0:00 I'm your host Kevin bemel and we're here every Monday morning at 10:00 a.m. Pacific Time 1 pm eastern time with an hour in for Central and mountain and we talk about all things related to your personal estate planning as well as um for professionals who are either um already involved in Estate Planning and Trust in estate Administration or who are looking to get into that field um perhaps as an adjunct to their existing business or um maybe you're new to the business business world and you're
0:36 looking for a career um I can tell you that uh there's there's a big need for uh fiduciaries people who can administrate Estates and trusts here in California um and in fact in California it's a licensed profession so um and and I can also tell you that our license fees went up this year they more than doubled I think they're about $1,400 now for a a 2-year life license but uh um lot lot of business opportunity and um and so something well worth considering if you're casting around for uh for a career change so
1:12 today we're going to talk about ethical considerations in trust Administration or in a state Administration I should say um and this is um this is important whether you're an individual who has been appointed as a trustee or a co-trustee or an executive or the court has appointed you as an administrator for an estate um to handle a probate um or whether whether like me you do it professionally so let's let's jump right into
1:48 this there we go still still it's still taking me a just a little bit to uh um remember how all the the new system works here so here we go ethical consider uh considerations in estate and Trust Administration so there we go so a as is the case with all of the way to wow shows they're all based on the three pillars of attainment and we generally deal in the finances Realm of the Pursuits pillar um but we also get involved in relationships and
2:24 sometimes even even the self pillar all right so so there are five duties if you will uh five ethical duties that um e every administrator whether the person is a trustee an executive um you know like I said a courta appointed administrator there are there are five basic duties that um ethical duties that need to be fulfilled and you see them here on the screen loyalty care impartiality conf
3:00 confidentiality and accountability and we're going to talk about um all five of those and uh also then we'll wrap up talking about some uh best practices in terms of how to fulfill those ethical duties okay so let's start out with the first one which is loyalty okay so in the settlement of any estate is going to be at least one beneficiary now if it's a will the will
3:36 presumably identifies the beneficiaries if it's a trust the trust again will identify the beneficiary or beneficiaries okay now if a person has died in testate they have no will they have no trust so then part of your job may be to find out who are the beneficiaries of the State okay and and it it it typically it would be if there's a surviving spouse or there are surv surviving children um if if it's not in those categories you may need to
4:12 look to parents siblings um beyond that you could look to um grandparents to uh grandchildren to nieces nephews a Aunts Uncles um you know each each state has um its laws about descent and distribution um I remember in my real estate training days we used to say a fifth cousin is too distant to uh qualify as a beneficiary um under the laws of descent and distribution at least here in California um nonetheless
4:49 um you know if if if the person has not identified if the decedent has not identified um the beneficiaries so that's going to be your first job and it is to who it is to the beneficiaries that you owe your duty of loyalty so when all is said and done okay and in administrating a state an estate it is for the benefit of the beneficiaries okay so you need to be loyal to their interests now we're going
5:27 to talk about some um aspects of that as we go through this presentation okay but right now we're just talking about your general duty of loyalty so that that duty of loyalty supersedes certainly the duty to yourself um but it also supersedes your duty to um any uh third party whether it's a lawyer whether it's a spouse of a beneficiary or child of a beneficiary okay so um that is your primary duty of
6:07 loyalty and also it means avoiding conflicts of interest so you could be both a beneficiary and a trustee okay now that puts you in a conflict of interest okay now presumably U we'll we'll talk about the case of a trust um the grantor or the trustor the person who set up the trust recognized that you were going to have that conflict of interest okay so you don't need to resign as trustee but you will
6:44 have to be very careful about how you manage conflicts of interest or that particular conflict of interest anyway uh to make sure that you're not favoring yourself over the other over the other beneficiary or beneficiaries okay now if you let's take a a a more straightforward situation you're not a beneficiary but you are a trustee okay so um you you you in that case you need to avoid conflicts of interest so let's say for example the estate owns a piece
7:19 of property and you would like to buy that property okay well now you're in a situation where um you're both supposed to be doing the best for the beneficiaries but at the same time you want to get the best deal on the property for yourself so you've that that's a conflict of interest probably not um a position that you that you want to put yourself in okay now there could be extenuating circumstances maybe no one wants to buy the property for
7:55 whatever reason and so you know you're prepared to be kind of a buyer of last result of of Last Resort I should say not result the buyer of Last Resort so in that case how that conflict of interest is managed will be very careful and and even though you you have it's a trust in in this example and so the sale of the property wouldn't um in most cases be subject to court confirmation you may decide to um you know apply to the court to confirm the sale in order to make sure that um any conflicts of interests are
8:32 cleared legally before you proceed okay so that's that's loyalty next is care okay so with respect to the beneficiaries you owe the duty of care and what that means is you have a reasonable duty to avoid things like undo risk risk okay now um when we say reasonable we're
9:07 setting a standard of what would a typical person knowledgeable about the duties that you've been assigned what would that what would that person do how would that person handle matters okay so it doesn't mean that um um if something goes is wrong you have necessarily breached your duty of care okay you may have acted perfectly reasonably and yet um you know maybe uh the market
9:42 collapsed okay something outside of your control happened that diminished the value of the estate that that does not mean you haven't been reasonable or that you haven't fulfilled your duty of care it just means that you know you you were subject to the the vagaries of the market just like everybody else okay now um part of the duty of care requires you to invest prudently okay so you don't want to take on undue risk so let's let's say for
10:21 example that the beneficiary is the spouse of the dece of the dedent and and let's let's say that she's you know elderly um so the level of risk in Investments that she could tolerate given her age let's say that you know she's living off of the income from the trust okay and that's maybe that and Social Security are her sole sources of income so to engage in in Risky Investments would not be appropriate for
10:57 this particular beneficiary on the other hand maybe the beneficiaries Are all uh children okay and they don't need current income from the trust okay and so um and in fact they they're not entitled to any distributions until maybe they reach the age of majority 18 or 21 whatever may be specified in in the trust documents and so really what matters is capital appreciation ation so in that case what would be what would be
11:32 the prudent Investments uh for the Trust In order to um achieve capital appreciation so that at the time they do start taking distributions there'll be a ma maximum amount of assets there for them to do that okay so investing prudently is viewed from the standpoint of why is why is the trust set up or or let's let's say let's let's switch from a trust let's say it's it's an estate okay so it's being settled Maybe by probate so um you know it may be that um
12:13 that there's a big cash position in in in the in the estate okay and the money is going to be distributed fairly quickly so then um it wouldn't make sense to invest it in um in a long-term uh security necessarily maybe it's going to beneficiaries who have current income needs or current expense needs okay so again um when we talk about investing prudently we may we we mean in relation to the situation for
12:48 of the beneficiaries which means you you're going to need to know that okay care also means avoiding waste so for example let's say the estate has some real estate in it okay so those propert that property or properties need to be properly maintained okay so they they you know perhaps um um uh let's just's just say it's a house okay um and and let's say um there's nobody living there
13:23 okay so the house needs to be um properly maintained despite it being vacant okay so the lawn needs to be mowed um you know the roof needs to be checked to make sure it doesn't leak um the pipes need to be checked to make sure that uh you know the the house doesn't get uh uh flooded if there you know something like that okay so um you you'll need to make sure you're avoiding waste something that can be fair Fairly common when there's real estate although it could certainly apply to other types
13:58 of investment as well maybe there's a cattle ranch okay and the there's a horse farm and and the Animals need to be properly cared for otherwise they'll die okay so as as the fiduciary as the trustee or the administrator you'll need to make sure that those things are handled okay next impartiality so we were talking about beneficiaries um earlier and I said we're going to we're going to get into this in more depth so here's here's the the first U part of this
14:36 so when you have multip multiple beneficiaries you need to act ethically you need to act impartially that is not favor one over another and and and that that may be difficult at times there may be one beneficiary who's very who treats you very respectfully and um you know is very easy to deal with and there could be another that who's who's you know a jerk and and is insulting and all of those kind of things and and yet it doesn't matter they still both have to be they
15:12 have to be treated if assuming they're you know equal beneficiaries so then they both have to be treated equally okay now um if you're a beneficiary along with being a trustee okay and there's other beneficiaries you cannot favor yourself okay now by the way just because your trustee doesn't mean you have to disfavor yourself all the beneficiaries need to be treated um I don't want to say the same because that gets to the second point there according
15:47 to the terms um of of the instrument that whether it's a will or a trust or whatever so um the terms of the instrument um creating the estate may may not um require that the uh beneficiaries be treated equally one of them may be entitled to a larger share or one of them may in fact um maybe there's a a a a child who's disabled in some way even if the child is an adult and so um the decedent has given that
16:25 child um preference in terms of um resources from the estate being used to care for that child so then um that has to be um attended to by by the trustee or by the administrator whatever okay um but but in general what what needs to happen assuming beneficiaries are are sharing equally in an estate so then um they all need to be treated impartially they all needed to be treated with equal decency it's Etc no no favoring of of any uh
17:05 individual okay next confidentiality so um confidentiality essentially means that you can only make disclosures to those who are entitled to know about the business of the estate okay now um that W that may be um just the beneficiaries okay now by the way there could be um debtors of the estate or
