Breach of fiduciary duty.

Hard to be brief but I will try,

I am a beneficiary of my mother’s irrevocable trust established in California when she passed back in 1992. I just received the final distribution and from what I understand any disputes or contest to the final accounting must be received within three months as such please understand the extreme time sensitivity of any interest or response from this e-mail. The starting balance from her life insurance was six million dollars split tree ways with my sister and brother. My concerns are numerous but I will list just a few I have concerning the Trustee. It was left to her old business management firm she used at the time. xxxxxxxManagement Company with xxxxxxxx as executor. He retired many years ago and named his son the new trustee. He, the son, subsequently had to shut down the company and close the office they had in Century City for well over a decade. He moved to another firm . It was not his own he just opened an office and used their name. I feel that his only substantial account was ours. My concerns were addressed in writing numerous times to him, When my letters commenced listing point by point the potential liability in breaching his fiduciary duties, he retained a law firm specializing in trusts that charged around five hundred dollars per hour in turn surcharging the trust in excess of two hundred thousand dollars. When I informed him that seeking counsel for his personal exposure could not be charged to the trust he made it out that the counsel was in the interest of the trust not him. As such, I am privy to the file and a client negating any confidentiality concerns. He has yet to disclose anything therein except the check ledger for their fees. I retained counsel and all it did was double my expenditures as I paid for my counsel while he charged me for his the trust document grants the Trustee complete, total, and absolute discretion over all matters of the trust. Within six months, I realized my actions construed a new definition found in Webster’s dictionary, insanity! A medical emergency occurred requiring principal distribution. He made me sign a release of liability not just for the needed funds but also for his administration of the trust prior to cutting the check. I can e-mail a few tax returns documenting the following examples.

- Trust balance was negative many years as his fees exceeded the amount of earned income.
- His investments resulted in consecutive yearly losses in the hundred thousands. This was back when 5% tax-free income potential was available. When I inquired about this he, said not to worry that is overall advantageous with respect to taxes.
- He refused to determine a fixed percentage for his compensation and would not provide detailed accounting just office fees.
- I can go on and on and have documented verification of all my written requests.
- I look forward to hearing back from you concerning the validity of my concerns.
- The best way to contact me with any further questions you may have is replying to my e-mail address. Thank you.
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- Sincerely,

It seems you need a Trust Lawyer. But I would caution you, because from what you have already said, this twerp only has YOU as his income producer. That means he is pretty close to the bone in assets. The only relevant thing you MIGHT be able to do is determine if he has unjustly enriched himself... see the lawyer. But the question is whether he has been living off your trust and has nothing with which to repay the trust. I suspect that is the case... and if so, I question why you would bother. Perhaps your best and meanest response to his shenanigans is to lodge a complaint with the Financial Services group within your state government... the people who give jerks like this license to operate. At the very least you might save the next guy from his licentious behavior.

You mentioned that the trustee had churned the assets so as to LOSE money. Since it began as an insurance based trust, it seems contrary to the kind of security your Mother wanted for the Trust. The issue is whether he had any guidance from your mother in making his investments by way of the Trust document itself. In California, Insurance Trusts... including irrevocable ones... are regulated by the Department of Insurance. You might start there. OBTW... by churning your assets into different investments and losing money on them, he may have already done enough to keep him from being a Trustee for you or anyone else.
If you have documentation on what he did and how much he lost, that information should be copied for the regulatory folks from the state.

Breach of Fiduciary Duty

Executors, administrators and trustees have a fiduciary responsibility to beneficiaries. Fiduciaries are charged with carrying out the asset distribution set forth in a will or trust, are not allowed to benefit from the estate’s or trust's assets to the detriment of the persons they are entrusted to protect and must act with the utmost loyalty (i.e., not with a conflict of interest). Fiduciaries also should be capable of handling whatever financial
transactions are necessary to allocate assets to fit the needs and objectives of their beneficiaries and/or clients and the financial directives binding them.

