The successor trustee of a trust and the personal representative of an estate
are subject to a
variety of duties. The penalties for breaching a duty include having to pay for
any resulting damage to the trust (or estate), out of your own pocket. Personal
liability – even if you are not paid for your efforts – is one of the things
that go along with being a fiduciary.
While you may perceive that there is a low risk of getting sued, you must not
ignore the possibility. When you are acting as a fiduciary and are essentially
in control of someone else’s property or inheritance, you can easily become the
focus of others’ suspicion, frustration or anger.
Two things can help you avoid personal liability in connection with serving in a
First, keep good, well-organized records and thoroughly document all
transactions, including any reasons for making or not making distributions.
Second, understand the instructions contained in the trust, and obey them.
In doing those things, keep beneficiaries well informed of trust business and be
friendly and cooperative. People are relatively unlikely to take legal action
against someone who is considerate and communicates well, and with whom they
have a good relationship.
The Value of Proper Record-Keeping
If you are sued, having a carefully documented file is going to look far better
to a judge and jury than having a file that is in disarray. Similarly, a trustee
who seeks advice from experts is going to look better than one who “wings it.”
In other words, from day one you must prepare for a lawsuit. It has been said
that “if one wants peace, one should prepare for war.” A trustee who is fully
prepared for war, but not deliberately doing anything to start it, is far more
likely to avoid becoming a casualty.
Consider the dynamics of a lawsuit against a trustee. Judges and juries alike
tend to have more sympathy for the party that appears to be “right.” If you have
sloppy records (or have none), or if you have not sought help when you came up
against something beyond your expertise, or if you have not provided
beneficiaries with information that you should have, you will not be given the
benefit of any doubt.
Carrying Out the Intent of the Trust
Your second line of defense is your ability to show how you carried out the
intent of the trust. The better you do that, the more difficult it will be for a
beneficiary (or anyone else) to show that you did something wrong.
It may be tempting to take a shortcut to fix a problem or correct a poorly
worded document. That is not your job. Only a court of proper jurisdiction can
change a trust document, and even a court’s authority to do that is limited. Do
not take it upon yourself to deviate from what is written. The trust instrument
is the best expression of the trustmaker’s intent. That expressed intent may be
your best defense. You may not add to or subtract from the words of the
document. You cannot be selective in carrying out various parts of the document.
Consult your legal counsel if there is ever any question as to the correct
interpretation of the trust instrument.
It is common for the lawyer who drafted the trust instrument to represent
successor trustees, but there is no rule that says the successor trustees are
stuck with the drafting attorney. You have a duty to seek competent legal
counsel, and you will need to assess whether that is a role that the drafting
attorney can fill. Even if the drafting attorney is competent and highly
regarded, you may not feel at ease communicating with him or her. When you
choose your legal counsel, you should give some consideration to how comfortable
you feel with that person. Your attorney should inspire trust and confidence and
should be someone with whom you can be completely frank and honest.
If you ever wish to stop serving as trustee, you can resign, but your job (and
the attendant duties and potential liability) does not end until a replacement
trustee steps into your shoes and all of the trust assets are transferred to
your replacement. Remember that, once you accept the job of Trustee, you cannot
get out of a lawsuit merely by resigning.
In discussing matters of personal liability, it is not this article’s purpose to
scare you out of acting in a fiduciary capacity. You have been named to serve
because someone close to you has a great deal of respect for you and trusts your
judgment and integrity. We offer this discussion to help you anticipate problems before they occur and
to give you a few relatively simple pointers on how to make the process go