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Sutton’s Law and EconomicsApplied to the Professional FiduciaryHelping the Trustee Avoid Predatory Litigants

Written by David Prince© 2001, All Rights Reserved

Reprinted from the January 2002 issue of The Banking Law Journal

Mr. Prince is a commercial litigator based in ourColorado Springs office though he practices nationally. Inhis practice he focuses on resolving fiduciary, trust, andestates disputes in the trial and appellate courts as wellas all forms of alternate dispute resolution. Mr. Princealso works to protect fiduciaries and trusts through lossprevention efforts, and speaks nationally on fiduciaryliability issues.

About David Prince

David PrinceColorado [email protected]

www.hollandhart.com

Aspen Billings Boise Boulder Cheyenne Colorado Springs Denver Denver Tech Center Jackson Hole Salt Lake City Santa Fe Washington, D.C.

I. INTRODUCTION

Regular grist for the media mill includes a periodicreport on the coming intergenerational transfer of wealthfrom the World War II generation to the baby-boomers.Estimates as high as $10 trillion2 are commonly reported.The reporting on the 2001 machinations surrounding the"death tax" have only served to raise the profile of thisintergenerational transfer as a field awash in money andfilled with liability traps for the unwary professional.

One of the great anecdotes of the twentieth centurytells us that when the media-savvy bankrobber Willie Sutton was asked why herobbed banks, he replied, "Because, that’swhere the money is." The medicalprofession later adopted this anecdote as"Sutton’s Law," a maxim directing one tolook to the obvious first before seekingmore complicated solutions.3 When appliedto the world of litigation, this maxim tellsthe hopeful claimant to look to the obvioustargets, "where the money is," and a causeof action will follow.

The plaintiff’s bar is slowly awakening to theapplication of this maxim to the higher profile "pots ofgold" represented by that $10 trillion intergenerationaltransfer of wealth. For a plaintiff’s bar trying todetermine "where the money is" after finishing with thedefense contracting, breast implant, and tobaccolitigation of recent fame, the largest concentration of this$10 trillion wealth transfer seems to occur as a largeproportion of it passes through the hands of professionaltrustees. When one combines this incentive with JusticeCardoza’s explanation that trustees must be held to astandard that is "[n]ot honesty alone, but the punctilio ofan honor most sensitive,"4 the professional trustee will beconsidered a target of opportunity for litigation at a levelnot previously experienced.

A number of reference materials are available toprofessional trustees and their counsel to address specificproblems once they have arisen. However, theprofessional trustee today also needs to focus on loweringits litigation profile before problems have beenidentified. Reams of published materials are availablethat address checklists of "dos and don’ts" as well asspecific cautions and rules but their sheer volume makethem unwieldy, difficult to remember or access, andimpractical for daily use. Instead, the information-inundated trust professional of today needs to develop

practical daily approaches to handling dailytrust administration that result in servingthe trust beneficiaries as well asminimizing the trustee’s exposure tounwarranted lawsuits in the future. Themost effective model is to develop asystemic approach to trust administrationthat is flexible enough to apply to all trustadministration actions and simple enoughto be regularized to the point of becominghabit. The model suggested here is gleanedfrom examining hundreds of real situations

with the benefit of the perspective of dozens of trustprofessionals.

II. EXPRESS LANES TO LITIGATION FOR THE FIDUCIARY

In attempting to construct a flexible and effectivesystemic approach to daily trust administration for thetrust professional, one must start by considering howtrustees find their way to the courtroom. Whileauthorities abound with discussions of complex and exoticnew potential liability traps for the trust professional,consistent with Sutton’s Law, we will eschew the exoticand start with the more mundane paths to litigation.

Most claims asserted against trustees seem to flowfrom one of the following "express lanes" to the

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A substantialportion of thecoming $10 trillionintergenerationaltransfer will passthrough the handsof fiduciaries.

Sutton’s Law and Economics Applied to the Professional FiduciaryHelping the Trustee Avoid Predatory LitigantsWritten by David Prince1

Sutton’s Law and Economics Applied to the Professional FiduciaryHelping the Trustee Avoid Predatory LitigantsWritten by David Prince

courtroom:A. Unauthorized Transactions: The initial reaction of

most trust professionals to the unauthorized transactionexpress lane to the courtroom is "of course, that’sobvious; we don’t need to be warned against takingprohibited actions." However, a derivation of Sutton’s Lawapplies to this category with particular virulence; thistype of mistake is so obvious that its avoidance iscommonly taken for granted. But, any experienced trustprofessional will reveal scores of examples ofunauthorized transactions when specifically questioned.The examples range from the simple to the more exotic.

