A recent ruling serves as a good reminder of the importance of assessing all aspects of a claim before taking the decisive action of filing a complaint. Particularly, when evaluating a potential claim against a corporate fiduciary, which often has more resources than most beneficiaries (whose legal fees may or may not be paid from the estate or trust), a beneficiary considering litigation must identify a legal cause of action; determine the evidence available to support each cause of action; plan how to obtain additional evidence that is required but may not be readily available; and, as the ruling emphasizes, understand the effect of any exculpatory language in the will or trust.
The case involved a large trust (over $50,000,000) and a beneficiary that the court described as “always desirous” of wanting more money to spend, despite the very significant distributions she received from the trust. She asserted various claims against the corporate trustee, including breach of fiduciary duty. The court was greatly concerned with, and disturbed by, some of the trustee’s conduct as proven at trial, including failing to disclose certain investment practices; being indifferent to and largely ignorant of the beneficiary’s circumstances, and failing to engage in tax planning. But the trust provided that the trustee could be liable only in cases of “fraud, willful misconduct, or gross negligence,” and the court found that the beneficiary failed to meet this heightened standard.
The case drives home the point that it may not be enough that the fiduciary really is in the wrong. Wills and trusts are often written with language protective of the fiduciary, both to discourage unwarranted claims by beneficiaries and to encourage fiduciaries to agree to serve.
That said, especially with trusts, the mere existence of an exculpatory clause should not necessarily deter claims, as, under the Uniform Trust Code adopted by New Jersey, courts will scrutinize such clauses for enforceability. They will be unenforceable to the extent that they relieve the trustee from bad faith conduct or reckless indifference to the trusts’ purposes or the beneficiaries’ interests, or if they were inserted as the result of the trustee’s abuse of a fiduciary or confidential relationship with the settlor of the trust. Further, exculpatory language drafted by the trustee will be presumed invalid unless the trustee proves that the language is fair and was adequately communicated to the settlor.
Whether the language ultimately is found valid or not, even in cases where the beneficiary may have a legitimate claim, the inclusion of exculpatory language should inform the decision of whether to bring a claim and once the claim is brought, the strategy in achieving the desired outcome.