In the event a fiduciary has acted outside the appropriate standards in the
administration of money for which he/she is entrusted for the benefit of others, a lawyer can sue the fiduciary to attempt to recover for a beneficiary's losses, to have the fiduciary provide a comprehensive accounting of assets, or to remove the fiduciary from a position of trust and/or to obtain other appropriate relief.

COPIED FROM LAWYER'S WEBSITE BUT COMMENTS IN CAPS ARE MINE.
California law provides default rules which apply if a trust instrument is silent on a matter, and mandatory rules, which apply regardless of the instructions set forth in the trust instrument. California law thus plays a major role in the governance of the trustee.

Probate code section 16040 provides that the trustee must administer the trust with reasonable care, skill and caution under the then-prevailing circumstances that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument.

A court second-guessing a trustee's reasoned decisions is not common. However, a common error for trustees is believing that they KNOW what the grantor wants and proceeding to administer the trust based on his belief rather than the purposes stated in the trust... if his understanding is inconsistent with the instrument, the trustee is supposed to seek the court's assistance to resolve the conflict. The PRUDENT INVESTOR ACT 1996(probate code sections 16045-54) requires the trustee to invest in a manner that maximizes the investment return of the entire trust, unless the trust doc says otherwise, while minimizing the risk to a level reasonably suited to the trust. Since YOUR MOTHER had it set up as an insurance trust, that level would not include dabbling in stocks.. especially in the market of the last 20 years.

This act therefore increases a trustee's potential liability for an underperforming trust... and the rationale behind the investment as shown by the grantor in setting up the trust in the first place should sway a court. Your Trustee was supposed to develop an investment policy statement with objectives, policies and procedures, document reasons for each investment decision and MUST ACQUIRE THE EDUCATION to become well-informed in investment decisions. He was also supposed to act in good faith and his actions must be consistent with the trust's purposes. I SUSPECT YOU HAVE NOT SEEN ANY OF THE ABOVE REQUIRED DOCUMENTATION.
Section 16062 provides that that "... the trustee shall account at least annually, at the termination of the trust and also upon a change of trustee, to each beneficiary to whom income or principal is required or authorized in his discretion to be currently distributed." Upon demand, a beneficiary is ENTITLED to an accounting even if the trust waives the accounting.

SINCE THIS IS ALSO A SIGN OF DISSATISFACTION ON YOUR PART, HE IS ALLOWED TO HIRE THE ATTORNEY TO DEFEND HIS ACTIONS. The accounting also triggers the three-year statute of limitations on trustee liability... HIS DEMAND THAT YOU SIGN A STATEMENT HOLDING HIM HARMLESS should be worthless as long as you observe the three year limitation (your Mother could have shortened this to 180 days using Probate code section 16461) and call for sanctions/ oversight in time... So I suspect that is why you are NOW in a hurry to get some help.

Here is what happens when he fails to do the job appropriately: Probate Code Sec. 16400 defines a breach of trust as a violation of any fiduciary duty and can be separated into three types: ordinary negligence, gross negligence An indifference to, and a blatant violation of, a legal duty with respect to the rights of others.

Gross negligence is a conscious and voluntary disregard of the need to use reasonable care, which is likely to cause foreseeable grave injury or harm to persons, property, or (recklessness) and intentional (willful Intentional; not accidental; voluntary; designed.

There is no precise definition of the term willful because its meaning largely depends on the context in which it appears. ) breach of trust.
A surcharge is penalty a court can impose on a fiduciary for breaching a duty.

Defenses to Liability for Breach of Fiduciary Duty. Even when trustees breach a fiduciary duty, they may not be liable. Exculpatory clauses: a clause in an agreement that excuses the signatory from any blame. Legal opinion is that these have very little use as a defense against a suit for damages based on negligence, may limit the trustee's liability for certain failures.

But under Probate Code Sec. 16461, exculpatory clauses can't limit liability for gross negligence or intentional acts. Further, courts routinely impose higher standards on professional trustees. Although exculpatory clauses may help certain trustees avoid liability for a breach of trust, it's unlikely that an exculpatory clause will avoid the removal of a negligent (careless in not fulfilling responsibility) trustee.

