Schwartz v. Wellin, 2014 U.S. Dist. LEXIS 53083 (D. S.C. 2014) Trust Protector Not an Interested Party in Lawsuit. Facts: Keith Wellin created an irrevocable trust under South Dakota law for the benefit of his three children and designated Lester Schwartz as the Trust Protector of the trust. Wellin granted the Trust Protector “the power to represent the Trust with respect to any litigation brought by or against the Trust if any Trustee is a party to such litigation” and “to prosecute or defend such litigation for the protection of Trust assets.” In 2013, the three children, serving as the sole trustees of the trust, liquidated the trust assets, including over $100 million of Berkshire Hathaway shares, and distributed the proceeds outright to the three children. The Trust Protector filed suit in the South Carolina probate court claiming the liquidation and termination of the trust was improper and frustrated the intent and purposes for which the trust was established. The Wellin children removed the case to federal district court and filed a motion to dismiss, claiming the Trust Protector was not a party in interest with the authority to bring suit on behalf of the trust. Law: A party in interest must have a real, material, or substantial interest in the subject matter of the suit. A party in interest must be able to show he personally suffered actual or threatened harm as a result of the putatively improper conduct of the defendant. The South Dakota Trust Code lists trustees, but not trust protectors, as real parties in interest in trust litigation matters. Holding: The Trust Protector was unable to demonstrate he personally suffered harm from the termination of the trust and accordingly the Court granted the Wellin children’s motion to dismiss the lawsuit. Practice Point: Trust protectors are being used with increased frequency in estate planning to monitor the conduct of trustees. The landscape for trust protectors is still being defined in jurisdictions across the country. Practitioners who frequently include trust protectors in trust agreements and fiduciaries who serve trusts with a trust protector must keep in mind that despite the broad authority often granted to trust protectors, courts may be inclined to limit the scope of the trust protector’s role where the trust protector does not have a direct stake in the result. In the Matter of the Estate of Darrell R. Schlicht, 2014 WL 1600914 (N. M. Ct. App. 2014) Under the Uniform Trust Code, a will may revoke a trust if the will substantially complies with a revocation method provided in the terms of the trust. Facts: The settlor executed a revocable trust agreement, which contained a provision whereby the settlor reserved the right at any time during his lifetime to revoke or terminate the agreement by “a duly executed instrument to that effect, signed by the settlor and delivered to the trustee.” Nearly 20 years later, the settlor executed a will, which generally revoked all former wills, codicils and testamentary dispositions previously made by him and specifically revoked any trust provisions of the revocable trust agreement. The trustee named under the revocable trust agreement filed suit, contending that the will was not an effective revocation of the revocable trust agreement because the will did not become effective until the settlor’s death. The trustee argued that at the time the will was admitted to probate, the trust was irrevocable. Law: Under the Uniform Trust Code, a settlor may revoke or amend a revocable trust: (1) by substantial compliance with a method provided in the terms of the trust; or (2) if the terms of the trust do not provide a method or the method provided in the terms is not expressly made exclusive, by: (a) a later will or codicil that expressly refers to the trust or specifically devises property that would otherwise have passed according to the terms of the trust; or (b) any other method manifesting clear and convincing evidence of the settlor’s intent.Recent Cases of Interest to Fiduciaries | Page 3 Holding: The will effectively revoked the revocable trust because the revocation in the will substantially complied with the method provided in the terms of the trust and expressly referred to the revocable trust agreement. Moreover, in the will, the settlor specifically devised the property that otherwise would have passed according to the terms of the trust, and thereby manifested the settlor’s intent to revoke the trust. The court noted that had the settlor’s trust expressly limited the means of revocation or amendment to an inter vivos revocation, the trustee named under the revocable trust agreement would likely have prevailed in this matter under the theory that the settlor’s will