Trustee Duty of Loyalty

Trustee Duty Of Loyalty

Nagging Beneficiaries

You will no doubt encounter know-it-all beneficiaries who believe they understand and know how to administer the trust and its assets in different and better ways than you can. Likewise, you’ll have beneficiaries who are nagging and constantly bar raging the trustee with inquiry after inquiry that soon pass the point of polite relevance. Dealing with such beneficiaries and inquiries is part of the trustee’s job and how to handle those are best left to a trustee, and their counsel, on an individual and case-by-case basis.

To be clear: the inquiries of the beneficiary need to be professionally and politely met with a response in a timely manner.

Dealing with nagging beneficiaries is part of your job.

If you don’t like dealing with them, there is a remedy for you: resign.

Just because a beneficiary may be overly inquisitive or constantly sending emails to you does not mean that you owe them any less of a duty.

Your job is to serve.

The law does not impose a different standard on trustees for those beneficiaries who you believe are taking up too much of your time. If you truly believe that a beneficiary is taking up an undue amount of your time, you might speak to your trust counsel about altering your compensation so that you are paid, at least in part, for the time that you spend communicating to the beneficiaries. This would, however, require you to keep detailed time records and to track with accuracy the amount of time and dates which you spend communicating with particular beneficiaries.

Best Practices

Experienced trustees will provide written responses to beneficiary inquiries and retain copies of all communications and documents and other information, which are provided to beneficiaries. Consider summarizing the substance of telephone calls and communications with beneficiaries so that there is a clear written record of what was discussed. This will also provide the beneficiary with an opportunity to correct your recollection or understanding if they believe it to be inaccurate. Other than perfect recollection or memory, which is rare, nothing is more accurate than, and certainly courts give great credence to, contemporaneous writings, which memorialize conversations. So, write it down – when the conversation is present and fresh in your memory.

In today’s society, communications via US mail are no longer necessary except perhaps to obtain a return receipt. Email communications are satisfactory and are indeed the norm now. Faxes have become virtually obsolete. But be sensitive to particular requirements in the jurisdiction, which governs the administration of the trust. There may be specific requirements for the dissemination of trust information by return receipt, personal delivery, or the use of commercial delivery service.

Fraud

This is important. Failure to disclose may be a form of fraud. There are many types of fraud in the law. Fraud is not limited to stealing or running a Ponzi scheme. Fraud includes:

Failure to disclose information when you have a duty to do so . Hiding the ball . Mis-stating facts, or being misleading . Providing only partial facts, or telling half-truths

Don’t open yourself up to a lawsuit for breach of trust, or fraud, because you are not disclosing.

Example:

Let’s say a trustee discloses that the trust paid $100,000 as a brokerage fee for the sale of real estate. In truth, the real estate broker was a friend of the trustee who kicked back $80,000 to the trustee under the table. The kickback is not disclosed to the beneficiaries. Five years later, the trustee is replaced with a bank or corporate institution. The prior trustee is released and discharged from liability by all the beneficiaries. Two years after the corporate trustee takes over, it, for the first time, discovers the $80,000 kickback from the real estate broker to the trustee which occurred seven years ago. In other words, two years into the corporate trustee’s tenure was the first opportunity for the corporate trustee to know of the fraud. The corporate trustee, seven years after the fraud, may be permitted to seek damages against the prior trustee.

Disclosure May Mean More Than You Think

At first glance, one might believe that the duty of disclosure is a no-brainer.

I can’t tell you how many times individual trustees tell me that they didn’t know:

They were supposed to disclose something. They did not know the beneficiary was entitled to certain information . They didn’t think disclosure pertained to certain information or a particular transaction.

Non-disclosure is a common and recurring problem for many individual trustees. Whether due to impatience, or perhaps lack of attention, many fail to disclose. Some may not want to deal with, or hire, an attorney. Whatever the reason, non-disclosure has to stop. No hiding the ball. And remember: if you start to get “sneaky” and purposely don’t disclose something, or tell only half the story, or don’t disclose something entirely accurately, that’s bad: really bad. As you just read, that can be fraud.

I, personally, have always viewed the role of a trustee as a role that is important, honorable and noble. Somebody, either the grantor, beneficiaries, or a court of law, has asked you to serve in this fiduciary role. You’ve been reposed with great trust and confidence, and in some cases, it is no exaggeration to say that the finances and fortunes of some beneficiaries lie in your hands. It is an awesome responsibility. Although you should certainly be entitled to a certain amount of respect and deference, you should also be humbled by this role and understand your duties and those you serve. Control freaks need not apply. For those with attitudes and an unrealistic sense of self-worth: ditch the attitude.

Minor Beneficiaries

If a beneficiary is a minor, you should provide notice and accountings and relevant information to parents. If there are no parents, provide the information to the legal (court appointed) guardian. If there is no court appointed guardian, you need to get one so that someone may protect the minor’s rights.

Once the minor beneficiary attains majority, you should no longer share that beneficiary’s information with their parents unless you are instructed to by the beneficiary. Check the trust’s governing laws to know whether majority is age 18 or 21. You are required to provide information and to account to the beneficiary who is now an adult – responsibility whether you believe that beneficiary may be irresponsible. Ignore the demands from parents who don’t want you to send trust information to the beneficiary.

You will, no doubt, be implored, pleaded with, and even threatened by persons who don’t want a young beneficiary to learn of his or her trust. They will argue that it is in the beneficiary’s best interests not to inform them of the trust or the value of the assets. You should be listening to your trust counsel, and not pleads from third parties who are strangers to the trust. In truth the decision of who receives trust information has already been made. The grantor made the decision, when he or she created the trust, which may have provisions for providing information and accountings. The legislature or the courts instruct you on whom you must provide information to.