Beneficiaries also may limit a trustee's liability by consenting to the act or the failure to act; releasing the trustee; or affirming the acts of the trustee (Probate Code Secs. 16463-16465). But such defenses require that beneficiaries had capacity, knew their rights, were not pressured and were treated fairly. ****** SO YOU KNOW SINCE YOU WERE PRESSURED TO SIGN THAT OR NOT RECEIVE THE DISTRIBUTION, IT CANNOT BE A VALID DEFENSE.

Trustee Liability for Attorney Fees. A judge could order the trustee to pay back attorney's fees.
The trustee must be careful in paying attorney fees. If the CIVIL litigation is with a third party, the trustee may want to request the consent of the beneficiaries or the court before pursuing the litigation.

It is too easy for a party to second-guess a trustee's decision to pursue litigation after the fact. If a court were to determine that the litigation was not likely to provide a benefit to the trust, the court might surcharge the trustee for all attorney fees.

If the litigation is between the trustee and beneficiaries, the ability to pay the trustee fees from the trust may depend on the nature and outcome of the dispute.

COMPENSATION

Most trusts provide that a trustee shall be paid "reasonable" compensation, but there is no clear answer as to what amount of compensation is reasonable.

Many judges prefer determining a trustee's fee by applying an hourly rate, determined by the trustee's expertise, to the trustee's work. Rarely will that hourly rate be the same for CPAs as the rate they charge for accounting services. This is an issue a CPA may want to discuss with the client before agreeing to serve as trustee.

A common mistake is setting compensation based upon a fee schedule. If this is done, the following should be considered:

* Would a professional trustee have incurred similar costs for attorneys, accountants and investment advisers?

* Did the trustee provide a level of benefit similar to a professional trustee?

* Is the trust paying expenses that would be a cost of doing business of a professional trustee (such as liability insurance authorized by Probate Code Sec. 16240)?

FINAL CONSIDERATIONS******SEE IF YOUR TRUSTEE MEASURES UP***

While the laws governing trustees can be long and complex, trustees should keep the following in mind:

* Follow the trust instrument and California law;

* Keep a paper trail for all transactions and discretionary acts;

* Communicate with beneficiaries;

* Request authorizations from the court and beneficiaries as needed;

* Invest properly under the Prudent Investor Act;

* Delegate responsibilities when appropriate;

* Obtain liability insurance for property and actions; and

* Determine reasonable compensation.

Nelson J. Handy, Esq. is a Los Angeles-based senior counsel of private wealth services at Holland & Knight LLP LLP - Lower Layer Protocol and a member of CalCPA Estate Planning

As a beneficiary of the trust, you are certainly entitled to a detailed accounting from the trustee. However, failing to provide the accounting is not a breach of the fiduciary duty. As of now, you haven't presented any facts that could be construed as a breach of the fiduciary duty.

The trustee may switch firms. What's wrong with that?

He lost money, but everybody has been losing money. There's nothing unusual about that. You'd have to show that he made unreasonable investment decisions in order to hold him liable for losing money, and that's not going to be easy.

The basic rule with regard to attorneys fees is as follows: The trust pays for the trustee's attorney's fees unless the trustee is found to have breached his duties. So, it sounds like the trustee was correct to charge the trust for his attorney.

I'm not entirely sure I understand the release that you signed. Did you release the trustee of all liability for anything wrong he may have ever done? Or did you simply release the trustee of all liability associated with giving you the funds for your emergency? If it's the former, then that may not be legally enforceable since (1) it could be construed as being made with duress, (2) it could be against public policy, and (3) it could be against the terms of the trust.

Surely your attorney, who was privy to the finer details of your situation, already explained all of this better than I have. What did he say?

Far cry from calling the guy a "twerp".

Nothing interesting to say, Grace?

It is evident that an INSURANCE Trust should have limited the Trustee to similar types of investments... Losing hundreds of thousands PRIOR to the last three years indicates the churning was to benefit the agent, not the beneficiary. The stock market LOST big time in 2000 with the tech stock fumble, but only recently has there been a broad decline.

