ATTACKING AND DEFENDING THE FIDUCIARY A LEAN TO THE FINANCIAL SIDE

Transcription

1 ATTACKING AND DEFENDING THE FIDUCIARY A LEAN TO THE FINANCIAL SIDE Vasili D. Russis Vasili D. Russis, J.D., C.P.A. Kelleher & Buckley, LLC 102 S. Wynstone Park Drive North Barrington, IL Attacking and Defending The Fiduciary A Lean to the Financial Side Relevant Authorities to Follow 1

2 3 Fiduciary Duties The trustee owes a fiduciary duty of care and loyalty to the beneficiaries of the trust and is obligated to carry out the duties of her office with the highest degree of fidelity and utmost good faith (Rennacker v. Rennacker, 156 Ill App. 712 (3rd Dist. 1987)). It is the duty of the trustee, not the beneficiaries, to understand and execute the duties of her trust (Janowiak v. Tiesi 932 N.E.2d 569 (1st Dist. 2010)). 4 Self-Dealing / Impartiality A trustee is prohibited from dealing with the trust estate for her own individual benefit. (Dick v. Peoples Mid-Illinois Corp., 232 Ill. App. 3d 297 (4th Dist 1993). A trustee may not use her knowledge or position to the disadvantage of the beneficiaries. (Rennacker v. Rennacker, 156 Ill App. 712 (3rd Dist. 1987)) A Trustee may not advocate for one beneficiary to the detriment of another. She must deal impartially with all beneficiaries and protect their interests. When the terms of the trust are subject to doubt the trustee may not take sides. Rather, the trustee has a duty to seek judicial interpretation of the trust. The trustee s duty of impartiality is not abrogated in court proceedings. (Northern Trust v. Huer, 202 Ill. App. 3d 1066 (First Dist. 1990)) 2

3 5 Inspect Books & Records A trustee s fiduciary duties include the obligation to allow inspection of the books and records of the trust. A beneficiary has the right to inspection on demand to see that the trust is properly executed, and a beneficiary is always entitled to such information as is reasonably necessary to enable him to enforce his rights under the trust or prevent or redress a breach of trust. (Wallace v. Malooly, 4 Ill. 2d 86 (1954)) 6 Inventory / Accounting An inventory of the trust estate is an essential requirement of a trust accounting. A trust accounting must include a current account showing the receipts, disbursements and inventory of the trust estate. (760 ILCS 5/11(a)) (emphasis added). It is the duty of the trustee, not the beneficiaries, to understand and execute the duties of her trust (Janowiak v. Tiesi 932 N.E.2d 569 (1st Dist. 2010)). A land trust beneficiary owes a duty to other beneficiaries to provide an accounting of rental activities. 765 ILCS 1005/4a; See Sajdak v. Sajdak, 224 Ill. App. 3d 781 (1st. Dist. 1992) (holding that a beneficiary of a land trust has a duty to account to his or her co-beneficiaries). 3

4 7 Trustee Removal Illinois law provides trustee removal is an extreme remedy and a trustee can be removed when hostilities of the parties combine with other circumstances to render removal of the trustee essential to the interests of the beneficiaries and the execution of the trust (Laubner v. JP Morgan Bank, N.A., 386 Ill. App. 3d 457, 464 (2008)). 8 Grounds for Removal Serious breach of fiduciary duties, dishonesty in the execution of her office, and refusal to account are each sufficient ground to remove the Trustee (Drewry v Keltz, 2012 IL APP (1st) U). When other valid reasons for removal are shown, hostility and mistrust between the trustee and the beneficiaries becomes a matter properly to be considered by the court. (Jones v. Bryant, 204 Ill. App. 609 (1917); Wylie v. Bushnell, 277 Ill. 484, 115 N.E. 618 (1917)) 4

5 9 Attorney Fees A beneficiary who must resort to court action in order to defend the trust or the trust estate is entitled to reasonable attorneys fees. (Northern Trust v. Huer, 202 Ill. App. 3d 1066 (First Dist. 1990); Button v Elmhurst Nat l 169 Ill. App. 3d 28 (2nd Dist 1988); Rennacker v. Rennacker, 156 Ill App. 712 (3rd Dist. 1987)) A trustee who has in fact breached her fiduciary duties to the trust has no right to expend trust assets on the defense of an action brought against her on that ground. (Bennet v. Weber 323 Ill. 283 (1949); Northern Trust v. Huer, 202 Ill. App. 3d 1066 (First Dist. 1990)) 10 Fee Petitions / Granting of Fees A fee petition must specify the services performed, by whom they were performed, the time expended thereon, and the hourly rate charged therefore (Kaiser v. MEPC American Properties, Inc., 518 N.E. 2d 424 (First Dist., 1987)). Once presented with these facts, the trial court should consider a variety of additional factors such as the skill and standing of the attorneys, the nature of the case, the novelty and/or difficulty of the issues and work involved, the importance of the matter, the degree of responsibility required, the usual and customary charges for comparable services, the benefit to the client and whether there is a reasonable connection between the fees and the amount involved in the litigation (Kaiser, supra). Additionally, Courts have looked at the size of an estate, skill with which the work was performed, advantages provided to the estate and diligence with which the work was performed to measure reasonableness (In re Estate of Marshall, 521 N.E.2d 637 (Fourth Dist. 1988); In re Estate of Halas, 512 N.E.2d 1276 (First Dist. 1987)). When deciding whether to grant a fee petition, trial courts have broad discretionary powers, may exercise independent judgment and are not limited to the evidence presented by the parties in arriving at a reasonable fee (Wildman, Harold, Allen & Dixon v. Gaylord, 740 N.E. 2d 501 (First Dist., 2000)). 5

6 11 Fee Petitions / Granting of Fees (cont d) To not grant the fees requested would be a message to trust beneficiaries discouraging them from bringing a suit for trustee removal when a beneficiary claims a fiduciary has breached fiduciary duties and has committed acts of malfeasance (Hamilton v. Nielsen, 678 F.2d 709, 715 (7th Cir., 1982)). Where To Issue Spot? 12 6

7 13 Lack of Transparency Failing to Properly Account Not Providing Books and Records Both a Sword and a Shield 14 Failing to Follow Trust Instrument What are the trust s terms? What has to happen? When does it have to happen? 7

8 Financial Matters 15 Matching Financial Matters - Matching 8

9 17 Matching Get tax returns- Form 1040, Form 1041 & Form 706 Do cash flow items (especially rents) show up on returns? MATCH UP Schedule K-1 Indicates amount of income a beneficiary has to report Issued when there have been distributions If no distribution, why is beneficiary paying tax on income not received? 9