Executing a Living Trust Won’t Always Be Easy

When people set up a living trust, they do it for their heirs. They want to make the job of settling an estate faster, easier and cheaper.

But don’t tell that to Allan Friedman.

His mother, Rose, died this past summer. All of her assets were held in a living trust. It should have been easy to settle her estate. But Allan Friedman spent about a month battling with brokers who erected what appeared to be an insurmountable hurdle to close his mother’s mutual fund account.

Although Friedman’s dispute is now settled, it should serve as a cautionary tale for others who have--or plan to create--a living trust. Rose Friedman’s story is like that of many parents. Several years ago, she had an attorney draw up a living trust so that her heirs--a son and a daughter--would not have to cope with the delays and expenses of probate after she died. A living trust is a three-part legal document that allows you to pass control of your assets directly to your heirs when you die or become incapacitated.

Rose died Aug. 6 at the age of 83. Almost everything went as she had planned. Her son, Allan, and daughter, Judith, took the death certificate, the trust document and a letter of instructions to half a dozen financial institutions where Rose had accounts.

In short order, nearly every institution liquidated Rose’s accounts--waived early withdrawal fees, where they applied--and handed Rose’s children, who were “co-successor trustees,” their checks.

Then they approached Eaton Vance--a mutual fund company that sometimes sells through brokers based in bank branches.

About three years before she died, Rose had opened a mutual fund account with Eaton Vance because the company sold funds in the First Nationwide Bank branch where Rose had a certificate of deposit. When her CD matured, the investment broker persuaded her to roll the money into the mutual fund rather than into another CD.

Allan and Judith brought Rose’s trust, her death certificate and instructions to the Eaton Vance representative sitting in the First Nationwide branch office. But the broker told them that she needed a “certified copy” of the trust before she could release the funds.

Translation: An “authorized” person at a bank or brokerage must write on the trust document the following statement: “This document is a true and complete copy of the original and is in full force and effect.” The banker or broker must sign and date the “certification” and fill in the name of the certifying institution.

That may seem simple enough, but it’s impossible to get.

Why? Because bankers and brokers have no way of knowing whether a living trust is a true copy of the original or whether it’s in effect. By providing a certification to that effect, the bank or brokerage takes on the legal liability of loss in the event that another living trust emerges for the same person and other successor trustees show up and demand their funds.

As a result, Allan Friedman had no luck in getting this certification from First Nationwide or from any of the other banks and brokerage firms he asked.

Could this happen to you? Absolutely, says Steven Elias, co-author of estate-planning software called WillMaker. Most banks do honor living trust documents and distribute money to heirs without a glitch, he says. But, he adds: “there is nothing in the law that requires an agent to disburse funds if that agent needs more proof or evidence that the trust document is valid. There is no law saying you have to honor a living trust document.”

Other lawyers say they have run into similar trust verification requirements. And none had heard of a financial institution that would provide any sort of certification.

“I’ve done maybe 100 of these things,” says Jeffrey L. Condon, author of “Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (and Others)” and a Santa Monica-based probate lawyer. “A lawyer’s letter saying the trust is still good should do. But with a living trust, there can never be anything officially certified. A bank doesn’t have any indication that this is a true and correct copy of the trust.”

How do you solve it? Good question.

Allan Friedman went to his mother’s attorney, who provided him with a letter saying this was, indeed, Rose’s trust. Not enough, said the Eaton Vance representative.

He went to a dozen banks, brokers and fund companies vainly trying to get a certification. He went to his own attorney--and talked to several others. When he finally came to the conclusion that there was no way to get a proper certification, he called a reporter.

Eaton Vance says it had no intention of putting heirs in a Catch-22 situation. The company’s “transfer agent”--a go-between that helps the fund company administer customer accounts--was simply being cautious and following securities distribution procedures to the letter, a company spokesman said. After hearing of Friedman’s six-week effort to liquidate his mother’s account, the company promptly agreed to pay off.

“We are going to redeem this account today and take any risk associated with not having a certified copy of the trust agreement,” said Jeff Beale, vice president of operations at Eaton Vance Management in Boston. Beale also promised to review the company’s policies to determine if they’re too severe.

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Kathy M. Kristof welcomes your comments and suggestions for columns but regrets that she cannot respond individually to letters and phone calls. Write to Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or send a message to Kathy.Kristof@latimes.com on the Internet.