did not become effective until the will was probated. Without such limited means of revocation in the trust agreement, however, the Uniform Trust Code acts to allow revocation by substantial compliance with the method provided in the terms of the trust agreement. Practice Point: Practitioners must carefully draft provisions that conflict with the state default rules applicable to trusts so that the settlor’s intention is carried out where it deviates from state default rules. Here, the drafter of the trust instrument could have eliminated the substantial compliance condition which would have resulted in a different outcome. Fulp v. Gilliland, 998 N.E.2d 204 (Ind. 2013) The Indiana Supreme Court holds that a settlor/trustee does not owe a fiduciary duty to remainder beneficiaries of the settlor’s revocable trust. Facts: Ruth and Harold Fulp Sr. lived on a family farm in Indiana, which Harold Sr. owned and worked. They raised three children on the farm, Harold Jr., Nancy, and Terry. Harold Jr. assisted his father with the farm work during Harold Sr.’s life then took over after Harold Sr.’s death. After Harold Sr.’s death, Ruth transferred the farm into her revocable trust. Ruth served as trustee. The terms of the trust provided that (i) Ruth could revoke the trust for any reason at any time and (ii) the trust assets were for Ruth’s use and benefit. Ruth’s children were named as remainder beneficiaries and would receive the trust assets remaining at Ruth’s death. Eventually, Ruth moved into a retirement home. To pay her living expenses, she decided to sell the farm. Because Ruth wished to keep the farm in the family, she offered to sell the farm to Harold Jr. Harold Jr. offered to purchase the farm at the same discounted per-acre price that Ruth had given to Nancy in a prior sale of a portion of the farm. Harold warned Ruth that his price did not reflect the then-current market value of the farm. Ruth accepted Harold Jr.’s price and signed a purchase agreement. Nancy objected to the sale. Ruth resigned as trustee before the sale closed, and Nancy became successor trustee. As trustee, Nancy refused to honor the purchase agreement. Harold Jr. sued for specific performance. The trial court concluded that Ruth was competent to make the sale, that the price was adequate, and that Harold Jr. had exerted no undue influence. However, the court also found that Ruth breached her fiduciary duty to her children as remainder beneficiaries by selling the farm at a discounted price. The court also found that Harold Jr. breached his fiduciary duty as a beneficiary by participating in the sale. Harold Jr. appealed and won. The appellate court concluded that Ruth sold the farm as settlor, not as trustee, and therefore the purchase agreement was a de facto amendment of the trust. Nancy appealed to the Indiana Supreme Court, asking whether a trustee of a revocable trust owes a duty to the settlor alone or also to the remainder beneficiaries. Law: On appeal, the Indiana Supreme Court acknowledged that whether a trustee of a revocable trust owes a duty to remainder or contingent beneficiaries was an issue of first impression. In reaching its holding, the court reviewed both the terms of Ruth’s trust and the Indiana Trust Code to determine Ruth’s duties under the trust. The court also considered Section 603(a) of the Uniform Trust Code, which provides that a trustee’s duties are owed solely to a settlor while the trust is revocable. The court found that the section of the Indiana Trust Code corresponding to 603(a) was “materially identical” with the Uniform Trust Code’s language. In its examination of the terms of the trust, the court relied heavily on Ruth’s power to amend or revoke the trust, which trumped any other language in the trust agreement which implied that she owed a duty to the remainder beneficiaries.Recent Cases of Interest to Fiduciaries | Page 4 Holding: The court held that Ruth, as trustee, owed no duty to her children while the trust was revocable, and she was free to sell the farm at a discounted price. The court also rejected the appellate court’s conclusion that the purchase agreement was an amendment to the trust. Because Ruth’s trust did not specify the method or manner of amendments to the trust, the default rule in the Indiana Trust Code applied, which requires a writing with clear and convincing evidence of the settlor’s intent to amend. Ruth signed the purchase agreement as trustee, not settlor, and the agreement did not contain any indication that it was amending the trust. These facts, taken together with the court’s determination that no amendment was necessary in the first place, rebutted the argument that the purchase agreement amended the trust. As a result, the