Trustee Risk Scenarios
Below is an assortment of hypothetical—yet all too plausible—scenarios that can result in corresponding financial and legal exposure for trusts and Trustees alike. These are examples of where the Private Trust Consortium liability coverage through Chubb protects its members and private trusts against corresponding loss.
Investment Advisor Misalignment
The assets of a trust were managed by an investment advisor. Both the investment advisor and the trustee were sued by the beneficiaries when the trust’s assets declined substantially because of decisions made by the trust’s investment advisor. The trustee was sued for failure to properly select and supervise the investment advisor and for failure to ensure that the assets were invested in accordance with the trust’s objectives.
Property Value Dispute
A deceased person’s will appointed a trustee to oversee the trust created by the deceased’s estate, which included three properties. The trustee liquidated the estate and distributed the proceeds in accordance with the will and trust. The beneficiaries brought suit, alleging that the trustee was negligent in obtaining a current, accurate assessment of the property values, resulting in a substantial loss to the estate.
Remainder beneficiaries sued the trustees of a remainder trust upon discovering a portion of the principal had been negligently distributed to the income beneficiary. Unfortunately, the error was not discovered until the income beneficiary passed away following many years of inappropriate disbursements. The remainder beneficiaries prevailed and were awarded the value of the disbursed principal, plus interest and attorney fees.
Grandparents established a trust solely to pay tuition, supplies, and room and board for their grandchild, with the residual balance to be distributed to the child at age 25. Upon reaching such age, the beneficiary discovered that while all disbursed funds had been used for her benefit, several expenditures were not used to fund her education and significantly diminished the residual value. The trustee, the father of the beneficiary, was sued for breach of duty. The court subsequently ordered him to reimburse all unauthorized expenditures as well as attorney’s fees the trust incurred defending the trustee.
We’ll Always Have Paris
An ounce of prevention can be worth a pound of cure. A young couple prepared a trust. Unfortunately, they were killed shortly thereafter, and the wife’s brother became the trustee. The trust stated that the assets were to be used for the “health, education, maintenance and support” of their daughter until she attained the age of 25. When the daughter turned 18, she asked her uncle to distribute sufficient money to go to Paris with her boyfriend to study art. The uncle did not approve of this arrangement. He consulted with independent counsel. The attorney recommended that he file a petition with the appropriate court. After considering the matter, the court entered an order approving the distributions with certain guidelines and approved the trustee’s request that he be reimbursed his costs and attorneys’ fees by the trust. If the trustee had denied the request and his niece sued him, this would have turned out differently.