How Much Damage Can an Incompetent Trustee Do?
By Pat Proud
“If you mentioned ‘liquid assets’ to Betty, she would probably think you wanted something from her wine cabinet.”
That is how Alan describes the former trustee of his grandfather’s estate. “We all knew Aunt Betty was a dingbat, but we never e
xpected this kind of financial disaster.”
Alan had always been very close to his grandparents. His grandfather, Grandpa Bob, was the son of a prominent doctor in Spokane. He married and had one son, Alan’s father, Walter. Shortly after serving in the Army Air Corps (Air Force) in World War II, Grandpa Bob divorced Walter’s mother and married Judy, a young bookkeeper with a keen business sense. Together they had a daughter, Betty. When she grew up, Betty had a daughter and a son.
Alan was Walter’s only child, and even though Grandpa Bob became estranged from Walter, he showered a lot of attention on Alan, his favorite grandson. Growing up in Spokane, Alan has pleasant memories of helping Grandpa Bob restore antique cars. Bob and his wife Judy developed a successful tire business and a toy business. They were hard working and community oriented people, very dedicated to the Masonic Lodge and devoted to their church. Shortly before his death in 1992, Grandpa Bob took Alan on a college search tour back east, and committed to financing his education.
Alan was 20 when his grandfather died, leaving the entire estate to Grandma Judy. In the event of Judy’s demise, Alan would be the executor and trustee, with the church as the primary beneficiary of the trust for an amount to “pay off the mortgage.” The rest was to be split equally among the grandchildren. Neither Walter nor Betty was a beneficiary of the trust.
Alan Expresses His Concern About Betty
Grandma Judy lived for another 18 years, during which she made some changes. She paid off the church mortgage while she was still alive. Then she engaged Betty, her daughter, to be the executrix and trustee. She was still close emotionally to Alan, but explained to him that because he now lived and worked on the east coast, she thought it would be better to have her local daughter handle the estate.
Alan questioned whether Betty, a stay at home mom who had never had a career that required business sense or financial responsibility, was up to the job. Grandma held firm. And because Alan was very busy on the fast track to an executive position in a successful firm, he relented and felt relieved to have Betty take the responsibility.
Grandma also made sure to give each of the grandchildren annual $10,000 gifts during the last ten years of her life. She said that Grandpa Bob would have liked it that way.
When Grandma Judy died in 2000, the estate was worth approximately $700,000, including property and investments. Grandma’s new will heavily favored Betty, with Betty and her husband receiving a 40% share and Betty’s children each 
receiving 20% shares. The remaining 20% was to be split equally between Alan and his mother.
Two Years Go By…Where’s the Money?
Alan kept in contact with the family, but by this time they rarely got together. He knew that settling estates could take some time, so he thought nothing of months and months going by. But as the elapsed time approached two years without any settlement, and Alan needed precise numbers for a prenuptial agreement, he began to inquire about when he would be receiving his share.
Betty seemed vague and reluctant to communicate. When she stopped returning his messages, Alan asked his attorney to write to the attorney in Spokane who had been his grandparents’ attorney for years. In his reply, the Spokane attorney said that he had withdrawn from the case months before because of a feedispute he had with Betty. Alan then engaged another Washington attorney to file a formal inquiry regarding the estate. It demanded that Betty give a complete accounting of what had been done and what had yet to be done. Betty failed to respond.
“Betty considered Alan and his mother as family outsiders who should just quietly go away and let her family tend to business.”
Alan’s attorney then had a telephone conversation with Betty that led him to believe that Betty considered Alan and his mother as family outsiders who should just quietly go away and let her family tend to business. He sensed that she had mishandled the estate, but could not get any details. He suggested to Betty that she hire an attorney and a professional trustee to help her settle the estate. But instead, Betty anticipated a fight and hired an attorney to represent her personally.
Details of Betty’s Failures Surface
In 2004, on behalf of his mother and himself, Alan filed an action in Washington to have Betty removed as executrix of the estate. At that point he began to discover the true details of Betty’s failures in her fiduciary responsibility. Alan, who was still sensitive to the fact that Betty was his aunt, tried to attribute all the problems to Betty’s “incompetence.” But now, as the discovery continues, he is becoming more and more suspicious that Betty has been using the estate for her own personal gain and that of her husband and children.
The investigation revealed that the estate was worth substantially less than it was the day Grandma died. Betty has never made an inventory of the assets in the estate. She has never filed Federal or State taxes. And over the two year period, she has written personal checks to herself for more than $140,000 cash. The estate had also held a note representing a $150,000 loan to Betty and her husband, which they had used to finance their hardware business. As soon as Grandma died, Betty stopped paying on that note, and as trustee and executrix, she simply has continued to let it ride unpaid. The question as to how much of this benefit has accrued to Betty’s children was not resolved. (This was complicated by the fact that Betty’s son died in a car accident while away at college.)
Attorneys, Penalties, Legal Expenses, and Frustration
The Washington State Court removed Alan’s Aunt Betty from her duties to the estate and installed Alan as the executor and trustee. His attorney recommended that Alan file charges against Betty, but he declined to prosecute her criminally. The court did award Alan his $6,000 legal costs and decreed that the penalties and late fees for her failure to pay the taxes come out of Betty’s portion of the settlement.
All parties agreed to mediation to settle the estate. Considering the penalties for the late filing of taxes, the legal expenses and the $140,000 Betty gave herself, Alan’s attorney suggested forgiving Betty’s $150,000 note and considering Betty’s family paid in full. Alan and his mother will share whatever is left.
Alan, while frustrated and disappointed that the family got into such a mess, was relieved that he and his mother finally received a portion of his grandfather’s estate.