court held that Harold Jr. was entitled to specific performance of the purchase agreement. Practice Point: This case reaffirms the commonly-held view that a competent settlor/trustee can deal with his or her revocable trust without concern for fiduciary duties to remainder beneficiaries. However, this case leaves open the question of what writing is sufficient to amend a trust agreement under Indiana’s version of the Uniform Trust Code. The court did not say that a purchase agreement (or similar contract) could never amend a trust agreement, only that this particular purchase agreement did not. McArthur v. McArthur, 224 Cal.App.4th 651 (Cal. App. 1st Dist. 2014) When beneficiary challenged the validity of a trust amendment that included an arbitration provision, the arbitration provision was not enforceable to resolve the beneficiary’s claim. Facts: In 2001, Frances McArthur created an inter vivos trust, which upon her death would divide Frances’ assets into equal shares for her three daughters. In January 2011, Frances executed an amendment to the trust, by which she allocated a larger portion to her daughter Kristi, designated Kristi as a co-trustee, and required that any disputes related to the trust be submitted to mediation and arbitration. Frances died in August 2011. Following Frances’ death, her daughter Pamela contested the 2011 amendment to the trust. She claimed that the amendment was the result of undue influence and that Frances lacked testamentary capacity when it was executed. Kristi moved to compel arbitration to resolve Paula’s claims. Law: Under California law, a “written agreement” to arbitrate future disputes is enforceable against the parties. The scant case law on the subject has held that, without more, a nonsignatory to a will or trust is not bound by an arbitration provision in the instrument. But under a recent Texas case, Rachal v. Reitz, 403 S.W.3d 840 (Tex. 2013), a nonsignatory beneficiary may be bound by an arbitration clause in an instrument under the theory of direct benefits estoppel, if the beneficiary claims any benefits under the instrument. Holding: Because Pamela contested the 2011 amendment itself, which contained the arbitration provision, she was not deemed to have consented to the terms of the 2011 amendment. The court held that Pamela was therefore not bound by the arbitration provision, and she could proceed in court. Practice Point: A nonsignatory beneficiary who sues to enforce rights under a trust containing an arbitration provision risks being deemed to have consented to the arbitration provision. But as McArthur demonstrates, it is possible that a beneficiary may avoid arbitration if the beneficiary sues only to invalidate the agreement or amendment containing the arbitration provision. Similarly, a beneficiary may potentially avoid the arbitration being applied to him or her if the beneficiary has the opportunity to challenge an action that might later give rise to an enforceable arbitration provision, such as a trustee’s action to decant the trust to a second trust containing such a provision, or a trustee’s attempt to change the situs of the trust to a jurisdiction which would enforce such a provision in a trust. Accordingly, if a grantor wishes to compel beneficiaries to submit disputes to arbitration, or if a trustee wishes to decant the trust or change the trust situs to make an arbitration provision enforceable, then the settlor or trustee should take such an action before disputes arise, and not simultaneous with other actions that might spark disputes.Recent Cases of Interest to Fiduciaries | Page 5 In the Matter of Eleanor Wood Zara, 2014 N.Y. Misc. LEXIS 1554 (N.Y. Sur. Ct. 2014) The expense of administering a trust valued at $250,000 was not so uneconomical as to warrant early termination. Facts: A testator created a testamentary trust for the sole benefit of her daughter. The terms of the trust provided the daughter with only the trust’s income during her lifetime. No discretionary distributions from the trust principal were permitted. At the daughter’s death, the principal of the trust was to be disposed of as the daughter provided by exercise of a power of appointment in her will and otherwise to the testator’s descendants. The presumptive remainder beneficiaries were the four children of the testator’s deceased son. The value of the trust principal was approximately $250,000, and the daughter received net income of less than $5,000 annually from the trust. Based on those figures, the daughter requested that the trust be terminated on the ground that the trust’s continuation was no longer economical. Law: When the expense of administering a trust is uneconomical, a court may terminate the trust as