Trustees: Before Acting, First Call

“My husband wanted me to call. We’re selling dad’s house, and we just wanted to confirm that there is no personal liability for my sister Nancy and me as trustees in listing the place.”

This question was posed by the daughter of a longtime client who had recently passed away after naming his daughters as his trustees).

When I asked if she and her sister had selected an agent and if so, had they signed any documents? She responded in the affirmative to both questions and laughingly added that they had “killed a tree and a half for all the forms she had us sign.”
I inwardly cringed and asked her to send me copies of the forms so that I could review what they had agreed to.
The next morning I arrived in the office just as one of my staff, a second-year law student, finished printing the voluminous email attachment.

“I thought she and her sister were the trustees for their dad. Why would they have signed all of these disclosure forms? Doesn’t that open them up to liability? And wouldn’t they have avoided liability if they hadn’t signed the forms?”
Even with a cursory glance at the documents, this student law clerk knew what our client apparently had not been told by her real estate agent: While most sellers are required to sign disclosure statements, there are documents that some people should not sign if those individuals have certain jobs that make them exempt from such a requirement.

The young clerk was taking one of her first steps on her journey as an attorney: Learning the consequences of clients who act before they call their advisors.

As it turned out, the house for sale was an old one, and the disclosures significant. And because the trustees had chosen an agent who had never worked with a trustee in their situation before, they took on a level of liability which the law did not require them to assume. The husbands of the sisters were understandably upset with the outcome, and the attorneys for the agent and the buyer were completely immovable in their defense of the transaction.

At every point of the discussions with the parties that followed, the answer was the same: The trustees should have consulted their attorney and a competent real estate agent who had done trust sales in the past, before signing any documents.”
Sadly, the trustees could have avoided significant layers of liability by simply invoking a provision of the California law which allows people in selected jobs (such as trustees and executors) to significantly avoid having obligation to disclose. And while there was a possible alternative available to the sister trustees to take action against what might have been the malpractice of the real estate agent, the attorneys for the agent’s billion dollar multi-state real estate firm pounded hard enough on the table with their shoes to scare the sisters away from any thoughts of firing the agent.

Trust administration offers a significant savings in costs, a lower commitment of time, and an avoidance of public access to private family financial information compared to probate administration. But families who select their members to serve as trustees need to plan to have those trustees use the expertise of professionals who know the pitfalls of planning before those members fall down on the job as happened in this sad situation. As with a host of other potential stories, the trustee who doesn’t employ an experienced set of advisors may create more problems that could have been easily avoided with a simple conversation ahead of time.

Trustees: Before acting, first call.

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