Friday, March 25, 2011

A Brief Overview of a Trustee's Dutie

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a "trustee," holds legal title to property for another person, called a "beneficiary." If you have been appointed the trustee of a trust, this is a strong vote of confidence in your judgment and probity. Unfortunately, it is also a major responsibility. Following is a brief overview of your duties:
  1. Fiduciary Responsibility. As a trustee, you stand in a "fiduciary" role with respect to the beneficiaries of the trust, both the current beneficiaries and any "remaindermen" named to receive trust assets upon the death of those entitled to income or principal now. As a fiduciary, you will be held to a very high standard, meaning that you must pay even more attention to the trust investments and disbursements than you would for your own accounts.
  2. The Trust's Terms. Read the trust itself carefully, both now and when any questions arise. The trust is your road map and you must follow its directions, whether about when and how to distribute income and principal or what reports you need to make to beneficiaries.
  3. Investment Standards. Your investments must be prudent, meaning that you cannot place money in speculative or risky investments. In addition, your investments must take into account the interests of both current and future beneficiaries. For instance, you may have a current beneficiary who is entitled to income from the trust. He or she would be best off in most cases if you invested the trust funds to generate as much income as possible. However, this may be detrimental to the interest of later beneficiaries who would be happiest if you invested for growth. In addition to balancing the interests of the various beneficiaries, you must consider their future financial needs. Does a trust beneficiary anticipate buying a house or going to school? Will she be depending on the trust income for retirement in 15 years? All of these questions need to be considered in determining an investment plan for the trust. Only then can you start considering the propriety of individual investments.
  4. Distributions. Where you have discretion on whether or not to make distributions to a beneficiary you need to evaluate his current needs, his future needs, his other sources of income, and your responsibilities to other beneficiaries before making a decision. And all of these considerations must be made in light of the size of the trust. Often the most important role of a trustee is the ability to say "no" and set limits on the use of the trust assets. This can be difficult when the need for current assistance is readily apparent.
  5. Accounting. One of your jobs as trustee is to keep track of all income to, distributions from, and expenditures by the trust. Generally, you must give an account of this information to the beneficiaries on an annual basis, though you need to check the terms of the trust to be sure. In strict trust accounting, you must keep track of and report on principal and income separately.
  6. Taxes. Depending on whether the trust is revocable or irrevocable and whether it is considered a "grantor" trust for tax purposes, the trustee will have to file an annual tax return and may have to pay taxes. In many cases, the trust will act as a pass through with the income being taxed to the beneficiary. In any event, if you keep good records and turn this over to an accountant to prepare, this should not be a big problem.
  7. Delegation. While you cannot delegate your responsibility as trustee, you can delegate all of the functions described above. You can hire financial advisors to make investments, accountants to handle taxes and bookkeeping for the trust, and lawyers to advise you on questions of interpretation. With such professional assistance, the job of trustee need not be difficult. However, you still need to communicate with those you hire and make any discretionary decisions, such as when to make distributions of principal from the trust to one or more beneficiaries.
  8. Fees. Trustees are entitled to reasonable fees for their services. Family members often do not accept fees, though that can depend on the work involved in a particular case, the relationship of the family member, and whether the family member trustee has been chosen due to his or her professional expertise. Determining what is reasonable can be difficult. Banks, trust companies, and law firms typically charge a percentage of the funds under management. Others may charge for their time. In general, what's reasonable depends on the work involved, the amount of funds in the trust, other expenses paid out by the trust, the professional experience of the trustee, and the overall expenses for administering the trust. For instance, if the trustee has hired an outside firm for investment purposes, that expense would argue for the trustee taking a somewhat smaller fee. In any case, it makes sense to consult with a professional experienced with trust work who can guide you on what would be normal fees considering all of the circumstances.

In short, acting as trustee gives you a wonderful opportunity to provide a great service to the trust's beneficiaries. The work can be very gratifying. Just keep an eye on the responsibilities described above to make sure everything is in order so no one has grounds to question your actions at a later date.

Friday, March 18, 2011

AARP Sues Government Over Reverse Mortgage Foreclosures

Charging that reverse mortgage borrowers were caught in what amounts to a regulatory bait and switch, the AARP's legal arm is suing the Department of Housing and Urban Development (HUD) on behalf of three now-deceased borrowers' surviving spouses who are facing imminent foreclosure and eviction from their homes. 

The case involves the spouses of individuals who took out Home Equity Conversion Mortgage (HECM), which are the most widely available reverse mortgage and are administered by HUD. A reverse mortgage allows homeowners who are at least 62 years old to borrow money on their houses. The loans do not have to be repaid until the last surviving borrower dies, sells the home, or permanently moves out. 

The borrowers in the AARP case all died, leaving their spouses, who were not listed on the loan documents, living in the mortgaged homes. Because of the housing downturn, the homes are now worth less than the balance due on the reverse mortgage. None of the three spouses -- residents of Indiana, New York and Maryland -- can obtain loans for more than their homes are worth and so are facing eviction. 

Since 1989, HUD rules governing reverse mortgages have stated that a borrower or heirs would never owe more than the home was worth at the time of repayment. But at the end 2008, the Bush administration abruptly changed this policy and said that an heir -- including a surviving spouse who was not named on the mortgage -- must pay the full mortgage balance to keep the home, even it if exceeds the value of the property. This, AARP says, violates existing contracts between reverse mortgage borrowers and lenders. 