long as the terms of the trust instrument do not prohibit early termination and provided that such termination would not defeat the specified purpose of the trust and would be in the best interests of the beneficiaries. Holding: The court held that early termination was not warranted because the testator clearly intended that the trust corpus would be distributed outright only upon the daughter’s death. Practice Point: Although New York courts have not set a specific value at which a trust becomes uneconomical to administer, in reaching this determination, the court cited precedent showing that a trust valued at $71,000 was uneconomical to administer, whereas a trust valued at $173,000 was not. Setting a limitation in the trust instrument itself may eliminate the uncertainty presented in this case where state law does not fix a value at which a trust will be presumptively deemed uneconomical. Fintak v. Fintak, 120 So. 3d 177 (Fla. Dist. Ct. App. 2d Dist. 2013) Florida appellate court holds that a settlor does not need to renounce the benefits of his own irrevocable trust before challenging the validity of the trust. Facts: Edmund and Shirley Fintak married in 1998. Edmund had six children from a prior marriage. Prior to 2006, Edmund had regularly used the same attorney for his legal affairs. In September 2006, Edmund and his son Thomas visited a new attorney who prepared a self-settled irrevocable trust for Edmund’s benefit. The trust named Edmund, Thomas, and another son of Edmund’s, John, as co-trustees. The trust’s purpose was to provide for Edmund’s health, education, and support, and it provided for regular income to Edmund and such principal as Edmund would request in writing. In the event of Edmund’s incapacity, the trust directed the co-trustees to exercise discretion to use income and principal for Edmund’s benefit, and the trust permitted the co-trustees to make payments directly for Edmund’s benefit if he were unable to properly administer the payments himself. The trust did not mention or provide for Shirley. Edmund funded the trust with a substantial portion of his life savings. Edmund began receiving income in January 2007. Shortly thereafter, in February 2007, Edmund’s children initiated incapacity proceedings against him. Although these proceedings were dismissed in Edmund’s favor, afterwards Thomas and John stopped making payments directly to Edmund and instead used the principal to pay Edmund’s bills directly. In August 2007, Edmund filed a complaint against Thomas and John to compel payment of a written demand for $30,000 and to set aside the trust based upon coercion. In March 2010, Edmund executed a codicil which exercised a power of appointment under the trust to leave the remaining trust assets to Shirley. That same month, Edmund’s children filed a second petition for incapacity, which was dismissed in Edmund’s favor. Also in March 2010, Edmund amended his complaint to include five counts against Thomas and John, including undue influence, lack of capacity, a request for modification of the trust, breach of trust, and Recent Cases of Interest to Fiduciaries | Page 6 a request for declaratory judgment. Thomas and John defended by claiming that Edmund lacked capacity to bring the action, that Shirley had manipulated Edmund into filing the lawsuit, and that Edmund had improperly converted trust assets by withdrawing certificates of deposit that were titled in the name of the trust. Edmund died while these proceedings were pending, and Shirley, as personal representative of his estate, was substituted as the plaintiff. Thomas and John moved for summary judgment, arguing that Edmund’s actions for undue influence and lack of capacity were barred because Edmund received benefits from the trust. They also argued that Shirley took an inconsistent legal position by listing the trust as a beneficiary of Edmund’s estate, for purposes of probate in Michigan, and therefore she could not assert that the trust was invalid in the Florida action. The trial court sided with Thomas and John, holding that (i) renunciation of trust benefits was a necessary condition to challenging the trust’s benefits and (ii) both Shirley and Edmund had taken actions which precluded challenge to the trust’s validity. Shirley appealed to the Court of Appeals of Florida for the Second District. Law: The appellate court recognized the existence of a “renunciation” rule in Florida, which had been affirmed in prior case law from the Florida Supreme Court, but concluded that it did not apply to this case. The rule provides that a beneficiary of a trust who receives and retains a benefit from the trust cannot contest the validity of the trust without returning the benefits. The Florida Supreme