A recent opinion by the Appellate Court in Missouri suggests that the beneficiaries of a trust may have a claim for breach of the trustees’ duties not only against the trustee, but also against the trustee’s mother.
Breach of Fiduciary Duties Lawsuit
Lawrence McClure was the trustee of the Les Galey Trust, a testamentary trust established by his uncle Les in 1989. Les died in 1991, leaving assets valued at around $215,000 in the trust. Under the terms of the trust agreement, the trust assets were to be used for the benefit of Les’ Widow, Mary, during her lifetime. Upon Mary’s death, specific bequests of $40,000 were to be made to each of four beneficiaries, and the remainder was then to be distributed to Les’ sisters, Bessie and Jean.
Lawrence was the named trustee of the trust and remained the only trustee from 1992 on. However, during his tenure as trustee, he never made any distributions to his Aunt Mary.
Mary died 13 years later in 2004. After Mary’s death, Lawrence didn’t make any distributions to any of the beneficiaries. He didn’t make any of the specific bequests of $40,000, nor did he distribute funds to either of the remainder beneficiaries – his mother and his Aunt Bessie. A few months later, Bessie sued him in the Circuit Court of Boone County, Missouri, alleging various claims against him for fraud and misappropriation, essentially complaining that he mishandled the trust assets and breached his fiduciary duties as trustee.
But Bessie didn’t only sue her nephew Lawrence. She also sued his mother (her sister, Jean). The same counts she alleged in her complaint against Lawrence, she also alleged against Jean that is, that Jean also breached her fiduciary duties as trustee.
The only wrinkle in this story is, of course, that Jean was never a trustee of the trust.
A Creative Claim
Bessie tried to iron that wrinkle out in her complaint. Although Lawrence was the only officially named trustee, Bessie alleged that her sister Jean told her that she was acting as trustee for her son. Based on Jean’s representation that she had assumed Lawrence’s duties under the trust, Bessie claimed that Jean was, accordingly, authorized to act as trustee on her son’s behalf and that, therefore, a fiduciary relationship was created between Jean and the trust beneficiaries. Bessie also alleged that Jean acted in concert with Lawrence to misappropriate the trust funds – in essence that she conspired with her son to breach his fiduciary duties as trustee.
Jean filed a motion for judgment as a matter of law, arguing that the claims asserted against her by Bessie were fundamentally inconsistent with the fact that Lawrence was the only trustee and that he made no distributions to any beneficiary. As such, Jean contended the seemingly obvious point that she couldn’t possibly have converted any funds as the trustee when she was never the trustee to begin with. Additionally, because Lawrence never made any distributions to any of the beneficiaries – including his mother – Jean never even got any money from the trust.
Although the trial court agreed with Jean and entered judgment in her favor as a matter of law, the Court of Appeals in the Western District of Missouri reversed.
Civil Conspiracy Theory
The Court of Appeals found that Jean could be liable for Lawrence’s misappropriation of trust funds as trustee under a civil conspiracy theory. A claim for civil conspiracy requires that there be two or more persons between whom there’s a meeting of the minds to accomplish an unlawful objective and that one or more of them subsequently commit an overt act in furtherance of the conspiracy, which causes some damage.
Because a conspiracy claim exists to punish (and thereby deter) people from agreeing to aid others in illegal activity, co-conspirators are jointly and severally liable for the damage caused by the conspiracy. Therefore, even if Jean was never a trustee and, therefore, couldn’t herself misappropriate funds as trustee, she could be liable for Lawrence’s misappropriation if she participated with him in a scheme to do so.
Furthermore, the Court of Appeals held that there wasn’t necessarily an inconsistency between the fact that Lawrence was the only named de jure trustee and a claim that Jean acted as trustee on her son’s behalf, thereby assuming fiduciary duties of her own toward the beneficiaries.
Trustee de son Tort
Although the Appellate Court’s opinion doesn’t explicitly state on what legal principle it based its conclusion, it essentially applied the fairly ancient and rarely-cited theory of a trustee de son tort.
A trustee de son tort is a person who’s not formally appointed as a trustee (or any other kind of fiduciary, such as an executor of an estate), but assumes such a role by her actions and does so in a way that harms the intended beneficiaries. Because of her actions, it would be unfair to then allow her to argue that she owed them no fiduciary duties. Much like how courts may impose a constructive trust over property that should equitably belong to a beneficiary, a court may impose a constructive fiduciary duty on a trustee de son tort.
The bottom line is that beneficiaries, and the courts, aren’t necessarily limited by the terms of a trust document, and if you act enough like a trustee you may just wake up one day and find that you are one.