Massachusetts statutes guide the responsibilities and expectations of a trustee as well as the parts of the process the trustee must use for distribution. A trustee has broad powers over the administration of an estate. If the trustee mishandles her or his duties, the beneficiaries can be shortchanged. A recent Massachusetts estate planning decision (16-P-1314) deals with a depleted trust account, reviewing when a trustee commits a breach of trust, how much discretion they have, the compensation they are entitled to receive, and how and when they should be removed.
In this case, the father of both the plaintiff and one of the defendants in the lawsuit was the settlor of the trust, executed in February 1999. His estate was divided into four equal shares, with one share distributed through a separate trust to the plaintiff daughter and two of her three children. The rest of the shares were to be distributed to the remaining beneficiaries “free of all trusts.” The trustees administered those assets after the settlor’s death in 2001, leaving the daughter and her designated children as the sole remaining beneficiaries by 2008. However, no distributions were made to the plaintiff or her children until ordered by the judge in 2016. In the interim, the trustees used assets designated to the plaintiffs to pay the storage fees for items belonging to the plaintiff daughter found in the settlor’s home. The plaintiff daughter was made aware that her items were in a storage facility and that it was her responsibility to move them, but the trustee refused to give her the address of the storage facility.
Nothing further was said of the property until 2008, when the same trustee sent a letter advising she could not “cherry pick” and must accept the items altogether. Once more, the trustee refused to give her the location of the storage unit. Two similar letters were sent out after this, but nothing was addressed until the daughter filed the underlying case in 2013. By then, $50,000 of the assets out of the plaintiffs’ trust had been used to pay the storage fee over the 15-year span. Trust assets were also used to pay trustees’ fees, attorneys’ fees, and litigation expenses. The balance of the trust was reduced from $542,042 to $463,719, absent any actual distribution by the time the lawsuit was filed. During the litigation, the defendants continued to use the trust’s assets, reducing the assets to $250,000.
The appellate court reviewed the duties of a trustee. A trustee must act as a prudent person would – considering the purposes, terms, and circumstances of the trust. To achieve this, the trustee must use reasonable care, caution, and skill, and they must administer the assets solely in the interests of the beneficiaries. A violation of this is a breach of trust. The trial court determined the trustees committed a breach of the plaintiffs’ trust, and the Appeals Court agreed. In the initial communication, the trustee relayed the storage fees would not be paid “for much longer,” yet they continued to pay them for several years without authorization from the daughter. The defendants committed a breach of trust by refusing to tell her the location and hiding the accounts for much of the time between the death of the settlor and when the action was heard.
The appellate court upheld the trial court’s determination that the defendants imprudently wasted trust assets. Both courts found the beneficial interest was reduced by at least 10% by their actions, and this fell outside a trustee’s discretionary power to manage the trust allowed by the law. Trust assets must be distributed in accordance with fiduciary standards and with a reasonable regard for the usual fiduciary principles. A trustee cannot use this discretion to shift the beneficial interest in the trust. The appellate court also noted that a trust clause cannot relieve trustees of liability through the language of the contract. Massachusetts case law has defined a willful default to include acts committed with reckless indifference to the interest of the beneficiary.
The Appeals Court upheld the lower court’s removal of the defendant trustees, but it remanded for new successor trustees to be named. The proposed successor trustees were beneficiaries, and therefore they could not perform the work out of disinterest, as the law requires. While the defendants were still held liable for their breach of trust, the case was remanded to the lower court for the much narrower issue of appointing new successor trustees.
If you have questions regarding a trust account, the Massachusetts estate planning attorneys at Karsner & Meehan are available for a free, confidential consultation. Call today at 508.822.6600.
More Blog Posts:
Massachusetts Workers’ Compensation Reviewing Board Looks at Mental Health Benefits, December 30, 2016, Massachusetts Injury Lawyers Blog
Massachusetts Appeals Court Finds Son Cannot Receive Underinsured Motorist Benefits From Mother’s Policy, December 20, 2016, Massachusetts Injury Lawyers Blog
Federal Circuit Court of Appeals Case Gives Insight on Social Security Disability Determinations, November 18, 2016, Massachusetts Injury Lawyers Blog