When it comes to trust management, trustees hold a critical position of responsibility. A key case that sheds light on trustee obligations and accountability is Leader v. Cords. This landmark case has become a cornerstone in trust litigation, particularly in cases where trustees delay or refuse to make distributions to beneficiaries. Let’s explore what this case stands for and its broader implications for beneficiaries, trustee duties and bad faith
The Core Issue in Leader v. Cords
In Leader v. Cords, the court clarified a trustee’s dual duty: the duty to account for trust assets and the duty to deliver those assets to beneficiaries. While beneficiaries are entitled to an accounting that details the trust’s assets, liabilities, and distributions, Leader v. Cords emphasizes that trustees must also ensure timely and proper distribution of trust assets.
This case is particularly relevant in scenarios where a controlling trustee takes charge, often motivated by personal disputes with beneficiaries. For instance, a trustee might withhold distributions out of spite or a desire to maintain control. The court in Leader v. Cords made it clear that trustees cannot simply retain trust assets indefinitely. They must pay creditors, maintain reasonable reserves for expenses, and make distributions as required under the trust’s terms.
Bad Faith and Its Consequences
The issue of bad faith often arises in disputes involving trusts. Under California probate law, bad faith can result in significant consequences, including the shifting of attorney’s fees from one party to another. But what constitutes bad faith?
Bad faith is a nebulous concept that is left to the discretion of the trial judge. Typically, it involves actions that go beyond legitimate objections or disputes. For example, if a trustee engages in excessive litigation or deliberately delays distributions, their actions could be deemed as bad faith. Similarly, beneficiaries who file frivolous objections to an accounting might also be acting in bad faith.
However, proving bad faith is not always straightforward. Judges often look for behavior that is clearly abusive, excessive, or without merit. This makes bad faith claims challenging but not impossible to argue.
Attorney’s Fees: A Rare Award
A common misconception among clients is that courts will frequently award attorney’s fees in trust disputes. Unfortunately, this is rarely the case. In the American legal system, each party typically pays their own attorney’s fees unless specific statutory or contractual provisions apply. Judges are often reluctant to shift attorney’s fees unless there is clear evidence of bad faith or statutory authority to do so.
For example, the Financial Elder Abuse statute is one scenario where attorney’s fees may be awarded. This statute is designed to protect individuals over 65 from undue influence or financial exploitation. If a trustee or other party is found to have committed financial elder abuse, the court can order them to pay the other party’s attorney’s fees. However, once the elder passes away, obtaining attorney’s fees under this statute becomes significantly more challenging.
Practical Takeaways for Trustees and Beneficiaries
- For Trustees: Understand your responsibilities clearly. You must account for and distribute trust assets in a timely manner. Retaining assets unnecessarily or engaging in excessive litigation can lead to claims of bad faith.
- For Beneficiaries: Be cautious when objecting to a trustee’s accounting. Frivolous objections can backfire and result in sanctions or attorney’s fees being awarded against you.
- For Both Parties: Manage your expectations regarding attorney’s fees. While it’s possible to argue for fee-shifting in cases of bad faith or under specific statutes, courts are generally hesitant to award them.
In Conclusion
Leader v. Cords serves as a reminder that trustees must balance their responsibilities with fairness and transparency. Beyond accounting, they have a duty to deliver assets to beneficiaries as mandated by the trust. The case also underscores the importance of good faith in all trust-related actions. Whether you’re a trustee, beneficiary, or involved in a trust dispute, understanding these principles can help you navigate the complexities of trust litigation.
At Albertson & Davidson LLP, we have extensive experience handling trust and estate disputes. If you have questions about trustee duties, bad faith claims, or attorney’s fees, contact us for expert guidance.
Watch our breakdown of Leader v. Cords from our Ask 2 Lawyers podcast:
