This case does not make any new law, but illustrates a number of important principles for fiduciary breach claims against trustees. The case arose from a trust established by Richard Hallett administered following his death by his widow and attorney serving as trustees. Upon his death, family and QTIP sub-trusts were to be funded. As detailed in Referee Gary Cassavechia’s June 16, 2016 Recommendation, approved and ordered by Judge Robert Foley on June 17, 2016, the trustees breached their duty to honor the terms of terms of the trust by failing to fund the sub-trusts, their duties of impartiality and loyalty by managing trust investments to favor the interests of the lifetime beneficiary (the widow trustee) over the interests of the residuary beneficiaries (settlor’s children from an earlier marriage), and the duty to segregate trust assets.
The Court found that the notice and reporting requirements of RSA 564-B:8-813(b) did not apply given that the trust became irrevocable before NH enacted the UTC and the terms of the trust provided for notice only to beneficiaries then entitled to income, which was only Barbara, the widow:
First, that notice and reporting provision does not apply to the instant trust, as it was made irrevocable prior to October 1, 2004 and no new trustees have been since that date [been] added. See RSA 564-B:8-813(f). Second, and perhaps more importantly, the terms of the trust dictate specific reporting requirements for the trustees…. Article 12 states that only “the beneficiary or a majority of the beneficiaries who are then of legal age and capacity to whom or for whose use the current income of the Trust is at the time authorized or required to be paid” may follow specific steps to receive any information regarding the Trust accountings…. At this time, the only beneficiary to whom the Co-trustees are required to report accountings to upon request is Barbara, a Co-trustee herself.
(Emphasis in original.)
The Court rejected petitioners’ claim that the trustees had failed to honor a duty to keep them “informed of the material facts necessary for them to protect their interests,” noting that this aspect of UTC 813 is not part of RSA 564-B:8-813. “For that reason the Court does not rule that the Co-trustees’ failure to act more affirmatively and pro-actively than they did under the evidence presented at trial in informing the beneficiaries of their rights and interests constituted a transgression of duty.”
While the petitioners successfully proved multiple breaches of duty and obtained removal of the trustees, the monetary relief awarded was quite modest. The Court found that it could not reasonably ascertain fair compensable damages based on the evidence presented.
Under the evidence presented by the Petitioners, the Court has determined that it cannot reasonably deduce what, if any, damages should be awarded for the Co-Trustee breaches of trust found. The Petitioners introduced no expert evidence that might have been assistive in that regard. On what record it has before it, any damages awarded would be based on rank speculation and conjecture. Hence, it denies the Petitioners’ prayers for damages.
In view of the success on the merits of their claims, the Court found that the Petitioners were entitled to safe harbor from enforcement of the trust’s in terrorem provision.
This litigation no doubt was an expensive undertaking for petitioners and illustrates the need for expert testimony to quantify damages. Otherwise, a claimant runs the risk that, after proving his liability claims at great expense, he may recover little to nothing to compensate the trust for the established fiduciary breaches.
(Note: Ralph Holmes is currently retired from McLane Middleton. For information on this or other probate litigation issues, please contact Alexandra Cote at alexandra.cote@mclane.com.)
