Is there any such thing as undue influence over a trustee of a family trust? My father was a co-trustee of a family trust in which the assets could have passed to us (contingency situation), his five children, but he and the other trustees terminated the trust without notifying us, and now everything goes to his second wife.
We are currently investigating evasion of notice. But we also discovered that they had previously declared bankruptcy together and we have evidence that they hid assets. Incidentally, the trust termination occurred just three years after he became a co-trustee. Is there such a thing as undue influence in the termination of the trust, and could the bankruptcy and hidden assets be evidence of anything akin to collusion or undue influence? Thank you.
The trust document will specify what the trustees can and cannot do. Some trusts will provide for the trustees to have a great deal of discretion, and other trusts will strictly limit what actions can be taken by the trustees. If the trustees violated the trust provisions in making distributions or in terminating the trust, it's quite likely that you will have a claim to be pursued. On the other hand, if the trustees did not violate the trust agreement, you will likely have no claim to pursue. Only be examining the trust document/agreement can an attorney even begin to form an opinion about the merits of your claim. If your father is still alive, and if he was very vulnerable to being pressured into taking action as a trustee which he didn't wish to take, and if he is willing to testify to that effect now, you may be able to get somewhere with such fact, even if the trustees did comply with the terms of the trust. Regarding the bankruptcy matter, I would be hesitant about pressing that issue, since it might be your father's creditors, rather than you, who would benefit from his failure to disclose assets.
Estate Planning Attorney
The claim of undue influence is possible if the challenger could prove it by the established judicial standard. That standard is whether the trustee was a “virtual puppet” of the person exercising the influence. But be careful because that is a difficult test to meet. If the trustee was a “virtual puppet,” he would be violating his fiduciary obligation not to delegate his decision-making responsibilities to other persons (even if the trustee was an unsophisticated person). The trustee does have fiduciary duties to the contingent beneficiaries as well as the direct beneficiaries. A lot would depend on the language of the trust. Every trust is different. Your question hints at possible fraud by the trustee or his confederates. You should have an experienced estate planning attorney look at all of the documents in order to get a definitive answer to your specific situation.