17:40 people who claim to be debtors of the estate who are clamoring for information they may not be entitled to know it depends on the nature of the debts okay whether those debts um actually survive um the death of the decedent okay so um the the best thing to do um is to be very careful about to whom you disclose information and if you're not sure whether someone is entitled to know or
18:15 not as you'll see when we get to be best practices um make sure that you clarify your duty um before you act Okay so that doesn't mean that you have to be a jerk let's let's say a beneficiary or let's say the the spouse of a beneficiary wants to know some information so the spouse if the spouse is not a beneficiary him or herself okay then generally speaking they probably are not entitled to know however okay the um the
18:52 spouse may have a um Power of Attorney to act on behalf behalf of the beneficiary spouse okay in that case then they may well be entitled to no because they're um acting in in in in place of or instead of um the actual beneficiary and they're handling things okay the beneficiary may have a business manager or um you know someone who handles their financial affairs okay and they're they're under contract to do that so then maybe
19:28 that that individual or or that organization who's in that position they may be entitled to know again if you're unsure we're going to talk about this in best practices before you act make sure that you're on solid footing okay now the generally speaking there are certain parties who are authorized by law um to uh obtain information so if the court is seeking information um most likely they're doing so legally now that
20:04 doesn't mean that simply because you get information from a court that you that you disclose information so for example a trust generally speaking is not under Court jurisdiction when you're administrating it okay so you could get a court order saying that you have to disclose some information um but that does doesn't mean that you can't fight the court order if it appears to you and your advisors that you know the court was wrong in issuing that order okay so when
20:43 I say authorized by law um again what I what I'm conveying is the idea that um make sure that what you're being told is the law is in fact the law okay so if there's litigation going on it's it's it's you know it can happen that someone will get a court order um and and and um and that court order could could be improper okay and it needs to be
21:18 appealed or it needs to be challenged okay so again um think double check if you're not sure before taking any action and especially before disclosing any kind of confidential information okay next uh accountability so when we talk about accountability again we're going to be talking about the beneficiaries you are accountable to the beneficiaries okay
21:53 so um number one you need to keep accurate records okay written records in most cases okay so um if if you if there are brokerage accounts so um presumably The Brokerage is issuing U monthly statements or at least quarterly statements something like that so those need to be reviewed and reviewed in a timely fashion okay um if there are if let's say there's some real estate and there's a proper management company
22:29 that's handling the management of the property maybe it's an apartment building or a retail building something like that okay so that property management company uh should be required to provide periodic accountings typically once a month okay of how much income was collected what were the expenses okay who was paid what how how much um and and and sometimes it might even require knowing why that person now if it's a utility bill then you know
23:04 it's because the utilities were used but when it comes to maintenance expenses okay why were there maintenance expenses um by the way a good question Also may be why were there not maintenance expenses I mean is the property in such good shape that you know nothing went wrong with it that month that could be a good question now maybe the property is very new it's in great shape but okay so then no big deal okay but on the other hand if the property is kind of older and you know it's it's it's got some problems so then how why is it that there's no maintenance expense okay and there may
23:39 be a good reason it may be that there's some ongoing um repairs and and they just the bills haven't come through and so they're not going to come through to next month okay is is the um is the property insured okay if you don't see an insurance premium at least once a year that's a probably a good question to be asking your property manager or if you're the beneficiary to be asking the trustee hey uh how come I'm not seeing uh you know any uh you know Insurance expense or whatever okay and and and that gets to the the second uh point
24:14 there which is um Regular accountings need to be rendered okay now again how much detail how much information you pass along um those are things that'll have to be um determined on a caseby casee basis okay so it it really depends um you know if if the beneficiaries are minors okay and you've been appointed as a trustee to look after their best best interests you're probably not going to be reporting to a minor um especially if the if the minor is is a a child okay
24:51 now if the minor if the minor is maybe a teenager and and perhaps they're going to take over um handling these financial matters in a couple of years so then at that point um Prudence May might suggest that um you need to start familiarizing them with uh with with the various assets of the of the trust or the estate um and so you might start giving them some some basic accounting um periodically maybe not necessarily every month maybe every
25:26 quarter you sit down sat down with them and kind of go over things so they can start learning about it again all of this needs to be considered All right so we have just a few minutes left and we're going to talk about some best practices to make sure that as to be as sure as you can that you're fulfilling your ethical obligations first of all stay organized okay um get and stay organized I should say so it's not not necessarily unusual when you take over
