Successor Fiduciary Liability: When the Follower Must Be the Leader
By Patricia L. Davidson, Mirick, O’Connell, DeMallie & Lougee, LLP
Serving as a trustee often epitomises the phrase “no good deed goes unpunished”. A successor trustee often has additional punishment . . . er . . . responsibilities.
A successor trustee must administer a trust in the interests of the beneficiaries. The successor does not owe a fiduciary duty to the predecessor. On the contrary, a successor may need to bring claims against the predecessor for breach of duty, such as self-dealing, improper expenditures, misuse of trust assets, or poor investment decisions.
Successor trustees can be liable for breach of fiduciary duty if they fail to rectify wrongdoing. The successor should thus inspect real estate, tax returns, and all asset account statements to ascertain whether the predecessor managed assets prudently.
Preparation of an account is an important obligation of a trustee. Accounts require transparency and oblige trustees to maintain accurate records and make prudent decisions. If an account is allowed by a court, beneficiaries usually can no longer object to the trustee’s financial decisions. If a successor discovers fraud, mistake, or “manifest error” in the predecessor’s account, and does not move to reopen the accounts, the successor could be liable for losses.
Scrutiny of a predecessor’s actions requires analysis of the predecessor’s process as much as performance. Did the predecessor make reasoned decisions based on available information? Did the predecessor rely on advice from legal, financial, or real estate experts? Did the trust impose any limitations that constrained decision making? Were the trustee’s actions in accordance with sound financial and business principles, even if in hindsight the actions were imprudent?
Ultimately, the key question is whether the trustee abused his or her discretion. A successor and a court should not substitute their judgment when evaluating the decisions of a prior trustee, but instead should assess whether the trustee’s actions were reasonable.
Patricia L. DavidsonGGI member firm
Mirick, O’Connell, DeMallie & Lougee, LLP
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Mirick O’Connell is a full-service business law firm with offices in Worcester, Westborough, and Boston, Massachusetts, USA. Excellence in work. Excellence in client service. Excellence in value.
Patricia L. Davidson is a partner in the Probate, Trust and Fiduciary Litigation Group and the Business and General Litigation Group. Her practice focuses on helping families resolve issues involving wills, trusts, and real estate, as well as disputes involving family and closely held businesses.
Published: Trust & Estate Planning Newsletter, No. 04, Autumn 2019 l Photo: SeanPavonePhoto - stock.adobe.com