The Missouri Court of Appeals recently issued an opinion involving the liability of a Trust Protector for not exercising his powers to remove and replace the Trustees of a supplemental needs trust.

In the trust at issue in Robert T. McLean Irrevocable Trust v. Ponder, 2013 WL 5761058, the Trust Protector, Ponder, was granted the power to (1) remove Trustees, (2) appoint successor Trustees and Trust Protectors, and (3) resign as Trust Protector.

The terms of the trust provided that the Trust Protector was to act in a "fiduciary capacity" and was not to be liable for any actions taken "in good faith." There was no indemnification provision, but the Trust Protector had no power or duty to supervise the Trustees.

From 1999 through Ponder's resignation in 2002, the assets of the trust were substantially depleted by the Trustees. The beneficiary's mother, who was appointed a successor Trustee in 2002, brought suit against Ponder, claiming he had acted in bad faith as Trust Protector by failing to monitor the Trustees and by not replacing the Trustees when notified of their alleged misuse of trust funds. The trial court granted Ponder's motion for a directed verdict, which the beneficiary's mother appealed to the Missouri Court of Appeals.

The Court of Appeals concluded that the complaint failed to state a valid claim of action, since the plaintiff provided insufficient evidence of the cause of the reduction in the trust corpus. A decrease in trust assets, by itself, is insufficient grounds for a complaint, absent an attendant assertion of a verifiable harm (such as evidence that trust distributions were impermissible under the terms of the trust agreement, or that distributions were made in violation of the Trustees' fiduciary duty).

The Court of Appeals also noted that the greatest decrease in the corpus of the trust occurred before Ponder was informed by the beneficiary and his attorney that they believed the Trustees were inappropriately spending trust funds. Accordingly, the court concluded that Ponder could not be held accountable for any damage which occurred before that date of which he was unaware.

Because the directed verdict was necessitated by the deficiencies of the plaintiff's assertions, the court did not engage in any detailed analysis of the liability or role of Trust Protectors under Missouri law.  However, the case is a reminder of the perils of serving as a trust fiduciary in any capacity. Because the trust had no indemnification provision and no provision requiring the trust to pay for the defense of the fiduciaries, Ponder likely had to pay for his defense out of his own pocket. Since it is common practice to impose a fiduciary duty on a Trust Protector (albeit a limited one), it is crucial to provide such a provision if the Settlor intends for the Trust Protector to be as protected as possible from future claims.