In call after call that I take at my law office, parents have passed away leaving their assets in a living trust and the caller’s sibling has been named trustee. The caller and her sibling have not gotten along for years. Sure enough, the brother or sister who is named as trustee is lording over the trust or camping in trust property, or simply refusing to distribute any part of the caller’s inheritance. How is this possible?
The Ring of Gyges.
The Ring of Gyges is a mythical magical artifact mentioned by the philosopher Plato in book 2 of his Republic (2.359a-2.360d). According to the legend, Gyges was a shepherd who entered a cave and found a magical ring that gave him the power to become invisible. Gyges used his new power of invisibility to seduce the queen, and with her help he murdered the king, and became king of Lydia himself.
In the Republic, Plato harkens back to the myth of the Ring of Gyges to examine the nature of virtue. The character of Glaucon suggests that morality is only a social construction, the source of which is the desire to maintain one’s reputation for virtue and honesty. Hence, if that sanction were removed, one’s moral character would evaporate.
The Unjust Trustee.
One of the touted virtues of a living trust carries with it an often source of strife: a living trust is administered privately rather than under court supervision. That means, by default, that there will be little, if any, public record of acts (or omissions) taken by the trustee. There is no judge holding the trustee accountable.
Combine the foregoing with the appointment of one of the children/beneficiaries as trustee and you have the perfect storm. For one, there is a natural conflict of interest: one of the beneficiaries is given the power to decide who gets what. All things being equal, self interest favors allocating desirable assets, such as the appreciating assets, to one’s self, while allocating less desirable assets, or depreciating assets, to one’s siblings. However, the conflict of interest is the least of my worries.
The eye of the storm derives from sibling rivalry. I’ve often said that siblings fighting over their inheritance is worse than a divorcing couple. Whereas the divorcing couple may have known each other for five or ten years and they have to divide assets they’ve accumulated together, the sibling rivalry often extends deep into childhood and the hostility is vicious in the context of dividing up what the parents have accumulated.
In such an instance, where one of the children is named as trustee and left with the power to administer family assets, IN PRIVATE WITHOUT COURT SUPERVISION, it’s as if the trustee has discovered the fabled Ring of Gyges to do as he sees fit. Often this means that years go by before the trustee’s misdeeds are discovered.
Most folks don’t know that, if you suspect that the clouds are gathering and you’re going to end up getting cheated out of your inheritance, early on you can insist that your parent’s trust be supervised by the probate court to inject checks and balances into the administration of your inheritance. In such a situtation, the cost of probate administration is far outweighed by the benefit of transparency and fair dealing. In essence, it means that there will be no fabled Ring of Gyges shrouding the trustee’s actions in secrecy. Under the watchful eye of the probate court, the trustee will be much more likely to honor the trust.