"HUD has illegally and without notice changed the rules in the middle of the game at the expense of vulnerable older people," said Jean Constantine-Davis, a senior lawyer with the AARP Foundation, the organization's charitable unit. 

A spouse might not be named on the mortgage for a number of reasons: one spouse may have taken out the reverse mortgage before the marriage, or one spouse may be under age 62 and ineligible, or, more likely, lenders often encourage the younger spouse not to be named as a borrower because then the loan amount can be bigger. AARP notes that, perversely, under HUDs current rule a stranger can purchase the property for its current appraised value, but a surviving spouse cannot. The policy also negates a key purpose for which borrowers pay for insurance, AARP adds, pointing out that reverse mortgage borrowers have always paid insurance premiums to protect against going "underwater" -- owing more than their homes are worth. 

The suit charges that HUD is ignoring another provision of the HECM program that protects a surviving spouse from being arbitrarily displaced from the home upon the death of the borrower. 

"This is shameful and we intend to make HUD honor the representations and promises they made to borrowers when they signed up for these government-insured loans," Steven A. Skalet, of Mehri & Skalet, the law firm pursuing the case for the AARP Foundation. The case was filed in Federal District Court for the District of Columbia. HUD had no comment on the pending litigation. 

Nearly one-quarter of all mortgaged homes are underwater, according to CoreLogic, a housing data firm.
For AARP's news release on the lawsuit, click here.
For a New York Times article on the case, click here. For excellent analyses by the Times and Reuters, click here and here.
For more on reverse mortgages, click here.

Friday, March 11, 2011

Mickey Rooney Headlines Senate Hearing on Confronting Growing Problem of Elder Abuse

Legendary actor Mickey Rooney told a packed Senate hearing room last week of the emotional and financial abuse that he has endured in recent years. 

"I was eventually and completely stripped of the ability to make even the most basic decisions in my own life," Rooney said. "If elder abuse happened to me, Mickey Rooney, it can happen to anyone." 

In fact, financial and physical mistreatment is happening to a large and growing number of "anyones" at a time when government resources to deal with such cases are plateauing or diminishing. Rooney's story was part of a Senate Special Committee on Aging hearing exploring the nationwide trends of abuse, neglect and financial exploitation of seniors. 

At the hearing, the Government Accountability Office released a study estimating that 14 percent of elderly Americans experienced some form of abuse in 2009. However, in all likelihood this is a significant undercount of the dimensions of the problem, witnesses said. A study of elder abuse in New York, also unveiled at the hearing, concluded that for every elder abuse case that is reported, another 23 to 24 go undetected. 

In most states, Adult Protective Services (APS) caseworkers are the first responders to reports of abuse, neglect, and exploitation of vulnerable adults. But according to a new AARP-funded national survey, support for these programs is not keeping pace with the growing crisis. The study found that in 2010, 24 states plus the District of Columbia reported increased calls for APS, with all of the states naming financial exploitation as a cause of the increased calls. 

But despite a rise in the number of APS calls, only three reporting states -- Alaska, Idaho, and Nevada -- increased APS spending in 2010, while the rest either maintained current funding levels or actually reduced spending. 

The AARP observes that The Elder Justice Act, which was part of the new health reform law, authorizes a direct federal funding stream for state APS programs, as well as money for state grants to test ways to improve APS. Nevertheless, Congress has not yet appropriated these funds. 

Sen. Herb Kohl (D-WI), who chaired the Senate hearing, urged committee members in attendance to help pass legislation to improve federal, state and local agency cooperation in fighting elder abuse. Kohl later reintroduced his "Elder Abuse Victims Act," which would establish an Office of Elder Justice within the Department of Justice and strengthen the coordinated law enforcement response to cases of elder abuse. 

For more on the hearing, click here

For more on Rooney's testimony, click here. For YouTube excerpts of his testimony, click here.

Friday, March 4, 2011

Group Calls for Federal Probe into Florida's Firing of Nursing Home Advocate

A nursing home advocacy group is calling on the federal government to investigate Florida governor Rick Scott's recent removal of the director of the state's Long-Term Care Ombudsman Program. 

Every state is required to have an ombudsman program that serves as an independent voice for nursing home residents -- addressing resident complaints and advocating for improvements in the long-term care system. As ElderLawAnswers reported earlier, shortly after taking office, Gov. Scott ousted Brian Lee, who during his seven years directing Florida's ombudsman program had gained a reputation as a staunch advocate for the elderly. After Scott, a Republican, won the governorship last November, the Florida Assisted Living Association, an industry group, sent him a letter recommending an individual to replace Lee, one who would presumably be friendlier to their industry. 

Lee's removal has alarmed The National Consumer Voice for Quality Long-Term Care, a leading advocate for long-term care residents nationwide. In a letter to the head of U.S. Administration on Aging, the Consumer Voice's Executive Director Sarah F. Wells charges that "Mr. Lee was forced to resign from office at the request and recommendation of nursing home and assisted living operators." Wells calls on the federal agency to "investigate the reasons for Lee's dismissal as potential willful interference and detrimental impact on the ability of the State Ombudsman to advocate on behalf of the long-term care residents of the state," and notes that willful interference with the ombudsman's job is illegal. 

ElderLawAnswers has obtained a copy of the letter that the Florida Assisted Living Association sent to Governor-elect Scott recommending an individual to replace Lee. To see the letter, click here

Some of the state's 17 councils of volunteer ombudsmen are considering legal action and/or filing a formal complaint with the U.S. Attorney General.