Court previously identified three rationales in support of this rule: (1) it protects the trustee in the event the trust is held invalid; (2) it requires the plaintiff to demonstrate the sincerity of his or her claim; and (3) it ensures the property is available for disposition upon resolution of the claim. Holding: The appellate court concluded that the renunciation rule did not apply to a settlor’s challenge to his own self-settled, inter vivos trust. The court noted that because Edmund was both the settlor of the trust and its sole beneficiary during his life, he would receive the assets of the trust regardless of whether the trust was held valid or not. There did not exist any other claimants who would be adversely affected by Edmund’s receipt of his own assets. Additionally, the trustees would not need the protection afforded by renunciation because Edmund would be the only party with a claim to the assets, regardless of the validity of the trust. Therefore, the court held that the first and third rationales for the renunciation rule were inapplicable. The second rationale, that renunciation ensured sincere litigation, was also inapplicable. Edmund’s challenge to his own prior act was “self-deprecating” and “inherently less suspect.” The court concluded that this rationale did not require application of the renunciation rule in this case. Having dismissed the traditional reasons supporting the renunciation rule, the court also held that application of the rule would be inequitable. Because the rule would deny the assets of the trust to Edmund even though he was entitled to such assets regardless of whether the trust was valid, the court held that requiring renunciation would “elevate form over substance.” For all of the above reasons, the court held that the renunciation rule was inapplicable to the case. The court also rejected Thomas and John’s various arguments for estoppel of Edmund and Shirley’s claims. Thomas and John failed to satisfy several of the requirements for estoppel, particularly the requirement that they suffered prejudice due to reliance on the allegedly inconsistent acts and legal position. The court held that the renunciation rule does not apply to challenges by a settlor to a self-settled trust for the settlor’s benefit. A settlor does not need to renounce benefits of a self-settled trust before challenging the validity of the trust. The court found that the lower court erred when it granted summary judgment in favor of Thomas and John on the claims for undue influence and lack of testamentary capacity and reversed and remanded the case for further proceedings. Practice Point: This is an unusual case – it is not every day that a settlor challenges the validity of his own trust on the basis that he lacked capacity or suffered from undue influence – but the court’s ruling is narrow. Given the court’s emphasis on the fact that Edmund was the sole beneficiary of the trust during his lifetime, it is possible that the court would have applied the renunciation rule if Edmund’s spouse or children were discretionary beneficiaries during his lifetime. This ruling may make it easier Recent Cases of Interest to Fiduciaries | Page 7 for settlors of self-settled asset protection trusts to challenge their own trusts, even after receiving distributions, but most settlors are more interested in preserving, rather than challenging, such trusts. Rollins v. Rollins, 2014 Ga. LEXIS 179 (Ga. Sup. Ct. 2014) The Supreme Court of Georgia held trustees of a trust to a corporate level fiduciary standard (and not trust level fiduciary standard) where the trustees controlled business entities in which the trust owned a minority interest. Facts: O. Wayne Rollins created numerous trusts, including the Rollins Children’s Trust (“RCT”) and Subchapter S-trusts (“S-trusts”), for the benefit of his grandchildren. Two of Wayne’s sons, Gary and Randall, and a family friend were the trustees of RCT. Gary was the sole trustee of the S-trusts. Both RCT and the S-trusts were funded with interests in family companies, which Gary and Randall controlled. The terms of RCT provided that the trust’s beneficiaries were to receive periodic statements regarding the trust’s condition. The S-trusts’ terms did not contain a provision addressing trust accountings. Certain beneficiaries of the S-trusts sued the trustees alleging breach of trust and breach of fiduciary duty. The beneficiaries sought an accounting of the family entities. The trial court found for the trustees on summary judgment, denying the beneficiaries’ claim for an accounting of the family entities because the trial court found the beneficiaries received sufficient reports on the trusts’ assets through discovery. On appeal, the