Family Trust Business Problems
Q: Before my dad died, he set up our family business and real estate in a family trust and a spousal trust. My stepmother and I are the two trustees, and upon her death, the business and real estate become mine. She is the actual executrix of the will. We are a small business with no board of directors and no stocks have ever been given out. It took three years and the pressure of a very persistent lawyer to get the business and building out of the estate and have the trusts funded. In those three years, my stepmother increased her salary and let the business spiral down into the red. After I finally became a trustee last year, I managed to bring the business back into the black and am struggling to keep it there. My stepmother gets a large rent, as stipulated by the will, and has also increased her salary significantly. She has no real input into the business, does no real work and does not bring any money into the business. I, and my other employees, are struggling to keep the business afloat, and she is continuing to drain it. If this continues, and I believe it is her wish, there will be no business left for me to inherit. She is 82 and already has enough money accumulated to live out her life in ease. I have attempted, along with our accountant, to try to get her to reduce her salary to no avail. Do I have any legal rights to over- ride her without actually getting involved with attorneys I can't afford? There was an arbitrator, our previous accountant, set up in the will. However, he seems hesitant to get involved and it would also be costly to the business. I am the fourth generation of our family business and am doing everything I can to save it. Please pass on any advice you may feel is relevant.
A: It would appear that the real estate and the business are both operated/managed by the trustees, of which there are two. And that there is no entity (LLC, partnership, corporation) involved. Differences between the children of a first spouse and the surviving second spouse are common. If there is a provision in the trust for arbitration and this amateur "arabitrator" refuses to act, and if mediation (the lawyer) fails then you may need to seek directions from the court. But how can your stepmother "increase her salary"? For one thing, she is unlikely to be working at age 82, so she is under some pretext demanding "income" or "capital" payments from the trust. Perhaps the trust entitles her to all the "profits". But you are a co-trustee: if the trust document doesn't entitle her to an unlimited draw, why do you sign the checks or otherwise allow it? There could be a tax issue as well if there are not funds to pay withholding tax.. This is an issue that can't be resolved on a newsgroup. You need to consult with someoine who is familiar with trust law in your jurisdiction. And, in the end, you will probably have to go to court for instructions. (Other possibilities, like shifting new business to a new company, would likely be a breach of trust on your part.) Your mention of "a large rent" isn't clear. Trusts specify the way that life beneficiaries get paid. The trustees have a fiduciary responsibility (obligation) to remainder benerficiaries (you). That varies by jurisdiction. And. again, it looks like a decision for a judge if mediation and arbitration are impossible. (Though arbitration can be forced, under state and federal arbitration law. An arbitrator can be replaced: that may be the most efficient way and if you can get your accountant to resign then the trust or local law should provide for a means of replacing him or her.)