Insurance Trusts invariably are based in annuities... which have little loss... but just don't make much money when fed bank rates are low. This TWERP claims he hasn't harmed the TRUST for TAX purposes... but unfortunately, he has clearly gone beyond the intention of Poster's mother by churning the assets into stock market instead of the relatively safe nest of annuities. How else could the yearly numbers be negative? By sinking into every bad investment out there. Meaning he went out of the safe zone and into the stock market.

Poster probably should have removed this Trustee long ago when it merely APPEARED he might be incompetent. Now he KNOWS.

Who knows? Maybe he went into mortgage backed securities like AIG did. They write annuities too. Would be interesting to read the Mom's instructions on investments.

Breach of fiduciary duty includes the duty of loyalty... and one should wonder to whom his loyalty has been given. Perhaps John Smith should rethink.

No.......Mr. Smith covered it nicely ROFLMAO

HERE is an idea....why don't you TELL JOHN SMITH he should rethink instead of directing your comments to ME?? Better yet, why don't you tell the Insurance Trust how they should have LIMITED HIM---apparently they didn't take those 15 hours of real estate courses either.


Look at your own definition.

It defines disloyalty as "conflict of interest" not losing money on investments.

You contradict yourself----you say the 'twerp' is using this as his bread and butter, THEN you criticize him for the fact it lost money----if it was USING the trust for his own well being, why in the Sam Hill would be make it LOSE money???

You, as always, make no sense. Only this time you have someone else other than me telling you so.

And, did you ever get back to the other thread where you said that appellate court nonsense? You have TODAY to correct it. Then I will .

A conflict of interest exists if a person acting as Trustee receives remuneration for making trades. It is NOT that he lost money, it is that he may have had an ulterior motive in making the trade. One likely way that could happen if he is NOT a broker is that he might have sold his OWN stock or holdings that were performing below par to the Trust.

But the simple fact is that WE don't know what he did to lose a portion of the asset value of the Trust. All we can do is point out what can be done to get it put right.

This is ALL speculation. You are making up scenarios with no proof that is what happened.

Show me where a person being compensated for acting as a trustee is a "conflict of interest".
If we don't know what he did to lose a portion of the asset value of the trust, why is it we are 1. assuming it was illegal and 2. calling the guy a "twerp'?

It is a conflict of interest when he is compensated for churning. Meaning he has a conflict of interest in that if he doesn't churn, he doesn't make as much money... whereas if he does churn, he might choose investments that are not as good. There is reason to question why he traded a good productive asset for one that tanked.

I didn't say we don't believe the Poster when he says the Trustee was trading and lost money in the trades. I said we don't know what he traded and what he traded for... so we can't say which if any assets were traded in a conflict of interest.

So what is YOUR conflict? Many people who needed secure investments and had money in the market went into real estate in 2000 for reasons I've previously mentioned. If they bought the derivative comingled mortgages hoping for a miracle to restore what they lost in the tech stock bust, they lost their shirt again.

The whole point of an insurance Trust is to provide a secure investment potential. While the interest rate has been close to non-existant, the security has remained where as you can see from the above actions taken by many, you can lose your shirt much faster if you veer from standard low risk investments.

Think about the rates on T-bills. But it is still a lot better than dabbeling in the stock market. Goldman Sacks and Chase are into high risk financial transactions and are apparently winning their losses back and repaying the feds. But I'd bet they aren't into the market yet. They will wait until it starts back up.

This little twerp saw $6M to play with and proceeded to lose on most of what he did. He did not follow the Insurance investment security practices. He opened them up to (Pandora's box) the stock market, then used their trust money to defend himself for chosing the wrong investments. They apparently didn't know they didn't have to keep him on after he lost big... but did they even KNOW he lost their money? And NO, he cannot get away with NOT reporting those losses yearly. He should have been removed long ago. These siblings are into their OWN retirement years by now... Momma didn't die young. There is NO reason to play dangerous games with their investments... unless it is to collect brokerage fees. And THAT is where the conflict begins.

TWERP. Those Who Emulate Real Producers. And FAIL.