The Gertsburg Law Firm recently obtained partial summary judgment against a Trustee of an irrevocable family trust in Summit County, Ohio. The case is a powerful cautionary tale about Trustee recklessness and what can happen if a Trustee fails to understand the terms of the Trust they are managing.
Mismanagement, poor accounting, and tight lips
A Trustee had control of a family trust. Over the course of managing the trust, she never informed the beneficiaries of the existence of the trust, never provided any accounting, and spent roughly $250,000.00 in trust money on items expressly prohibited by the terms of the trust (mostly to pay the expenses of the settlor, but she also bought a car for the trust and then transferred it to herself).
We asserted that the Trustee had breached her fiduciary duty to the Trust. To prove that, we had to show that there was a fiduciary duty, a breach of that duty, and injury proximately caused by the breach, and prove all of it by clear and convincing evidence.[i]
We could show this by showing that the Trustee violated certain statutory codes.[ii] The Trust code requires that the Trustee administer the Trust “solely in the interest of the beneficiaries.”[iii] This can include a serious breach, wherein the Trustee fails to keep beneficiaries reasonably informed or refuses to comply with information requests because failure of these duties may make it impossible for beneficiaries to protect their interest, and may mask violations that are more serious.[iv]
The court found that the Trustee had been grossly negligent and committed a serious breach of Trust.
No fees for you
This puts the Trustee’s major incentive to perform their duties, the fees they are entitled to under the Trust, on the line. A court can deny fiduciary fees where there is evidence of mismanagement, poor decision-making, deception, and self-dealing.[v] They can also reduce or eliminate fees when fees are taken out prematurely.[vi] A Trustee can also have their fees waived when they transfer money in violation of the terms of the estate planning document.[vii]
What’s the takeaway here? There are real and actual consequences for Trustees who fail to abide by their statutory and common-law duties. Notwithstanding that they could be removed, they could also have their Trustee fees reduced or removed. Firms like the Gertsburg Law Firm can and will take these fiduciaries to task for their failures to abide by their obligations.
If you are the fiduciary, please take the time to get some guidance on your actual responsibilities, or, at the very least (which this Trustee did not do), actually read the Trust document.
Alex Gertsburg is a managing partner at Gertsburg Licata. He may be reached at (216) 573-6000 or at [email protected].
Gertsburg Licata is a full-service, strategic growth firm, specializing in business law, M&A advisory and executive talent solutions for entrepreneurs and executives of start-up and middle-market enterprises. Contact us today to discuss how we can help you secure your next competitive advantage. We are also home to CoverMySix®, our unique, anti-litigation audit service for middle-market companies.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.
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[i] Strock v. Pressnell 38 Ohio St.3d 207, 216 (1998); Newcomer v. Natl. City Bank 19 N.E.3rd. 492, 2014 Ohio 3619.
[ii] R.C. 5808.01.
[iii] R.C. 5808.02(A).
[iv] See Official Comment to R.C. 5807.06.
[v] Whitaker v. Estate of Whitaker (1995), 105 Ohio App3d 46, 663 N.E.2d 681.
[vi] Estate of Gabriel (Dec. 19, 1997), 11th Dist. No. 950L0178.
[vii] In re Estate of Veroni (Dec. 31, 1999) 11th Dist. No. 98-L-024.
