Trustee Fees and the Terrestrial Kingdom of God

 

            This brief analysis refers to the case Smith v Kirkland (2017).  This case is summarized in a previous blog titled: “TRUSTEES: CHOOSE WISELY–CASE SUMMARY (SMITH V. KIRKLAND).”  To best appreciate the following analysis, read this previous blog.  (Hover over the title with your cursor and click.)

            The Kirkland case is a perfect example of a Trust that was drafted with almost incredible blindness to a host of perfectly foreseeable surprises. While the full ironies in the case are only best appreciated by a person steeped in the culture of fringe Utah religious groups, the straightforward legal issues presented in the case are still a lesson for everyone interested in creating an estate plan that actually works.

            Initially, it should be noted that paying a professional trustee $50 per hour to administer a trust is not unreasonable at all; such a rate is not in left-field; in fact, such a fee is on the lower end of the spectrum.  Professional trustees–especially trustees who are also attorneys or CPAs–charge five to six times this amount in performing the complex accounting, administrative, and legal work of managing a trust.

            Professional trustees who are not attorneys or CPAs may charge $50 to $100 per hour in the end, but when legal or accounting issues arise in administering a trust—and such issues arise constantly—the professional trustee must retain the attorney or CPA at their higher rates to address those issues.

            The point is that professional trustees—and related attorneys and CPAs—are charging an average of five or six times $50 per hour.

            Further, diligent and honest professional trustees are worth every dollar they ask. Professionals can do in one hour what it takes a non-professional family trustee ten hours to do.  Professionals do not make costly mistakes.  Professionals account to beneficiaries.  Professionals minimize and contain conflicts.

            Now, with all this in mind, if Mr. Kirkland still insisted on naming amateur trustees to manage his “Kingdom of God Trust,” he should have at least indicated in his trust a clear hourly rate his trustees would be paid (say $25 per hour, to increase each year by say 3%) instead of using the boilerplate and ambiguous phrase “reasonable compensation.”

            But there are much more serious problems with the Kingdom of God Trust than ambiguous compensation terms.  These problems include poor choice of trustees; failure to appreciate the role of good trustees; poor beneficiary notification provisions; poor accounting requirements; and poor amendment provisions.

            Like all other cases summarized in this blog, the conflict in this case could have been avoided altogether if the documents had been drafted by an obsessive, paranoid, competent attorney. But perhaps Mr. Kirkland was just too smart to retain an attorney. And if he did retain an attorney, where was this attorney mentally when he prepared the “Terrestrial Kingdom of God Trust”?

            By Craig E. Hughes

            Click here to see Smith v Kirkland (2017), 2017 UT App 16.

            Click here to see our summary of this case in the blog titled: “TRUSTEES: CHOOSE WISELY–CASE SUMMARY (SMITH V. KIRKLAND).”

 

Trustees: Choose Wisely – Case Summary (Smith v. Kirkland)

 

             In 1993, Steven E. Kirkland created a Trust which he called the “Terrestrial Kingdom of God Trust.” Unfortunately, Mr. Kirkland’s poorly-drafted Trust has only been fodder for a fight in outer-darkness hell, as his named beneficiaries and trustees continue to fight each other after more than eleven years in the Utah courts. Smith v Kirkland (2017)

            Mr. Kirkland named numerous relatives in his Trust as beneficiaries . He named other individuals as trustees, including Valden Cram and Penn Smith.

            The Trust was clear that Trustees were to “serve without pay, but it allowed the Trustees to appoint one person as manager who was to be paid ‘reasonable compensation.”  The clever Trustees then amended the Trust “to include four paid positions, including a manager and an assistant manager who would each be paid $50 an hour.”  They then named themselves as manager and assistant manager. The Trust expressly disallowed any such amendments.

            These good Trustee/managers then proceeded to engage in numerous activities without informing the beneficiaries, all the while paying themselves $50 per hour. When the beneficiaries discovered what was happening, they sued.  After eleven (11) years of legal battles, the appellate court ruled that the Trustees and managers had not proved that $50 per hour was “reasonable compensation.”

            The appellate court remanded (returned) the case to the district court to determine whether $50 per hour was reasonable compensation.  And so the case goes on, as these good brothers and sisters in the Lord fight a decidedly telestial battle.

          By Alicia Knight Cunningham  

          Click here to see Smith v Kirkland (2017), 2017 UT App 16.

          Click here to see our analysis of this case in the blog titled: “TRUSTEE FEES AND THE TERRESTRIAL KINGDOM OF GOD.”

Interview Your Potential Estate Planning Attorney

 

          I had a client come in two days ago.  He has a special-needs son.  He is a retired military officer and professor at a military academy.  A no-nonsense guy.

          Right off the top, he politely excused himself, said he hoped he would not offend me, but that he had a list of questions for me about special needs trusts (SNTs).

          I was thrilled by the prospect of a potential client who actually had a list of questions for me—who actually wanted to interview me for the job of helping him and his son.  Seriously.  I knew this was a client who was intelligent, someone I could work with.  This was a client who would appreciate the host of surprises that could occur and would do everything necessary to prevent them from occurring.

          His first question had to do with “Crummey” powers in a special needs trust. It was a pleasure to look him in the eyes and immediately explain the case of “Crummey v. Commissioner” and the use of Crummey powers in an SNT.  The questions went on from there.

          I am certain that if this man had not been comfortable with my answers to every question he had, he would have graciously indicated he needed to think about his situation and would have walked out—never to return. Instead he wrote out a retainer check.

          To all of you looking for a good attorney. There is no reason for you to be intimidated in the least by another human being who calls himself an attorney.  You are the one hiring the attorney.  Be prepared to put that potential attorney to the test.  No matter how highly recommended the attorney is, interview him or her with questions.  If an attorney cannot answer your questions in a way you can easily understand, or dismisses your questions in any way, or if you are simply uncomfortable, then politely excuse yourself and do not go back.

By Craig E. Hughes