kastnna <kast...[at]auburnalum.org> wrote:
- quote -

California Probate Code Section 20-88, http://www.leginfo.ca.gov/.html/prob...contents.html:

" 'Beneficiary' means a person to whom a donative transfer of
property is made or that person's successor in interest, and:
...
(c) As it relates to a trust, means a person who has any present or
future interest, vested or contingent."

- quote -

(A) has a present or future beneficial interest in a trust, vested or
contingent; or... "
"(14) QUALIFIED BENEFICIARY means a living
beneficiary who, on the date the beneficiary's qualification is
determined: (A) is a distributee or permissible distributee of trust
income or principal;... "


Do you still think these state codes' definitions of "beneficiary"
exclude those with a life estate in the trust?

<kast...[at]auburnalum.org> wrote:
- quote -

snip

- quote -

How do you know they do not include life estate holders in their
definition of "beneficiary"? UPAIA and UPIA are the bases for the
typical state's code. My reading of all the citations you gave is that
the ultimate fiduciary obligation is to both those who have a life
estate in the trust and those to whom the contents of the trust goes
upon dissolution. These citations define "beneficiary" differently
than you.

This is not an aside. It is at the core of the problem I have with
your claims.

On Dec 16, 12:48*pm, honda.lion...[at]gmail.com wrote:
- quote -

It's not a simple answer. There are various levels of fiduciary
obligation that can be junior or senior to others (like debt). The
trustees ultimate fiduciary obligation is to the true beneficiaries
(i.e. the children). As I said, he must act in their best interests at
all times. However, some trusts have provisions that hinder that
obligation. One such provision is a life estate (typically, giving
money to someone other than the benes is not in their best interest).
However, because the trust requires it, the trustee is given a "free
pass" on his typical duties. That same provision creates a fiduciary
duty for the trustee to serve the life estate holder but only within
the confines of that provision. Outside of the scope of the provision,
the trustee cannot put the interests of the LE holder above that of
the beneficiaries.

To extend the debt analogy, the beneficaries are senior to the LE
holder. However, the LE holder's note is due payable now and therefore
must be serviced first. Not a great comparison I know, but I can't
think of anything else.

[Aside: The only cite that even makes mention of life estate holders
is that of the Uniform Law Commissioners. It is perhaps an overly
broad comment made by them and not part of the law they drafted (nor
did I imply it was part of said law). Both of the (more authoritative)
State statutes do not include life estate holders nor could I find any
state statute that did.]

- quote -

Call it semantics if you wish, but you stated previsouly

"The ultimate fiduciary duty is to the terms of the trust itself. I do
not consider this is semantical massaging. The distinction I am
drawing is very important to a person's understanding of what a trust
is and does."

I don't consider it semantics either. I can find no cite that supports
that first sentence. I also think it is important that a person
understand what a trust is and does. As such it is important for any
beneficiaries out there to know that just because a trustee is working
within the trust's provisions doesn't mean he has met his fiduciary
duty (which your first sentence implies to me). I'm betting that is
exactly the scenario with which the OP is dealing. As I previously
stated, if this trust is typical of most, the trustee was well within
his rights to invest as he did. He screwed up by not acting in the
best interests of the beneficiaries, even though he likely never
violated a provision.

kastnna <kast...[at]auburnalum.org> wrote:
honda.lion...[at]gmail.com wrote:
- quote -

kastnna, now what do you mean by "beneficiaries" here? In previous
posts, you made clear that the "beneficiaries" of whom you spoke did
not include those with a life estate. But the definitions you cited
in this most recent post appear to count as "beneficiaries" both those
who have a life estate in the trust and those to whom the contents of
the trust goes upon its dissolution.

I do not have a problem with the statement that "the trustees'
ultimate fiduciary duty is to both those who have a life estate in the
trust and those who receive the trust's contents upon its
dissolution." But this is not what you said earlier.

The rest of our differences AFAIC are semantical.

On Dec 14, 5:02 pm, honda.lion...[at]gmail.com wrote:
- quote -

I agree it's not semantical. I think you're just plain wrong.

The obligation is to the beneficiaries, not the trust. The trust is
nothing more than a contract between grantor and trustee that defines
what a trustee can and cannot do when serving the beneficiaries. It's
the "rules of the game".

- quote -

A trustee of a trust has a fiduciary obligation to satisfy both the
interests of the trust's income beneficiaries during the life of the
trust, and the interests of the remainder beneficiaries at the trust's
termination.

California Probate Code Section 160002:
“(a) The trustee has a duty to administer the trust solely in the
interest of the beneficiaries”

The Alabama Code provides, in § 19-3B-802:
“(1) The trustee is under a duty to the beneficiary to administer the
trust solely in the interest of the beneficiary.”

