In 2004, when two sisters were about to receive substantial inheritances, one sister convinced the other (who eventually became Keystone’s client) to create an irrevocable trust to hold the entirety of her inheritance. She urged her sister to name her the trustee of her trust.
Although irrevocable, the trust required annual trust accountings by the trustee sister and monthly distributions of all income to the beneficiary sister. The trust provided for reasonable trustee compensation, but the trustee sister promised never to charge her beneficiary sister trustee fees.
The beneficiary sister contended that, over the next 14 years, the trustee sister would fail to account, fail to distribute monthly income, treat her interest in that trust as her own, engage in self-dealing, and misrepresent the rights she had in her own trust (including the right to remove the trustee).
At first, the beneficiary attempted to address these issues on her own. She obtained some accountings, after which the trustee proposed that she accept all the accountings and release all claims against her in exchange for her resigning. The trustee convinced the beneficiary to accept the offer by falsely representing that the beneficiary would not be able to regain control of her trust unless the trustee were to consent.
The beneficiary, unrepresented by counsel and still believing that the trustee had agreed to waive all trustee fees (which was consistent with drafts of the agreement), signed the final version of the release proposed by the trustee. Unfortunately, the final version of the release that the trustee had induced the beneficiary into signing provided — contrary to what the beneficiary believed had been negotiated — substantial compensation to the trustee. Further, after the agreement was signed, the trustee refused to resign and made a series of threats against the beneficiary.
The sisters’ parents also had created a trust, which provided, upon their passing, for distribution of equal shares to both sisters. By this time, the trustee sister had also become the successor trustee of her parents’ trust.
The beneficiary first retained another law firm, who gave notice to the trustee’s counsel that its client’s trust had been terminated. It also sought to resolve any disputes between the sisters, including by enforcing the beneficiary’s rights to trust assets and the trustee’s prior agreement to decline any compensation. When the trustee refused to cooperate, the beneficiary and her firm brought in Keystone as co-counsel to help her enforce her rights.
Litigation was started to confirm termination of our client’s trust, to compel the distribution of assets still in that trust, to enforce the waiver of the trustee’s claim for compensation in excess of $250,000, and to surcharge the trustee for fiduciary misconduct.
Our client contended that the agreement she and the trustee had signed, which released the trustee and into which a provision for trustee compensation had been inserted, had been fraudulently obtained and was invalid. Separate litigation was filed to obtain information about the administration of parents’ trust, both before and after the trustee sister became successor trustee.
In response, the trustee sought to enforce the release our client had signed relating to her trust. She claimed that the release included waiving any objections to the compensation the trustee had been requesting. As for the parents’ trust, the trustee refused to produce any trust records in her possession that related to the time before she formally became successor trustee of that trust, even though that trust provided its beneficiaries an unrestricted right to review the trust’s books and records.
The trustee had used the assets of the trusts to pay her litigation costs, including her attorney fees. Our client was alleging the trustee had threatened that if she were to sue her, she would prolong litigation to exhaust all remaining assets in the trusts to pay her attorney fees.
The parties began exercising their discovery rights in litigation, with the trustee vigorously resisting our client’s attempts to obtain information, especially information about the parent’s trust. The trustee also had been trying to enforce the release around our client’s trust. By the time the parties were prepared to discuss whether a settlement could be negotiated, the trustee had, indeed, used all the remaining assets in her parents’ trust and a substantial portion of the assets in our client’s trust to cover her attorney fees.
After lengthy direct negotiations between counsel, an unsuccessful mandatory settlement conference presided over by a judge, and further direct negotiations, the parties ultimately agreed to settle their disputes. The settlement, which later was approved by the court in which the litigation was pending, provided for a substantial sum to be paid to our client. A portion of this settlement would originate from distribution of the remaining assets in her own trust and another a portion would be paid from trustee’s personal funds. The parties also released each other from all disputes between them and terminated our client’s interest in the trusts.