A simple but recurring situation withmany derivations can be illustrated asfollows: A trust officer ("TO") receives anexisting trust file with papers all neatlyarranged and secured in the file folder. Theincome beneficiary proposes that the trustpurchase certain securities that are backedby real estate mortgages. TO examines thetrust portfolio and notes that it had onceheld a few such securities but no longerholds any. TO is thorough and also examinesthe investment authority granted in thetrust instrument. At the bottom of thefourth page, TO reads a provision authorizing the trust toinvest in several categories that essentially cover therange of otherwise permissible investments. TO sees noapplicable limitation and makes the investment. What TOfailed to see was the statement at the top of the fifthpage prohibiting investment in instruments secured byreal estate mortgages because it was blocked by the twoprong fastener holding the papers in the file.

Trust professionals initially chuckle at this realexample but, upon reflection, each can recall similarexamples where the instrument was never read,limitations placed in an unexpected portion of theinstrument were not read, interlineations by the settlorwere not consulted, or addenda were not examined.5 Allwere obvious in retrospect, but these oversights areconsistently buried among the thousands of trust

decisions made each and every day.A more exotic type of situation occurs when the trust

language is clear but the nature of the transaction is notimmediately apparent. Consider the prior example exceptthat TO reads the full instrument and is aware of therestriction. TO enters an unauthorized transaction anywayby purchasing shares in a common fund whose holdingsviolate the investment restriction. TO has unknowinglyviolated the investment restriction by not being familiarwith the holdings of the common fund.6

Another typical unauthorized transaction arises fromfacially ambiguous language in the trust instrument. For

example, a 1950’s era trust instrumentmay authorize the trust to invest in "NewYork Curb Securities." The "New York Curb"has not existed for decades and, in itsabsence, determining what qualifies as a"New York Curb Security" is a challenge.Commonly, TO recognizes that the phraseis, at best, ambiguous when applied tocurrent markets. Nonetheless, TO blithelypurchases NASDAQ stocks based on a guessat the modern translation of the standardand, more likely, because it seemsconsistent with the institution’s general

investment strategy and some securities previously heldby the trust. Not clearly understanding the language inthe trust instrument, TO has entered an unauthorizedtransaction.

B. Ambiguous Language or Situation: Trustinstruments rarely contain terms that are so express andinflexible that they relieve the trustee of exercising anyjudgment or discretion. Basic evaluations, interpretationsand decisions under the instrument are the reason thesettlor arranged to use a professional trustee in the firstplace. These are not the type of daily evaluationsintended by the term "ambiguous." Instead, this categorydescribes the instance in which the trustee is faced withtruly ambiguous language in a trust instrument or asituation that renders the language ambiguous.

One example is the investment restriction limiting

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Instruments rarelycontain terms thatare so express andinflexible thatthey relieve thetrustee ofexercising anyjudgment.

investments to "New York Curb Securities" describedpreviously. Another type of ambiguous situation thattrustees increasingly encounter results from theproliferation of trusts and their overlapping coverage.For example, an individual with a serious medicalcondition is the beneficiary of two or more "needstrusts." Each trust directs itstrustee that the beneficiary mustlook first to other availableresources for payment of medicalneeds before receiving adistribution, the equivalent of aninsurance policy’s "excess coverage"clause. This language has long beenconsidered standard andsufficiently clear guidance for a trustee. However,when applied to the situation where two suchinstruments are involved, the trustees are faced withambiguity as to how they should decide which trustshould make what distributions for the beneficiary’smedical bills.

C. Unrealistic Beneficiary Expectations: Trustprofessionals have a great appreciation for thedangers of unrealistic beneficiary expectations and,to one degree or another, make efforts to managethose expectations. In the 1990’s, every trustprofessional received a call from a beneficiary at onepoint or another complaining that "the market is up25% but my trust is only getting 5%, you’re costing meXXX dollars a month." Unrealistic beneficiaryexpectations run a much broader gamut covering suchissues as the role the trustee will play, the servicesthe trustee will offer, the stated purpose andlimitations of the trust (as opposed to what thebeneficiary thought Uncle Harry would have wanted),and the charges that must be paid by the trust.

Managing beneficiary expectations boils down toa "high touch" approach to dealing with thebeneficiary. Trust professionals have long been awareof the importance of managing expectations and haveexcelled at it in past decades. The greatest new

challenge to the trust professional is the "new economy’s"insistence on dramatic increases in "productivity." Insimple terms, the trust professional’s case load is growingat a substantial rate. Management philosophies driven byeconomies of scale result in remote management of trustdecisions and consolidation of decision-making. While

these developments can greatlyenhance the quality of serviceprovided to beneficiaries, they alsosubstantially decrease the front linetrust officer’s ability to "hand hold"with the beneficiary. The result isthat the trustee stops being thefriend and neighbor of what isbecoming a bygone era. From the

beneficiary’s perspective, the trustee becomes moredistant and inhuman and correspondingly harder to visitand easier to sue in the event of a point ofdissatisfaction.

