THE FIGHT FOR YOUR WEALTH: FAMILY TRUSTEE VS. NON-FAMILY TRUSTEE: WHEN CO-TRUSTEES ARE SUED

Some family trusts have multiple trustees. Some trustees are put there because of their experience and breadth of knowledge, like the smaller, upscale trust companies that cater to the ultra-high net worth set. Why not have a pro-a corporate trustee — after all? Well, that makes sense. But what about those other, individual, co-trustees?

Other, individual, trustees may be long time family advisors such as trust attorneys or CPAs or financial officers of a client’s business. Senior family members, those that created the wealth, often feel comfortable with advisors. They trust them and seek and appreciate their counsel.

Some trustees are family members. A son, daughter, or grandchild, who may be there for no other good reason that the grantor/creator of the trust loved him or her. Regardless, in some instances, co trustees can disagree.

What happens when things go wrong: really wrong? Say some second or third generation beneficiaries are disgruntled with the operation of the trust. One generation sues the trustees. The game is afoot. What to do?

First, without sounding like you have to employ dozens of lawyers, each trustee needs to consider whether they need their own, individual counsel. Family member trustees, the individual trustees, may have a different interest than the corporate trustee (the trust company.) Within, or among, the individual trustees, like family members and also family advisors (non family members), there may be different agendas and different levels of blame.

Trustees of large, family trusts with hundreds of millions of dollars may have certain functions delegated to or among the various trustees. Administration and accounting may be delegated to the trust company. Investments may be the purview of the trust company and one or two other co trustees, to whom investment authority has been delegated by the other co trustees. Additionally, the trustees, who typically vote or rule by majority, may have taken a position or made a decision which was voted against by some of the co-trustees. Those co-trustees may be getting sued for an action by the majority of the co trustees that they did not agree with.

Here are some basic rules or things to consider if you have beneficiaries suing a bunch of co trustees.

• Does each trustee need their own counsel?
• Did any of the co-trustees vote against actions approved by the other co trustees which now serve as the basis for the lawsuit?
• Did the dissenting co trustees register their dissent in writing? This is very important since objections or dissents which are stated in writing may alleviate or relieve liability for the dissenting trustee.
• If one attorney or law firm was representing all the co trustees, does this make sense? Can one co trustee (e.g. a family member who happens to be a co trustee), obtain certain communications with the “bad” or “wrong” co trustee and others? Or are those communications somehow privileged?

Lots to think about if multiple co trustees get sued. The bottom line is, whether you decide to hire your own counsel who represents you, the cotrustee and only you, at least spend a few of your dollars (not the trust’s dollars) to speak to an experienced trust litigator. Get some objective advice from someone who does this all the time and is familiar with issues of privilege, fiduciary duties, and evidenciary rules.