I can go on and on. The bottom line is that the fiduciary duty is to
the beneficiaries. There have been numerous court cases in which no
trust provision was violated, yet the trustee was found to be in
breach of fiduciary duty. How does that occur if the fiduciary duty is
truly to the trust?

- quote -

I did not intend to imply that the life estate holder gets to make
that decision outright. The trustee must, of course, execute all
actions relating to the trust. I'm stating that a trustee could or
could not do so and still be within the provisions of the trust. You
seem to think that trusts provide no options. They almost always do.
Most provisions allow for multiple outcomes decided at the discretion
of the trustee. It's a trustee's obligation to do the one that best
serves the beneficiary.

The following is the "Principal Invasion Clause" of an actual trust:
"In addition to paying to or applying for the benefit of the settlor’s
spouse all income from both QTIP trusts, the trustee shall, at his
sole discretion, pay to or apply for the benefit of the settlor’s
spouse so much of the principal as said trustee deems advisable for
said spouse’s happiness, comfort, welfare, maintenance, support,
health (including medical, dental, hospital, surgical, nursing and
other similar expenses and expenses of invalidism as well as premiums
on health insurance policies for said spouse’s sole benefit),
education, and travel, as well as to maintain spouse’s accustomed
standard of living and provide said spouse with comfortable housing."

Notice the subjectiveness? A trustee could approve or deny the request
without violating the provision. If a life estate holder can convince
a judge that principal invasion is necessary to maintain her
lifestyle, she could compel the trustee to do so, or he would be found
in breach of duty.

This is why I say the mother and children have aligned interests.
Neither party wants to see the trust corpus depleted AND IT COULD
HAPPEN if the Mother pushed hard enough.

- quote -

I contend that "acting in the best interest of a beneficiary" is
highly subjective and therefore most complaints will make it to a
judge. I think you are contending that it's fairly obvious whether a
trust provision has been violated and therefore only meritorious
claims will make it before a judge. I don't think you are incorrect,
but that you're only telling half the story. A trustee can be guilty
of breach of fiduciary duty without violating a trust provision.

- quote -

Not period. I don't know what else to say. Cite, perhaps?

Trustees are NOT to act independently of the "wants and desires" of
the beneficiaries. If they can accomplish those wants and desires
without violating trust provisions, they should do so unless those
wants and desires are clearly contrary to the beneficiaries best
interest.

- quote -

I think we disagree on how trusts work.

honda.lioness[at]gmail.com writes:

- quote -

Perhaps you are thinking of the Uniform Prudent Investor Act,
and how it differs from the older Prudent Man Rule. UPIA
requires viewing a portfolio as a whole and therefore may
include non-income-producing investments in a context of
a diversified portfolio seeking good total returns, whereas
the Prudent Man Rule as applied to a portfolio expected to
produce income required each investment in that portfolio
to produce income individually - which is very hard to
achieve in a world where dividends are averaging only a
percent or two (as they were in the late nineties) -
ie. the older rule would require dividend-paying stocks,
and the payout to the income beneficiary would be just
those dividends, rather than a portion of the total
return of the portfolio.

But it doesn't really address income versus residual
beneficiaries specifically.

UPIA was been being adopted a little at a time (ie. state
by state) starting in 1992.

HTH.

--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

"kastnna" wrote
honda.lion...[at]gmail.com wrote:
- quote -

I think we are having some semantical and other differences.

As one example, I had in mind a change I heard was made to the law on
trusts within the last 15 years or so. The change favors the person
with the life estate. If memory serves, and to very roughly
paraphrase, a concern had arisen that dividend yields had fallen so
historically low that it was not fair to pay the person with the life
estate only dividend income, even if this is what the terms of a 30-
year-old trust say. The point is that the person with the mere life
estate was favored.

- quote -

The ultimate fiduciary duty is to the terms of the trust itself. I do
not consider this is semantical massaging. The distinction I am
drawing is very important to a person's understanding of what a trust
is and does.

- quote -

You are implying that the person with the life estate gets to make the
decision on using principal. Not so. You are also implying that the
beneficiaries get to order the trustees what to do. Not so.

- quote -

How effective the threat of a lawsuit will be depends on the merits of
the lawsuit. A good trustee will fight nonsense claims.

- quote -

Not if the beneficiaries are asking for something to which they are
not entitled. Trustees are to act independently of beneficiaries wants
and desires as well as the desires of anyone with a life estate in the
trust. The trustees ultimate obligation is to the terms of the trust,
period.

We either disagree very strongly on how trusts work, or your wording
is such that I do not feel you and I are at all on the same page. You
are saying some things that are flat-out wrong, in my opinion.

