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All that glitters: beware trustee's fiduciary duty.

Byline: Alexander A. Bove Jr. and Melissa Langa

Some trust and estate lawyers are pleased when they are named trustee of a large trust. After all, trustees are entitled to a fee, typically based on the amount of assets in the trust, and on balance it is a fairly easy job or is it?

Those of us who regularly deal in such matters wouldn't be so quick to agree. When someone accepts the job of trustee, she accepts all the duties and responsibilities that go with it, including possible exposure to personal liability, and the task of dealing with difficult beneficiaries and difficult assets, for example.

What are difficult assets? Take the following hypothetical case:

Arthur Attorney accepted the appointment as successor trustee of an irrevocable trust settled years ago that contained about $500,000 of investments and two parcels of land.

One of the parcels is under agreement to be sold, but the other parcel has been neglected for many years, contains a badly dilapidated vacant home that is likely to be condemned by the town, and because of certain restrictions and the condition of the property, is basically unsaleable.

Meanwhile, Arthur, as trustee, must pay the taxes and concern himself with a claim filed against him for injuries sustained by a young boy who was injured while climbing the broken stairs of the dilapidated house.

Arthur was forced to hire defense counsel at the expense of the trust, and also a lawyer friend as counsel for the trust. The friend raised the question of whether Arthur might be personally liable for allowing the house to remain in disrepair or failure to board it up to avoid such accidents. In any event, the property is of no value to the trust or to the beneficiaries and is nothing but a liability.

In considering the matter, Arthur concluded the easiest route would be simply to get rid of the property, and he thought perhaps he could just distribute it to one of the beneficiaries. So he prepared a deed to that effect, but the beneficiary refused to accept it.

Arthur thought, "Can a trust beneficiary reject a trust distribution that the trustee had authority to make? What if I just went ahead and recorded the deed?"

Arthur's attorney strongly advised against that strategy, as mere recording of a deed is not "acceptance" under Massachusetts law, so title would remain with the trustee.

The attorney suggested it would likely lead to more trouble and expense and that the expense might be charged to Arthur, personally, since the beneficiary's declared intention to reject the property, by its very nature, might suggest the distribution is against the beneficiary's best interest a breach of a fundamental fiduciary duty.

Further, on the other side of that coin, the attorney observed that the refusal to accept a trust distribution could be a nonqualified disclaimer by the beneficiary and, if so, would have tax consequences for the beneficiary.

Arthur thought, worriedly, "Do I have the duty to advise the beneficiary of the tax consequences?"

In any event, Arthur still had the problem of the unwanted property. Maybe he could simply give it to a charity?

"Two problems with that idea," said his attorney. For one, the trust does not provide for charitable distributions. The second is that no charity would accept it, as it is unsaleable.

"Maybe I could give it to the town? Arthur replied.

"That may be a more reasonable plan," his attorney said, "but again, the trust does not specifically permit it."

Arthur would at least have to obtain the consent of all the beneficiaries, and his attorney also suggested that Arthur get the approval of the court, so that he isn't exposed to personal liability. That means, his attorney explained, that after Arthur gets the town and the beneficiaries to accept the idea, he would be required to prepare a petition to the court and appear in court to explain the situation.

Again, Arthur thought to himself, "What's this all about? I thought I would just be sending checks to beneficiaries and collecting a modest fee!"

"Well, at least the other parcel of property will pose no problem," he thought, "as it is under agreement to sell."

But wait. Arthur just received a letter from the buyer's attorney saying that the inspection turned up some signs of contamination on the property, and not only is the sale now cancelled, but the contamination must be reported to the EPA.

At that news, Arthur's attorney pondered out loud: "Arthur, I think this could expose you to personal liability if you don't remove the contamination."

Whereupon Arthur picked up his briefcase and left.

Coincidentally, you see in your mail today that Arthur has just written, asking if you would like to replace him as trustee. This may be your big chance.

Alexander A. Bove Jr. and Melissa Langa are shareholders at Bove & Langa in Boston, where they concentrate in domestic and international trust and estate law.

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Author:Bove, Alexander A., Jr.; Langa, Melissa
Publication:Massachusetts Lawyers Weekly
Date:May 10, 2019
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