Georgia Court of Appeals reversed the trial court by finding that the trustees owed the beneficiaries an accounting. The Court of Appeals found that the trustees were subject to a trust level fiduciary standard with regard to the family entities and issues of material fact existed on the trustees’ alleged breach of their fiduciary duties. On appeal, the Georgia Supreme Court considered whether the Court of Appeals erred by: (a) ordering the trustees to provide an accounting of the family entities; and (b) ruling that the trustees are held to a trustee level fiduciary duty for their actions in the family entities owned by the trusts. The Court reversed the Court of Appeals on both issues. Holding: With regard to which fiduciary standard applied to the trustees, the Court found that the corporate level fiduciary standard applied (which is deferential to the entity’s managers) rather than the heighted trustee level fiduciary standard. The Court found that this was consistent with the settlor’s intent, as evidenced by the settlor’s having given different control over the family companies (which were controlled by Gary and Randall) and the S-trusts (controlled solely by Gary). The Court relied on the fact that the trusts were only a minority owner of the family companies when determining that the corporate level fiduciary duty applied. The Court stated that the trustees should be able to act in the interests of all of the shareholders of the family entities. The Court also reversed the Court of Appeals ruling that the trustees had to account for the family entities. The Court found that the Court of Appeals failed to give proper deference to the trial court’s decision to excuse an accounting because the trial court should be sustained where such discretion has not been abused. On remand the Court directed the Court of Appeals to give consideration to the trial court’s discretion on the accounting issue. Practice Point: This case illustrates the increased risk fiduciaries face when simultaneously serving in multiple roles as trustees of trusts and managers of closely held companies. Fiduciaries should consider and carefully analyze which standards might govern their conduct and what they must do to satisfy that standard in order fulfill their duties to trust beneficiaries and the owners of business entities in which a trust may have an ownership interest. Salvation Army, Kansas v. Bank of America, 2014 WL 928976 (Mo. Ct. App. 2014) Party lacked standing to contest a will where such party had no pecuniary interest under the contested will and the earlier will, under which it did have an interest, was not timely before the court under Missouri’s presentment statute.Recent Cases of Interest to Fiduciaries | Page 8 Facts: Bank of America served as personal representative of Decedent’s estate under a 1995 Will that was admitted to probate. Decedent’s heirs filed a petition contesting the 1995 Will, claiming that Decedent was unduly influenced by the named beneficiaries of the 1995 Will. In response to the petition, Bank of America presented a 1984 Will executed by the Decedent naming the Salvation Army as beneficiary. While maintaining that the 1995 Will was valid, Bank of America alleged that if the 1995 Will was found to be invalid, the 1984 Will would be operative, precluding the claims of Decedent’s heirs. The Salvation Army was granted leave to intervene as an additional plaintiff challenging the 1995 Will. The trial court then dismissed the Salvation Army’s will contest petition, finding that the Salvation Army lacked standing to contest the 1995 Will since its only claim to the estate was under the 1984 Will, which had not been presented to the trial court within the time limits prescribed by Missouri’s will presentment statute. The Missouri will presentment statute includes specific procedures and timelines for establishing a will for probate. Law: Under Missouri law, if a will is not presented for probate within six months after the date of the first publication of the notice of granting of letters, it is forever barred from admission to probate. Moreover, under Missouri law, only those parties that would “either gain or lose under the contested will” have standing in a will contest. Holding: The appellate court affirmed the trial court’s dismissal of the Salvation Army’s contest petition, finding that the Salvation Army lacked standing. The appellate court held that “the 1984 Will was presented without meeting the statutory requirements, and it was properly rejected as evidence in the probate proceeding regarding the Decedent’s estate. And without the admission of proof of the 1984 Will as evidence in the proceedings below, the Salvation Army possessed no pecuniary