Mitigating Successor Trustee Liability for Prior Fiduciary Breach: Trust Structure and Administrative Tools

This CLE course will provide estate planning counsel and fiduciary advisers with a thorough and practical guide to protecting successor trustees from liability for breach of fiduciary duty by a preceding trustee or executor. The panel will describe the general rules binding successor trustees and detail various states' approaches that limit or expand those duties. The panel will discuss structuring and administrative tools to protect successor trustees from claims arising from prior acts.

A challenge for estate planners and advisers in selecting a successor trustee is the liability a successor inherits due to predecessor trustee error. While the law generally holds that a successor trustee is not liable for a predecessor's breach of duty, states impose varying obligations on successors to discover preexisting breaches and duties to remedy those conditions that the successor trustee "knows or should know" exist.

Estate planners and fiduciaries need to understand how to protect successor trustees from liability if the successor fails to address a breach caused by a prior fiduciary. Trust drafters should be prepared to include exculpatory language and provisions in the trust document outlining the successor trustee's obligations when taking the fiduciary role.

Additionally, there are administrative remedies, including ordering a trust accounting and having any prior accounting reviewed, that can proactively address a duty to discover errors that could support a breach of duty claim. Successor trustees may also decant a trust if a prior administrator made an actionable error.

Listen as our experienced panel provides a thorough, practical guide to helping estate planners and trust advisers navigate the challenges of avoiding successor trustee liability for preexisting errors in trust administration.