup put in place, the client later named his revocable trust as the primary beneficiary of his IRA (90% of which came from his late wife's IRA), downgrading the kids in the beneficiary chain. And then he named his new spouse as the successor trustee. Parr suggested he change the IRA beneficiary back to the kids. The client said no. He suggested that the client split the IRA between kids and spouse. The client said no, since the new spouse was in better physical shape and might live a long time, even though she was in her 60s. Parr recommended a corporate trustee to handle trust assets instead of the new wife, somebody to act as a fiduciary. No again.
Parr says these changes effectively put the fox in the henhouse, since the new wife was in the backup slot and would be named trustee if the father was no longer competent, a state that seemed to be imminent. "All of a sudden you have new spouse, who has only known this guy for about a year, and the way the legal chips are falling is that she is potentially all-powerful on a contingency situation." She could control 100% of the man's financial resources.