interest under the contested 1995 Will and, accordingly, lacked standing to contest the 1995 Will.” Practice Point: Here, neither Bank of America nor the Salvation Army could have anticipated the will challenge from Decedent’s heirs, and the petition contesting the 1995 Will was not filed until after the period of limitations had already run on the 1984 Will. But the case serves as a good reminder to always be mindful of the limitations period for presentment of a will. Under most state laws, the clock begins ticking once a will has been admitted to probate. Mclean Irrevocable Trust v. Ponder, 418 S.W.3d 482 (Mo. Ct. App. 2013) Missouri Court holds that trust protector is not liable for breach of duty where he failed to remove the trustees who allegedly wasted trust assets. Facts: The successor trustee of an irrevocable trust filed a lawsuit against the trust protector for breach of fiduciary duty alleging a substantial diminution in value of the trust’s assets and the trust protector’s failure to remove the prior trustees. In March 1999 after receiving a substantial settlement in a personal injury lawsuit, an irrevocable special needs trust was created for Robert McLean to administer the settlement proceeds for his benefit. The trust instrument named Merrill Lynch Trust Company and David Potashnick as trustees and J. Michael Ponder (“Ponder”) as trust protector. The trust provided three specific powers for the trust protector: (1) remove a trustee; (2) appoint a successor trustee; and (3) resign as trust protector. The trust instrument further provided that “the trust protector’s authority hereunder is conferred in a fiduciary capacity and shall be so exercised, but the trust protector shall not be liable for any action taken in good faith.” In May 1999, the original trustees resigned and Ponder exercised his power to appoint two individuals with whom he had been professionally associated as successor trustees – Davis and Rau. In 2001, Davis resigned as successor trustee and Ponder resigned as trust protector and appointed his own successor and a successor trustee. In 2002, the successor trustee resigned and Robert McLean’s mother, Linda McLean, was ultimately appointed as trustee. In 2004, as trustee of the trust, Linda filed suit against all persons who served as either a successor trustee or as trust protector under the trust instrument, including Ponder. Linda’s petition was amended several times but ultimately alleged that Ponder, as trust protector, had breached his fiduciary duties and acted in bad faith by (1) failing to monitor and report expenditures; (2) failing to stop the trustees when they were acting against the beneficiary’s interests; and (3) placing Recent Cases of Interest to Fiduciaries | Page 9 his loyalty to the trustees and their interests above those of the beneficiary. Linda alleged that Ponder had been informed that the successor trustees were inappropriately spending trust funds, that Ponder did not investigate the depletion of trust assets or take any action and that as a result the trust was damaged. A jury trial was scheduled. Prior to the trial, the trial court issued its legal findings as to Ponder’s duties. The trial court held that under the terms of the trust instrument the trust protector had the authority to remove a trustee but that the trustee’s duty was independent from the control and supervision of the trust protector and the trust protector had no duty to monitor the activities of the trustee. The trial court went on to note that it was not of the opinion that the trust protector should simply ignore the conduct of the trustee which threatened the purposes of the trust and that a duty may arise for the trust protector in his fiduciary capacity to seek the removal of a trustee. Thereafter, a trial was held. At the conclusion of the trial, Ponder moved for a directed verdict contending that Linda, as trustee, failed to set forth evidence of any duty, breach of duty, liability, causation, or damages resulting from Ponder’s alleged failure to remove the trustees. The trial court granted Ponder’s motion. Linda appealed. Holding: On appeal, the Court of Appeals of Missouri affirmed the trial court’s ruling, finding that the trustee had presented no evidence of damages. Specifically, the court noted that Linda’s expert testified that Ponder as trust protector should have removed the trustees in December of 1999 due to their depletion of the trust assets (22% of the trust corpus during the last quarter of 1999); however, this money was spent prior to Ponder’s being approached by anyone on behalf of the trust to remove the trustees. The court noted that there was no evidence presented that if a new successor trustee had been timely