Similarly, in In re Trust Fund Created Under Terms of Last Will and Testament of Baumgart, 868 N.W.2d 568 (S. D. 2015), the court refused to remove a trustee who allegedly committed breach of the trust by leasing land at below market rates to a relative by marriage, delaying in responding to requests for information, missing tax payments, failing to provide full liability insurance for trust property, and suffering from a conflict of interest. Finding that these alleged breaches were not individually or cumulatively serious, the court refused to remove the trustee.
Exculpatory Clauses
On the related question of exculpatory clauses, in 2015, courts found creative ways to hold misbehaving trustees liable for their wrongdoing, notwithstanding the existence of exculpatory provisions that excused all liability but gross negligence or willful misconduct.
For example, In Mennen v. Wilmington Trust, C.A. No. 8432-ML, 2015 WL 1914599 (Del. Ch. Apr. 24, 2015) (adopted by the trial court in, No. 8432, 2015 WL 4935373 (Del. Ch. Aug. 18, 2015), the court found that an exculpatory clause did not apply to the actions of a trustee who, in a failed effort to demonstrate his own investment acumen, reduced the trust corpus from more than $100 million to $25 million over a 20-year period. The trust instrument gave the trustee broad powers to manage the trust’s investments and an exculpatory clause excused all liability except that resulting from willful misconduct. In his lengthy report, the special master carefully reviewed each of the questioned investments made by the trustee and found that his conduct with regard to some, but not all, constituted willful misconduct. In so doing, the special master employed an unconventional definition of willful misconduct—that the trustee had ignored the best interests of the beneficiaries and instead championed companies he had endorsed to prove to his family and associates that he actually possessed some specialized knowledge and ability to identify and advise privately held companies.
In Chang v. Chang, GO48799, 2015 WL 5698025 (Cal. Ct. App. Sept. 29, 2015), the trust settlor appointed her physician son to be the trustee. In a series of actions both before and after his mother’s death, the trustee engaged in a broad range of self-dealing, to the detriment of his brother, who, along with himself, was a beneficiary of the trust. The trial court removed the trustee, citing his “appalling lack of comprehension of [his] fiduciary responsibilities,” and “an appalling lack of recordkeeping,” but expressly declined to make a specific finding of bad faith. On appeal, the trustee sought reversal of the trial court’s judgment that he repay substantial funds to the trust, relying on the exculpatory clause, which excused personal liability for acts undertaken in good faith and rendering the trustee liable only for willful wrongdoing or gross negligence. Plainly believing the trustee’s conduct not to have been undertaken in good faith, but stuck with the record created by the trial court, the court of appeals held that by inference from the trial court’s rulings and statements, the trustee’s conduct was the equivalent of gross negligence.
Going one step further, the court of appeals noted that if there was ambiguity in the trial court’s ruling on gross negligence, it had been incumbent upon the trustee to request an express finding of his good faith from the trial court, and as he failed to do so, the court of appeals was free to apply the “doctrine of implied findings” and conclude that the trustee was grossly negligent.
Undue Influence and Tortious Interference with Expectation of Inheritance
In 2015, disappointed beneficiaries continued to challenge the actions of family members by alleging undue influence and tortious interference with expectation of inheritance — a tort not yet widely recognized.