I am happy to agree to disagree.

On Dec 12, 9:35*am, honda.lion...[at]gmail.com wrote:
- quote -

I think you may be overestimating the common provisions of these types
of trusts. Many of the provisions regarding investing and
distributions are not absolute, strict rules. They are more often
guidelines within which the trustee must operate. That "wiggle room"
is the reason for my comments above.

Trusts like (I believe) we are discussing often allocate income to the
surviving spouse in the form of HEMS (health, education, maintenance,
& support). But that doesn't change the fact that a trustee is
responsible to the beneficiaries. Even "life estate" trustees owe
ultimate fiduciary duty to the true, stated beneficiaries. A trustee
can easily stay in compliance with trust provisions but not act in a
beneficiary's best interest.

- quote -

They very well may conflict. The mother may want income, while the
children want principal appreciation. I stated that earlier in this
thread in another, more thorough, post. BUT... most trusts involving a
life estate not only allow for HEMS from income, but also allow access
to the trust corpus, if necessary, for support. That provision often
aligns the interests of the various parties. If the beneficiaries
don't keep the spouse financially safe, secure, and happy, they will
find that he/she has drained the trust corpus under the guise of
"support". In other words, everything I have posted thus far is the
OFFICIAL version, but an informed spouse could employ some coersion to
see her interest carried out.

- quote -

You're right. If the trustee is acting within the provisions of the
trust, very few people can stop him/her. That said, it's nothing to
sue a trustee for breach of fiduciary duty. When it comes to the UPIA,
the situation is almost assuredly going to be subjective enough to
require a judge's ruling. As I said earlier, there are rarely hard and
fast investing provisions. Provision violation is often a matter of
opinion. But, the threat of lawsuit alone is often a compelling enough
reason for the trustee to see things the same way that the
beneficiaries do. Nobody wants to deal with a lawsuit.

And lastly, as the trust is eventually distributed, the trustee will
financially benefit by having that money stay with his firm. Thus,
pissing off the beneficiaries is bad for long-term business.

- quote -

I didn't realize the trustees and beneficiaries were different people.
Didn't the OP say that his mother was worried that she won't be able
to live if the value of assets in this trust fell?

- quote -

I picked those periods to illustrate that stocks going up in the long
run is not guaranteed. The defintion of long-run is subjective, but I
consider 10 years a long time.

The Nikkei 225 always went up until 1990 when it crashed and fell 70%
and remains that low even 18 years later. Right at 1990 a person could
argue that the Japanese share market always went up and he or she
would be correct, but past performance does not prove long run
performance, and the data from the Nikkei 225 index prove that.

kastnna wrote:
- quote -

While the "and/or" part above makes this statement true, the above
seems to misplace emphasis somewhat. Trusts often are so worded so as
to prioritize income to the person who has the life estate in the
trust. This priority may very well be above and beyond the interests
of those who get the proceeds of the trust upon its dissolution (= in
legal jargon, the beneficiaries). I try to remember that typically a
second wife and stepchildren are involved, and the husband (prior to
his demise) wanted all of them to reasonably share in his estate, and
none to be unreasonably deprived. Solutions to how to invest a trust
and/or distribute income from it will often not be perfectly
equitable.

- quote -

How do you figure? ISTM what's best for each may easily conflict.

- quote -

Short of ensuring the terms of the trust are followed, it is usual for
neither beneficiaries nor anyone having a life estate in the trust to
get a legally enforceable say.

On Dec 12, 5:50*am, norak <k.no...[at]gmail.com> wrote:
- quote -

That's not a decision she gets to make. IT'S NOT HER MONEY. From what
we've been told, it is almost assuredly trust owned with the children
as beneficiaries, and the mother only having a "life estate" in the
trust corpus. The trustee is obligated to act in the best interest of
the BENEFICIARIES (not the mother) and/or in accordance with the trust
provisions. I'm not defending his actions, but doing what's best for
the mother doesn't automatically bring him back into compliance
either. That said, doing what's best for the mother is also best for
the beneficiaries, but that would be for the beneficiaries and trustee
to decide, not the mother.

- quote -

Just because stocks are down from the highs they were a year ago,
doesn't mean they are less likely to go up, either. And you're cherry-
picking your definition of long-run. The S&P500 appreciated over the
course of every decade since 1950, yet you picked only the last 10
years (in which there have been 2 recessions) to define the long run?

- quote -

Again, not relevant in a trust situation. She may not need capital
growth, but it may be the goal of the beneficiaries or in the trust
provisions.

