Trustee Liability for Negligence or Mismanagement

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Trustees may have various degrees of liability for negligence and mismanagement of trust property. According to Birmingham Trust & Savings Co. v. Ansley, 176 So. 465, 468 (Ala. 1937), a trustee is held to the standard of care that a prudent man would use in managing his own affairs. The trustee must act in good faith and display complete loyalty to the interests of the trust beneficiaries. See also Henley v. Birmingham Trust Nat. Bank, 692 (Ala. 1975); First Alabama Bank of Huntsville, N.A. v. Spragins, 475 So. 2d 512 (Ala. 1985) (no right to have jury trial on issue of breach of fiduciary duties by trustee because no remedy of money damages exists)..

If a trustee breaches their duty, they may be liable for losses to the trust. First Alabama Bank of Montgomery, N.A. v. Martin, 425 So. 2d 415 (Ala. 1982); Fairhope Single Tax Corp. v. Rezner, 527 So. 2d 1232 (Ala. 1987) (punitive damages allowed against trustees upon a showing of malice or fraud); Jones v. Ellis, 551 So. 2d 396 (Ala. 1989); Firemen’s Ins. Co. of Newark, New Jersey v. Pugh, 686 So. 2d 281, 284 (Ala. Civ. App. 1996) (trustee that delegated duties to attorney remained responsible for management and attorney’s mismanagement of estate).

A trustee will generally not be held responsible for losses resulting from unforeseen events, such as a drastic change in the economy, if such losses are not caused by any negligence on the trustee’s part. First Nat. Bank v. Basham, 191 So. 873, 881, 125 A.L.R. 656 (Ala. 1939); Shriners Hospitals for Crippled Children v. Robbins, 450 So. 2d 798 (Ala. 1984).

A beneficiary cannot initiate a cause of action on behalf of a trust without first requesting the trustee to act, or showing sufficient reason for not doing so. Blackburn v. Fitzgerald, 30 So. 568, 568 (Ala. 1901); Riley v. Bradley, 252 Ala. 282, 288, 41 So. 2d 641, 645 (1948). However, if a demand on the trustee would be futile, then the demand requirement is excused. Ex parte Callan Associates, Inc., 87 So. 3d 1161, 1165 (Ala. 2011).

If you believe a trustee is not fulfilly their fiduciary duty, then it’s time to talk to an estate litigation attorney. We have extensive experience with estate litigation, and welcome the opportunity to discuss you or your client’s case. Call or email us for a free consultation.

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