appointed by Ponder in December of 1999, the successor trustee could have recouped any of the previously dissipated trust assets. Practice Point: The trial court focused on the terms of the trust instrument when defining the duties of a trust protector. This finding highlights the importance of carefully defining the duties of both the trustee and the trust protector and any overlap in the duties of the two in the terms of the trust instrument. This case leaves open the question of what degree of knowledge of the trustee’s actions will give rise to a trust protector’s duty to remove a trustee. McCormick v. Cox, 118 So. 3d 980 (Fla. Dist. Ct. App. 3d. Dist. 2013) The Court of Appeal of Florida affirmed the trial court’s award of more than $5,300,000 to trust beneficiaries where the trustee undervalued a trust asset on federal estate tax return and incurred substantial legal fees and trustees fees to mitigate the effects of the undervaluation. Facts: Robert W. Cox created a marital trust and a family trust for the benefit of his wife and four children respectively, and named the drafting attorney, Arthur F. McCormick, as successor trustee following his death. Cox died in January of 2001. At his death, the Cox trusts owned a single asset - a property of approximately 100 acres in Lynnfield, Massachusetts then operated as a nine-hole golf course. In March 2002, to prepare the estate tax return, McCormick arranged for an appraisal of the property. The appraiser reported the date of death fair market value of the property as an operating golf course at $2,500,000. This value was used on the estate tax return; however, the appraiser’s report noted that the highest and best use of the property would be for residential development. No effort was made on McCormick’s part as trustee or by the appraiser to ascertain the market value of the property if developed for residential use nor did McCormick alert the beneficiaries that the property might have a much greater value. In 2005, the property was sold to the town of Lynnfield for $12,000,000. In order to avoid an immediate capital gains tax to the family trust and beneficiaries, McCormick structured a like-kind exchange under section 1031 of the Internal Revenue Code, acquiring a qualified shopping center in Collier County, Florida. The trusts incurred $2,146,812 in professional and other expenses (exclusive of the trustee’s own claims for fees) in order to consummate the section 1031 transaction and defer the capital gains tax on the sale of the property.Recent Cases of Interest to Fiduciaries | Page 10 In 2005, McCormick provided a trust accounting to the beneficiaries for the first time. In the accounting he suggested that he did not discover the higher value of the property until 2005, therefore he saw no need to incur the expense of an accounting prior to a determination of the higher valuation. Various notes in McCormick’s file contradicted this representation and testimony. When the sale closed in 2005, McCormick paid himself $1,217,528 in trustee’s fees without approval of the beneficiaries or court. This payment was discovered when the net proceeds of the sale were substantially less than anticipated. The beneficiaries filed suit alleging breach of fiduciary duty and seeking disgorgement of trustee’s and attorney’s fees paid to McCormick and his law firm. After an eight eight-day trial, the court entered a judgment in favor of the beneficiaries and awarded money damages of approximately $5,300,000 against the trustee and his firm. McCormick appealed. Holding: The Court of Appeal of Florida affirmed the trial court’s award against McCormick. The court relied on the beneficiaries’ expert appraiser who found that the property was substantially undervalued at Cox’s death and that diligent inquiry would have revealed this fact. The court found that McCormick could have amended the estate tax return when he discovered that the value of the property was higher but did not do so. Further, the 1031 like kind exchange transaction and associated expenses of $2,146,812 were necessitated by the undervaluation. The court also found that the trustee had breached his duty to post bond and provide accountings to the beneficiaries further justifying the trial court’s order requiring disgorgement of trustee’s fees and attorney’s fees. Practice Point: Conducting careful due diligence in connection with obtaining the appraisal and addressing mistakes right away may have lessened the harsh penalties the Florida court imposed on this trustee. Further, if the trustee had kept the beneficiaries informed regarding the administration of the Cox trusts, then the trustee may have avoided or reduced the significant disgorgement ordered by the court.