Bar News - March 22, 2013
Elder, Estate Planning & Probate Law: Trustees Beware: Potential Liability Under Tamposi
By: Marla B. Matthews
The Shelton v. Tamposi decision, which the NH Supreme Court issued Jan. 11, provides trustees with guidance on how the courts are likely to deal with the modern issue of bifurcation of fiduciary duties in trust administration.
Although somewhat overshadowed by the bifurcation ruling, the court also addressed a trustee’s liability for attorney’s fees in his or her personal capacity, what constitutes sufficient grounds for the removal of a trustee, and whether a trustee has standing to challenge the provisions of a trust agreement.
Since the Uniform Trust Code attempted to modernize the trust laws by embracing the concept of reassignment of duties that have traditionally been the responsibility of trustees, drafting attorneys have incorporated the roles of trust protectors and trust advisors into trust agreements to meet the needs and desires of their clients.
The Tamposi case provides further support for the trend of bifurcation of traditional trustee duties. However, it also gives attorneys a multitude of issues to consider as they attempt to define the roles of trust protectors and trust advisors in a manner that will allow those fiduciaries, as well as the trustee, to carry out their roles in harmony.
The Tamposi facts are fairly straightforward. In 1992, Samuel Tamposi Sr. established a trust that named two of his sons as the investment directors of 12 subtrusts that would be established for the benefit of Mr. Tamposi’s children upon his death. The investment directors were given exclusive authority to invest and manage the trust assets. Moreover, the decisions of the investment directors with regard to the investment and management of the trust assets were not reviewable or reversible by the trustee, Julie Shelton. The trustee, on the other hand, was given the authority to determine the needs of the beneficiaries and make distributions in accordance with the applicable, ascertainable standard.
The relationship among the beneficiaries, investment directors and trustee was strained, and the parties sought probate court relief on more than one occasion. The complaint that ultimately gave rise to the Supreme Court’s January 2013 decision was filed by a beneficiary of one of the subtrusts and the trustee. On appeal, the trustee’s primary argument was that the probate court erred in construing the trust agreement, essentially challenging the probate court’s blessing of the bifurcation of the trustee’s fiduciary duties.
In affirming the probate court’s decision on this issue, the Supreme Court relied on the trust agreement as well as the Uniform Trust Code. The Court held that the trustee was an excluded fiduciary with respect to the investment and management of trust assets and that the investment directors were excluded fiduciaries, with respect to distributions to beneficiaries. In so holding, the Court interpreted the trust agreement as prohibiting the trustee from assuming any responsibility for the management, control and handling of trust assets. The trustee’s role was limited to determining distributions to beneficiaries.
The Tamposi decision should give potential trustees pause as they consider whether to accept the trusteeship of a trust that calls for the bifurcation of trustee duties. Potential trustees will need to be comfortable that the trust is drafted in a way that specifies the responsibilities that are assigned to each fiduciary and the situations in which the trustee will be considered an excluded fiduciary. If there are current disputes between the beneficiaries and the named fiduciaries, the potential trustee may want to consider declining the trusteeship. The Tamposi case demonstrates that disputes can and do arise when a number of fiduciaries are tasked with various duties and one or more of the beneficiaries is dissatisfied with aspects of the administration of the trust.
Under Tamposi, a trustee may also be required to pay another party’s attorney’s fees in the trustee’s personal capacity. The Court relied on RSA 564-B:10-1004, which states that attorney’s fees can be awarded to "any party" as justice and equity require. The Court found that the phrase "any party" in RSA 564-B:10-1004 supports an award of attorney’s fees to voluntary participants in litigation as well as traditional defendants.
The court also found that although a finding of bad faith or wrongful conduct is not required to justify an award of attorney’s fees, the Tamposi trustee’s initiation of costly litigation constituted a breach of the trustee’s fiduciary duties, was in bad faith and, therefore, was sufficient to justify the probate court’s decision to require the trustee to pay the attorney’s fees of the involuntary participants in her personal capacity.
With regard to the removal of a trustee, the Court held that breaches of the duty of loyalty, the duty of impartiality and the duty to take reasonable care of the trust assets were sufficient to justify removal of the trustee under RSA 564-B:7-706(b). In Tamposi, many of these breaches stemmed from the trustee’s initiation and prosecution of costly and prolonged litigation.
Finally, the Court ruled that the trustee did not have standing to challenge the in terrorem clause that was included in the trust agreement. The Court pointed out that in challenging the in terrorem clause, the trustee was acting on behalf of only one of the beneficiaries of the trust, rather than all beneficiaries which constituted a breach of the trustee’s duty of impartiality.
In addition to having an impact on the drafting of trust agreements, the Tamposi decision will affect the conversations trusts and estates practitioners have with their clients about the delineation and assignment of fiduciary duties.
Marla Matthews is an attorney at Gallagher Callahan & Gartrell in Concord. She can be reached at firstname.lastname@example.org.