Trustee entitled to compensation notwithstanding negligent breaches of duty.
A father created a trust for the benefit of two brothers and their step-brother with the step-brother named as trustee. The step-brother, as trustee, borrowed money from the trust and did not pay interest on the loans, failed to file income tax returns for several years, made an imprudent investment in his employer’s notes receivable, failed to create three separate trusts as provided in the trust declaration, comingled trust assets, and borrowed funds from a trust account with a negative balance.
The two brothers sued the trustee in the Norfolk Circuit Court for breach of fiduciary duty and seeking an accounting, damages, and other relief. The trustee sought collection of his trustee’s fees. The circuit court ruled that the trustee was entitled to reasonable compensation, less payments to the trust for certain costs associated with his breaches of trust. While noting that a trustee who commits breaches of trust may forfeit his right to receive compensation, the circuit court held that because the breaches were merely negligent and not in bad faith, the trustee was entitled to reasonable compensation. However, the circuit court required the trustee to pay back into the trust certain charges, including interest on borrowed funds and funds that were comingled with his personal bank account, as well as refunding the trust account for interest charges resulting from his borrowing of funds from the account with a negative balance. These payments were subtracted from the compensation amounts to which the trustee was entitled.