Dangers of Being a Trustee
Have you been named the trustee of a trust? Perhaps a family member or close friend has honored you with the designation. Yet, the savvy trustee should be wary of taking on a fiduciary role. One recent Maryland case shines a spotlight on the dangers of being a trustee. As a fiduciary, you have responsibilities that can result in personal liability.
The case Hector v. Bank of New York demonstrates the dangers of serving as a trustee. The case involved the harm caused by lead paint. As is now well known, lead paint causes brain damage. The owner of a rental home with lead paint must remediate the property and remove the lead paint hazard in a timely fashion.
If the property is owned in a trust, then the trustee may be found liable both in their fiduciary role and in their individual capacity. The Hector case sets out a cautionary tale for a trustee. A property owner failed to remove the lead paint from their rental property. The lead paint harmed the tenants and the tenants vacated. Later, the house was transferred to a trust managed by a corporate trustee. Liability for lead paint poisoning attaches to the trust. The liability for harm to the Hector family remained. The transfer of the property to a trust did not abate the liability.
The case goes further. In the Hector case, the trustee did not know about the lead paint. However, the obligation to maintain a safe property, free of lead paint, continues. Ultimately, the trustee was at fault for the failure to properly maintain the property, even if the hazard existed before the trustee ever undertook their fiduciary role.
Moreover, the trustee could be personally liable. Liability might go to both the injured former tenants and to the current trust beneficiaries. Trusts are for the benefit of beneficiaries. The beneficiaries expect a Trustee to preserve and protect trust assets. The failure to properly manage the rental home jeopardizes the trust and causes harm to the beneficiaries as well.
When selecting a trustee for a trust, the Grantor considers several factors. We name trustees skilled in making complex and difficult decisions. Preserving and protecting assets is always paramount. The trustee must be willing to accept liability for any harm caused to the trust assets and its beneficiaries.
Did you feel honored to be named a trustee? The person who chose you probably trusted you and thought you were responsible enough to handle their trust assets. Before you accept and become a trustee, there are a few things you should consider. Know what assets will be in the trust. Make sure that there are no preexisting conditions that could cause liability. You may wish to check land records, court filings, and financial records.
The role of trustee is fraught with traps for the unwary. To paraphrase the Latin axiom, trustee beware.
Evan J. Krame