Fiduciary Duty of Trustee to Beneficiary
Be Objective: Your Feelings Don’t Matter.
In reading, and understanding the trust terms, the trustee needs to be guided by the grantor’s intent, and certainly not the trustee’s personal feelings, opinions, or attitudes.
In our example, it does not matter whether the trustee has never, personally, owned a $50,000 luxury automobile, or whether the trustee would not spend $50,000 of the trustee’s own money for a luxury automobile. Rather, the sole focus for the trustee is: would the grantor want the surviving spouse to have a $50,000 luxury automobile? The trustee needs to exercise sound judgment. Your trouble begins when you insert your personal feelings or beliefs in place of objective analysis.
But the truth of the matter is, that time and time again, we revert to the trust document itself to see if it addresses issues, which arise during the course of administration. Read it. Understand it. Re-read it. If you don’t understand it, hire a seasoned trust attorney.
Even non-trust attorneys seek the assistance of an experienced trust attorney. Trustees are permitted to retain an attorney, which may act as trust counsel and advise the trustee on all issues regarding the trust. The trustee is entitled to compensate trust counsel a reasonable amount from the assets of the trust. The trustee is not required to pay trust counsel from the trustee’s own pocket or from personal funds.
A trustee must follow the terms of the trust in good faith, and in a reasonable manner – at all times in an effort to effectuate the grantor’s intent for the benefit of the beneficiaries.
Ignorance is no defense to wrongful or neglectful acts by a trustee. Failure to read a trust or to understand its terms, is no excuse. If you are questioned about your actions or inactions, your failure to read the trust terms or to understand them will not get you off the hook, but will probably get you removed as trustee.
While failure to read a trust or to understand its terms is not excusable, failure in the application of the trust terms is likewise wrongful. Trustees are not only required to read and comprehend and understand the terms of the trust, but they are also required – indeed they promise – to carry out the terms of the trust.
The trustee should carry out the terms of the trust in a reason able manner. Knee-jerk reaction or lightning speed are not expected, but neither is unreasonable delay. No feet dragging. When the trust’s language is clear and unambiguous, there is little or no excuse for failing to comply with those terms within a reasonable time frame.
What’s a reasonable time frame? Use common sense. It should not take you a week to get a copy of the trust document or an investment statement to a beneficiary who requests that information. But a beneficiary should understand that a request for information on a Friday at 4:00 pm might not be responded to until the following Monday or Tuesday.
Grandmother takes over as the trustee of a trust which holds marketable securities and a condominium for her Daughter. Grandmother correctly re-titles the securities in the name of the trust and invests them. However, she refuses to transfer the condo to Daughter, which the trust document clearly requires. To the contrary, Grandmother permits her brother to use the condominium from time to time and does not distribute the condo to her daughter, not due to any administrative issue, but rather because they have grown estranged over the recent past. Grandmother, as trustee, does not inform Daughter of the existence of the trust nor does she provide her with copy of the trust until Daughter’s attorney reads a copy of the trust.
Issue: Is there trustee liability for Grandmother?
Answer: Yes. The trustee’s failure to distribute the condo to Daughter is a willful violation of the clear language of the trust. It is a breach of her fiduciary duty in the most simple of terms. It is grounds for her immediate removal as trustee and will likely subject her to a civil lawsuit and damages, which in the trust context may sometimes be referred to as a surcharge, or a fine against a trustee.
This condo example may seem basic, or a “no-brainer”, but it happens all the time. This happened because of the poor personal relationship, or bad feelings, between Grandmother and Daughter.
Compare this latest condominium example to the prior example of a discretionary distribution request for a $50,000 luxury automobile. In the condominium example, the trustee was being vindictive and unreasonable, in clear violation of the plain language of the trust document. A bad trustee. She was supposed to distribute the condo and she purposely – intentionally – failed to do so. That’s a clear cut case of the trustee breaching her fiduciary duty. But when a trustee attempts to follow the trust document in good faith, by, for example, considering a discretionary distribution request, for, say, a car, a trustee’s potential liability is slightly different.
A trustee will not necessarily be subject to surcharge or damages if their analysis of the discretionary distribution request was analytical, reasonable, and in line with the grantor’s intent as expressed in the language of the trust. In other words, if the trustee denied the request for $50,000 for a luxury automobile based upon a reasoned analysis, and not out of spite, vindictiveness or disharmony with the beneficiary, there is no liability. There’s a difference between a bad trustee and one who might be viewed as a poor trustee.
The trustee shall have absolute and unfettered discretion to invest or reinvest the trust property as it sees fit from time to time, including the selection of any and all investments.