fiduciary duty Archives - Samuels Yoelin Kantor LLP

From time to time we publish summaries of interesting trust and estate cases.

In today’s post we discuss a recent Oregon Appeals Court case that addressed the availability of a constructive trust to remedy a breach of duty by a successor trustee. The case is a good illustration of the legal remedies available to beneficiaries who pursue claims against trustees behaving badly.

Olson v. Howard, 237 Or App 256, 239 P.3d 510, (2010)

Background: Plaintiff, the beneficiary of a trust, brought an action against the trustee and the purchaser of land from the trust, alleging that the purchase was the result of self-dealing by the trustee. The settlor of the trust had named himself trustee and appointed Howard as successor trustee. Howard, purporting to act as successor trustee, sold the property to his son, the defendant, for $55,000. Plaintiff contended that the fair market value of the property was actually $122,760. Moreover, defendant borrowed the money to purchase the property from his father, Howard. Seven years after the sale, plaintiff filed claims against both defendant and Howard, alleging that Howard acted unlawfully when he essentially sold the trust property to himself for grossly inadequate consideration, and that defendant knowingly and willfully acted as a strawman in the transaction. Plaintiff then sought return of the property to the trust, a resale of the land, and distribution of the proceeds of that sale to the trust beneficiaries. The trial court dismissed the case after finding that plaintiff failed to provide an “objectively reasonable” basis for his claim.

Holding: The trial court erred in determining that plaintiff’s contentions were devoid of factual and legal support. Plaintiff’s claim sought the imposition of a constructive trust, which would be available to him upon showing that the defendant possessed property that should belong to the trust as a result of the property being transferred without authority, by a self-interested party, and without sufficient consideration. Moreover, the fact that plaintiff had signed a release as a trust beneficiary relinquishing all claims against the trustee or trust did not prohibit his claim, as the release did not bar claims against the defendant. The case was remanded to the lower court.

Who do you trust to handle your financial affairs when you are gone? Your first instinct may be to name a spouse or another family member, but sometimes we advise our clients to seek professionals to handle these duties – particularly with estates that own hard-to-value or unusually complex assets. The reason? This fiduciary (who may be called a personal representative, executor, or trustee, depending on the nature of the estate) may need to develop complex financial statements and tax returns, manage or oversee businesses, properties, or other investments, work in the center of emotionally-charged disputes, and/or be responsible for initiating legal proceedings on behalf of the estate. So make sure you pick the right person for the job.

The Washington Court of Appeals recently ruled on a case that outlined several of the responsibilities of a personal representative. In the case of In re Wegner v. Tesche, the court was presented with a parcel of property that was owned by the decedent and the appellant (Tesche) and which may or may not have included a survivorship provision. The property was the only substantial asset in the estate. The personal representative brought an action against the appellant to acquire title to the property in the name of the estate and later dismissed the claims against the appellant when the representative determined that the estate was not likely to prevail. The representative then sued the appellant for a portion of the fees incurred in researching the initial claim. The superior court awarded a portion of these fees and the court of appeals affirmed the lower court decision.

The Washington Court of Appeals reasoned that, as the personal representative of the estate, an individual has the obligation to pursue any and all property that may be included in the decedent’s estate. Here, there was some question as to the ownership of the parcel of land and, since the questions were based on legitimate concerns and on comments made by the decedent about the land, the representative had a duty to pursue the issue. The court then used its power to create an equitable remedy awarding some of the fees.

Your fiduciary has many obligations. Choose accordingly – and please, please, PLEASE let them know the reputable and capable law firm that should guide them through the process. Get a good team together to help your fiduciary properly shoulder the responsibilities.

Trustees behaving badly

Who Will Manage Your Estate: Consider Carefully

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