The question of whether a trust can require unanimous consent from co-trustees is a common one for Ted Cook, a trust attorney in San Diego, and the answer is a resounding yes, but it’s nuanced. Trust documents are incredibly flexible and can be tailored to the specific wishes of the grantor – the person creating the trust. While it’s not the default rule, a grantor can absolutely stipulate that all co-trustees must agree on every decision, from investment choices to distributions to beneficiaries. However, this seemingly straightforward requirement can quickly lead to gridlock, which is why Ted Cook often advises clients to carefully consider the implications before implementing such a rule. Approximately 65% of trust disputes involve disagreements between trustees, highlighting the potential for conflict even without a unanimous consent requirement. The key is to balance control with practicality; a trust intended to function smoothly shouldn’t be hamstrung by an unbreakable tie.
What happens when co-trustees disagree?
When co-trustees disagree and a trust *doesn’t* require unanimity, the document itself usually provides a tie-breaking mechanism. This could be designating one trustee as the tie-breaker, giving a third party the authority to resolve disputes, or allowing a court to intervene. However, when unanimity *is* required, the lack of agreement can bring the trust’s administration to a standstill, potentially requiring court intervention to resolve the impasse. This intervention can be costly and time-consuming, eroding the trust’s assets and frustrating the grantor’s intentions. Ted Cook emphasizes the importance of a well-drafted trust document that anticipates potential disagreements and provides a clear path forward, even in the event of a deadlock. Furthermore, the Uniform Trust Code, adopted in many states including California, provides guidelines for resolving trustee disputes, but these default rules may not align with the grantor’s specific desires.
Is requiring unanimous consent a good idea?
Generally, Ted Cook doesn’t recommend a strict unanimous consent requirement unless there are very specific reasons and the co-trustees have a demonstrated history of collaboration and trust. It can work well in situations where the co-trustees are family members with a strong, established relationship and a shared understanding of the grantor’s wishes. However, it’s often problematic when the co-trustees have differing financial interests or conflicting priorities. A grantor might consider it if they deeply distrust one of the proposed trustees, believing that requiring unanimous consent will prevent that trustee from acting unilaterally. But this approach can inadvertently create a situation where even minor decisions become subject to protracted negotiations and potential litigation. It’s a delicate balance between control and practicality, and Ted Cook spends significant time with clients discussing the pros and cons of each approach.
What are the alternatives to unanimous consent?
Several alternatives can provide a balance between accountability and efficient administration. One option is to designate a “managing trustee” with the authority to make day-to-day decisions, while requiring co-trustee approval for major actions, like selling real estate or making significant investments. Another approach is to establish a clear dispute resolution process, such as mediation or arbitration, to avoid costly litigation. Ted Cook often suggests including a “break-even” clause, where if the trustees cannot agree after a reasonable period of time, a designated third party, like a trust company or a qualified attorney, will make the final decision. These approaches allow for collaboration while also providing a mechanism to overcome impasses and keep the trust functioning smoothly. Approximately 40% of Ted Cook’s cases involve trusts with pre-defined dispute resolution processes, demonstrating the growing popularity of this approach.
Could a court override a unanimity requirement?
Yes, a court can potentially override a unanimity requirement if it finds that it’s hindering the trust’s administration and violating the grantor’s overall intent. Courts generally prioritize the efficient and effective management of trusts and will not enforce provisions that are demonstrably impractical or detrimental. If co-trustees are completely deadlocked and unable to act in the best interests of the beneficiaries, a court can appoint a special trustee to resolve the impasse or modify the trust terms to allow for more efficient administration. However, this intervention is a last resort, as courts generally respect the grantor’s wishes as expressed in the trust document. Ted Cook advises clients that while a trust is a binding legal document, it’s not set in stone, and courts retain the power to intervene in certain circumstances.
What happens if the trust document is silent on disagreements?
If the trust document doesn’t address disagreements between co-trustees, state law, like the Uniform Trust Code, will govern. This typically means a majority vote is sufficient to make decisions, unless the decision requires unanimous consent due to its nature (e.g., amending the trust terms). However, this default rule may not align with the grantor’s specific intentions, which is why Ted Cook always emphasizes the importance of a well-drafted trust document that anticipates potential conflicts. Furthermore, even with a majority vote rule, co-trustees still have a fiduciary duty to act in the best interests of the beneficiaries and to consider the views of their fellow trustees. Ignoring these duties can lead to legal challenges and potential liability.
A story of deadlock and frustration
I once represented the beneficiaries of a trust where the co-trustees—an aunt and uncle—were locked in a perpetual battle. The aunt, a meticulous accountant, wanted to invest conservatively, while the uncle, a serial entrepreneur, favored high-risk, high-reward ventures. The trust document required unanimous consent for all investment decisions, and neither would budge. Months turned into years, and the trust assets sat idle, earning virtually nothing. The beneficiaries were understandably furious, their inheritance slowly eroding due to inflation. It was a truly frustrating situation, a testament to how a seemingly simple requirement could paralyze an entire estate. The family meetings were filled with accusations and resentment, and the once-close relationship between the aunt and uncle was irrevocably damaged.
A resolution through proactive planning
Thankfully, another client, Mrs. Eleanor Vance, came to Ted Cook seeking to establish a trust for her two adult children. She anticipated potential disagreements between them, as they had very different personalities and financial philosophies. Ted Cook advised her to include a provision designating a local trust company as a “tie-breaker” in the event of a deadlock. The trust document also outlined a clear dispute resolution process, including mediation before resorting to litigation. Years later, when a disagreement arose regarding the sale of a vacation property, the trust company stepped in, facilitated a compromise, and ensured that the property was sold in the best interests of the beneficiaries. Mrs. Vance’s proactive planning saved her children years of conflict and preserved the value of their inheritance. It demonstrated the power of foresight and the importance of working with an experienced trust attorney.
What about the costs of dispute resolution?
Dispute resolution, whether through mediation, arbitration, or litigation, can be costly. Mediation is generally the least expensive option, but even that can involve attorney’s fees and mediator costs. Arbitration can be more expensive than mediation, while litigation is typically the most expensive and time-consuming option. Ted Cook always advises clients to consider the potential costs of dispute resolution when drafting their trust documents. Including a clear dispute resolution process can help minimize these costs and ensure that disagreements are resolved efficiently and effectively. Approximately 75% of cases resolved through mediation are settled for less than the cost of litigation, demonstrating the potential cost savings.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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