Accepting an appointment as trustee over an individual’s trust is accepting great responsibility and the possibility that your actions may be reviewed and criticized one day. Consider the following example:
In a recent case cited by the State of Washington, a corporate trustee who was appointed for a person’s trust was questioned relative to the appropriate investments made over a course of time. The beneficiary was a disabled individual who suffered brain damage at 13-years-old, and funds of approximately $940,000.00 together with an annuity were deposited into the trust.
Many years later, the market value of the account dropped approximately 12%, and the Guardian Ad Litem, (a person engaged by the Court to review the entire matter,) recommended to the Court that the “prudent investment rule” had been adhered to by the corporate Trustee as well as appropriate payment of the trustee’s fees, which were consistent with the fee schedule implemented at the time that the trust was established.
The trial court approved the account, but ordered a further order that the trustee should present a plan to the court to transfer a portion of the assets to an insured deposit, as well as establish fees and costs of the trust at a future hearing at the Court. The corporate trustee requested that the court approve the request of the Guardian Ad Litem.
Upon appeal to the higher court, it was determined that the trial court lacked any authority to order the trustee to allocate the trust investments, where the trust agreement required the trustee to submit accountings to the court for “review and approval.” The trial court also did not find that the trustee breached any fiduciary duty, as there was no evidence that a breach occurred.
The appeals court recognized that the trial court’s concerns were understandable, but the trial court did not have the authority to allocate assets within the trust in the absence of a breach of fiduciary duty or abuse of discretion, both of which were not found by the court. Therefore, the court of appeals vacated both of the trial court’s orders and mandated the case to the trial court to determine the appropriate trustee’s fees.
The moral of the story is that you should carefully consider your responsibility and the potential negative consequences before agreeing to act as a trustee, as there is always a possibility that a beneficiary or contingent beneficiary will review the matter and question the results of the your investments, your fees, or potentially the distributions that you make or lack thereof.
It is important to note, however, that before bringing an action for any breach of trustee’s duties, one must be sure that there is proper evidence to conclusively establish that the trustee was wrong in whatever is being claimed, as there is always the possibility that fees may be assessed toward the moving party if the trustee is found not to be in error.
Hyman G. Darling, Esq.
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