January 30, 2023

Volume XIII, Number 30

Advertisement

January 27, 2023

Subscribe to Latest Legal News and Analysis
Advertisement

The Importance of Exculpatory Language in Litigation against Fiduciaries

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.

Litigation against Fiduciaries

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.

The Importance of Exculpatory Language

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.

©2023 Norris McLaughlin P.A., All Rights ReservedNational Law Review, Volume XI, Number 152
Advertisement
Advertisement
Advertisement

About this Author

Nicholas J. Dimakos Lawyer Norris McLaughlin for probate and fiduciary litigation trust and estate matters, contests
Associate

Nicholas J. Dimakos focuses primarily on probate and fiduciary litigation.  His practice includes all types of contested trust and estate matters, including will contests and challenges to account beneficiary designations; accounting actions involving estates, trusts, and powers of attorney; contested administrations involving challenges to and the defense of the actions of fiduciaries; and trust terminations and modifications. Nick’s practice also includes guardianship litigation.  He represents healthcare facilities and family members seeking guardianship and serves as court-appointed...

(908) 252-4351
Advertisement
Advertisement
Advertisement