Trust Review

The Situation

Mr. F had most of his wealth in a series of trusts. The trustee was a big bank, the different trusts were created 30 to 60 years ago and the family owned interests in a variety of family partnerships. The largest partnership owned a significant cattle ranch and several others owned working interests in oil and gas properties from across the country.

The current trust beneficiaries are in their 50s and 60s and, after reviewing the trust documents and information on the underlying properties, we identified several issues.

The current beneficiaries are sisters, and they have very little experience operating a ranch – the family’s cattle operation has been professionally operated for years. These sisters’ children know even less. However, when each sister passes, her children inherit her interest in the ranch. Over time, some of the sisters will be involved in decision-making with nieces and nephews (and their spouses). The younger generation is very focused on increasing cash distributions from the ranch and, ultimately, out to themselves. None of the younger family members know each other well, and none have ever worked together to make business or financial decisions. Our advisors at Tolleson Wealth Management immediately started the process of convening regular family meetings.

The Solution

The older trusts, drafted more than 50 years ago, have many outdated provisions, including one that only allows for distribution of income to beneficiaries. An operating ranch can create cash flow that is not characterized as trust income, so there have been many difficult conversations over the years about how much these trusts can actually distribute. The current trustee never provided the family with alternatives, but we were able to determine very quickly that the trusts could be modernized in court with a minimal investment of time, legal assistance and complexity.

We were able to complete the process to clarify the distribution language, retain long-term ownership of the ranch and allow the beneficiaries to replace the trustees of the trust. Even though the family named us as trustees, we have always believed that trusts need to include appropriate checks and balances in case the trustee is not doing its job well.

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