26:01 um administrating a trust or an estate that the records are not in very good shape okay maybe the grantor was handling things and now he's deceased and and and you know he knew all this stuff so he didn't really keep particularly good records well you know your first task is going to be to get things organized so you can kind of get your arms around the assets Etc and then stay organized stay on top of it okay stay in touch with there's property managers if there's um Financial Services professionals who are handling
26:36 various things insurance and stocks bonds whatever stay in touch with them make sure that you're getting um the the uh reports from them that are necessary in order to effectively manage the estate or administrate the estate next communicate now I just mentioned communicating with people who are serving the state but also communicate with the beneficiaries okay let them know what's going on um we talked about this earlier your your ethical obligation of confidentiality okay so within the
27:11 constraints of confidentiality um make sure that you are passing along relevant information uh to the beneficiaries and or to their uh you know duly appointed Representatives okay and and and as part of your communication be transparent okay if there's something that you don't know say I don't know let me find that out for you okay don't don't um you know guess or you know that kind of thing because if your guess turns out to be wrong that's almost
27:48 always worse than saying uh you know I don't know off the top of my head let me check that and get back to you okay and um you know if if if you've got some um various options in how you handle things and you're not sure which option to take so perhaps it's appropriate to discuss it with the beneficiaries so look the these are different ways we can handle this you know what do you think about option one what do you think about option two okay that isn't to say that you necessarily have to do what the beneficiary say you're still the person
28:23 in control however being transparent letting them know what the issues are can go a long way toward making not making sure but but raising the um probability that they'll be content with your decision okay and finally and I've mentioned this um a a few times get professional advice okay um generally speaking as the trustee or the administrator or the executive you're going to be the team captain okay and
29:00 you're going to have advisors to help you out probably a lawyer probably an accountant maybe a financial um advisor maybe a property manager you may have other types of advisors um Andor um you know people who are doing work for the estate so you're not expected to know every single thing but you are expected to um confirm with people when you lack the knowledge or the experience to be uh making a decision directly okay that's
29:36 what we getting back to that standard of of reasonable care okay that's what a professional does they use reasonable care Prudence we might say in making decisions okay so so these four best practices will help you make sure I I I I shouldn't use that language because make sure sounds like never make a mistake they will give you the best chance of not cause not making an ethical breach okay and and uh boy that that that half hour went really fast so um if
30:15 you um have any questions want to get any help so these will be in the show notes um you can um and and as well as some other links feel free to email me if it's something personal if it's a more general question that other people might be interested in knowing about by all means you know post on social media by the way during these shows um I I'm right over here you can't see it is um a a a chat window that Aggregates chat coming from all the various social media platforms that we're streaming to and so you can always feel free to drop a
30:50 question or a comment into the chat while the show is going on and I'll be happy to respond to it okay and then we have the legal stuff here we go there's that that that wait a while logo I'm going to go ahead and close the presentation out okay so that's our show for today um you know ethical considerations they they they can be somewhat uh easy to talk about they're oftentimes much more difficult to execute on um simply because um rarely are these issues black and white usually
31:27 we're dealing well oftentimes I'll say we're dealing in a gray area and so you know it takes some thought it takes some consultation with advisors Etc before you make a decision so don't feel rushed to decide things take your time um you know be prudent be ethical if you're not sure get some advice and that way you'll stand the best chance of keeping your practice your um your efforts ethical so
32:04 that's our show for today tomorrow at 10:00 am Pacific time is business lessons from the military I hope you'll join us for that we're going to talk about how you can use US Army or or the US Army's organizational plan in your own business okay and and you'll probably learn a little bit of military history along the way and then on Wednesday also at 10:00 a.m. Pacific time are my I'm going to have my guests Kelsey and Aaron Holtzman you may remember Aaron he was on the show several weeks back talking about being
32:39 an entrepreneurial accountant and this week on people making money we're going to talk about entrepreneurship and marriage okay so maybe you're married and you're thinking you want to start your own business or start something entrepreneurial so I invite you to tune in to hear about the the challenges that Aaron and Kelsey faced um and and I think they will give you some uh excellent food for thought and seven days from today then we'll be back with the next edition of trust and Estates weekly so thank you very much
33:15 for joining me wishing you a wonderful rest of the day and signing off Marie you're my bell all the best folks