- quote -

Who will promptly tell her that she is not authorized to make any
changes to the account. As I said earlier, the only legit way to
accomplish change in this account is to convince the beneficiaries
that their best interest are highly correlated to her best interests
and have THEM speak to the trustee about making changes. Ultimately,
the trustee will need to be replaced by legal means or HE will have to
consult a financial adviser about making changes.

I think most of your response would be perfectly acceptable were the
investments not in trust. But the trust changes the rules of the game,
and makes most of the above inapplicable.

I think she should convert most of her money into cash or bonds.
Losses in the past should not affect what you do now. This is the sunk
cost fallacy.

Some people claim that by shifting assets from shares to bond you are
locking in past losses. This is not true. When the value of the shares
went down, you have already lost the money.

It is true that by switching from stocks to bonds you make less when
or if there is a recovery, but we cannot say whether there will be a
recovery soon or not. If your mother needs the money to survive, it's
better not to take the risk, otherwise her balance might fall to, say,
$100,000 and she may not be able to live off that.

Just because stocks are down from the highs they were a year ago it
doesn't mean they are less likely to go down. Stocks may have a while
to go down. In the last ten years the S&P500 has not increased. In the
last 18 years the Nikkei 225 has gone down by 70 per cent. This means
the stocks markets of the two largest economies have shown sluggish
performance in the long run.

It seems as if your mother is living off dividends. She doesn't need
capital growth, so she never should have had her investments in growth
stocks. I recommend moving the money into yield investments like
dividend-paying stocks, bonds, property, money market, etc.

As a rule of thumb, the percentage of your portfolio you should
allocate to cash and bonds should be your age. For example, if you are
60 years of age, allocate 60 per cent to cash and bonds.

Even if stocks do recover, if she had 40 per cent still in stocks, she
captures that recovery to some degree.

Be wary of the gambler tendency to win back losses. That lost money is
gone.

You should see a financial adviser for more specific advice related to
your situation, but be careful about whwat kind of financial adviser
you see.

On 2008-11-27 18:22:28 -0800, Douglas Johnson <post[at]classtech.com> said:

- quote -

Maybe call it a pink flag at least. As you say, it could be there for a
good reason, but if it were my managed account I would want further
explanation.

I cannot actually think of a good reason for paying a sales commission
on the purchase of any fund, except for possibly a specialized fund
that invests in one sector or one country and has no competitors. But
for a senior seeking income I would doubt the need for such a fund. And
even if I were an heir to that senior's assets and wanted long-term
growth, I would prefer a Vanguard index fund any day.

"Douglas Johnson" <post[at]classtech.com> wrote in message
news:67lui4lqohpdp30b6r7deis0blqd7k3omd[at]4ax.com...

- quote -

I think it is, because it means that someone is being paid to sell that fund
to you instead of an alternative fund that may be just as good for your
purposes. It means that whoever the load is paying has an incentive to
place his or her personal interests ahead of yours.

Now... I suppose it might be that the manager has an arrangement with the
fund that bypasses the loads, and in that case the conflict of injterest
might not be there. My concern would be whether there is some other kind of
compensation arrangement at work. For example, has the manager agreed to
steer a minimum amount of business toward the fund in exchange for waiving
the load?

I guess it comes down to this: If I am paying someone for advice, I want to
know that no one else is trying to influence that person's judgment in ways
that might be to my disadvantage.

Don <dwzimm[at]telus.net> wrote:

- quote -

I generally agree. While there are a number of fine loaded funds out there, I
don't know of any that are all that superior to an equivalent no load. But my
point was that the mere presence of a loaded fund in a managed account is not
necessarily a red flag. -- Doug

"Igor Chudov" <ichudov[at]algebra.com> wrote in message
news:upqdneHPArqIj7PUnZ2dnUVZ_ozinZ2d[at]giganews.com...

- quote -

And also the risk of foregoing future gains, which is every bit as real as
the risk of incurring future losses.

On 2008-11-27 08:21:42 -0800, Douglas Johnson <post[at]classtech.com> said:

- quote -

Good, and it is my understanding that individual investors on their own
can sometimes negotiate and have the load dropped. But there are so
many good funds without loads that is hard to see why anybody would be
eager to buy a load fund in the first place and bother with negotiation
at all. Surely it is not because certain load funds have shown superior
performance, because we all know that past performance is no guarantee
of future success!

Don <dwzimm[at]telus.net> wrote:


- quote -

Many managed accounts can buy loaded funds without paying a load for just that
reason. -- Doug

Igor Chudov wrote
- quote -

Does "economic yield" mean yearly return?

The current dividend yield on the S&P 500 is around 2.9%.

Don <dwz...[at]telus.net> wrote:
- quote -

The law does not see it as you do. See the post where I provided a
link discussing load vs. index funds in a trust.