Managing Litigation Risks of Fiduciaries (Portfolio 857)

Description

The Bloomberg Tax Portfolio, Managing Litigation Risks of Fiduciaries, No. 857, discusses the increasingly risky business of serving as trustee. Fiduciary litigation is on the rise as beneficiaries discover they, like the rest of society, may seek redress in the courts for actual or perceived wrongs. Fiduciaries have a duty of loyalty, a duty to invest reasonably, and a duty to diversify, among others. Even a cautious and conservative fiduciary will find that, when real life circumstances and people are thrown into the mix, the textbook line that a fiduciary may not cross may become blurry rather quickly.

This Portfolio addresses common pitfall areas for fiduciaries and highlights actions of fiduciaries that may result in litigation. The purpose of this Portfolio is not to serve as a comprehensive guide on fiduciary duty, but rather to serve as a guide to avoiding and, if preventive measures fail, preparing for litigation.

Although the guiding principle of this Portfolio is risk management, the discussion of risk management techniques intentionally was placed at the end of this Portfolio. The discussion regarding certain core fiduciary duties and defenses that precedes the section on risk management is intended to assist fiduciaries in defining the “zone of risk.” The section on risk management is followed by a brief discussion of court actions available to fiduciaries in the risk management phase that desire to have court approval of a proposed action or court clarification of an ambiguity.

This Portfolio intertwines discussion of case law and published guidance with practical application to the fiduciary context. The worksheets include sample trust administration checklists, sample letters to beneficiaries, forms regarding action with respect to trust administration, and summaries of representative state laws.

This Portfolio may be cited as Horwood & Wolven, 857 T.M., Managing Litigation Risks of Fiduciaries.

Table of Contents

I. Introduction
II. The State of the Law
III. Investment Duties of a Trustee
IV. The Fiduciary’s Duty of Loyalty
V. Breach of Duty of Impartiality
VI. Breach of Other Duties
VII. Remedies
VIII. Defenses
IX. Risk Management
X. Court Actions to Avoid Lawsuits