D. Discretionary Distributions: Handling requests fordiscretionary distributions is one of the bread and butteractivities of the trust professional. Every exercise ofdiscretion has the potential to be questioned and, if notproperly handled, result in litigation. In truth, fiduciarylaw generally grants the trustee extensive insulation fromliability for true exercises of discretion.7 Thus, as withunrealistic beneficiary expectations, the trigger fordisputes can usually be found in the handling of thedecision rather than the substance of the trustee’s actualexercise of discretion.

E. Investment Decisions: The potential for litigationbased on applying hindsight to trust investment decisionsis probably the highest profile pathway to the courthouse.Disgruntled beneficiaries who sue to second guessinvestment strategies or allege churning of accounts arerecurring themes for discussion in any gathering of trustprofessionals. The cases certainly get filed and taken totrial but seem to be less prevalent than industry lorewould lead us to believe. As with all segments of theinvestment related industry, these cases are a constant.The dramatic swings in the securities markets over the

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Managing beneficiaryexpectations boils down to a"high touch" approach todealing with the beneficiary.

last few years are likely to lead to a wave of such casesthat will last for a several years to come. Nonetheless,they should not monopolize the trust professional’s riskmanagement efforts.

The new twist on this area of liability is that the risksof litigation over investment decisions are increased bythe trends of remote consolidation and economies ofscale. While the beneficiaries may actually receiveimproved investment advice and services, these trendsalso make the trustee more prone to allegations of failingto tailor investments to the needs of the individualbeneficiaries or circumstances of the trust. Centralizedinvestment decision-making also increasesthe risk of violating unique investmentrestrictions placed in a given trustinstrument.

The litigation danger of the growingdehumanization of the trustee-beneficiaryrelationship cannot be over emphasized.As noted, this has traditionally been anextremely "high touch" relationship and,thereby, provided significant opportunitiesto resolve complaints and problems beforethey escalate to litigation. That safeguardagainst resolving issues through expensivelitigation is rapidly eroding. Recently, abeneficiary of a substantial trust sued toreplace the corporate trustee solely because thebeneficiary had received a form letter notice that thecorporate trustee had decided to consolidate investmentdecisions to a committee physically located in anotherstate. Maintaining a "high touch" and human relationshipwith the beneficiary likely could have prevented thatdispute.

F. Self-Dealing: Self-dealing is another category thatprompts trust professionals to say "obviously, trusteesshouldn’t do it." But, with traditional corporate trusteesproviding more and more investment services, thepotential for the corporate trustee to have an inter-departmental conflict of interest in a given transaction,known or unknown, is ever increasing.

For example, how often does the corporate trusteeuse trust funds to purchase a "product" that happens to besold by the corporate trustee? The complainingbeneficiary will call this self-dealing. Did the trustee havea good reason to purchase its own products instead ofsome other course identified by the complainingbeneficiary’s hindsight? Did the corporate trustee chargethe trust a "load" for investment management inconnection with the fund on top of the fee for investmentmanagement charged as part of the general trustee’sfees? While this argument saw little success when thecorporate fiduciary offered little more than two or three

"common trust funds" for investing,plaintiff’s attorneys are arguing it withgreater optimism as trustees invest moreand more in their own more varied"products."

Another risk of inadvertent self-dealing is created by the traditionalconfidentiality wall erected between thecommercial and trust divisions of thecorporate trustee. Corporate trusteesmay be on both sides of a giventransaction in that the trust division maybe selling a trust asset while thecommercial division is involved with thepurchaser. Where the corporate trustee is

involved on both sides of a transaction, the transactionwill be subject to scrutiny for self-dealing. Depending onthe circumstances, a purely routine loan will not likelyresult in liability.8 However, any variation that results insome benefit to the corporate trustee has a high risk oflater being seen as self-dealing.

In one decision, the California court determined thatthe commercial division’s issuance of a loan to a third-party to facilitate the purchase of real estate from thetrust was self-dealing where the loan was secured by adeed of trust to the real property then being held inescrow as part of the sale transaction. The court foundthat the commercial division’s earning of $2,400 ininterest on the loan secured by a trust asset was self-

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As modern financialinstitutions grow inthe breadth of theirgeographic coverageand in the scope oftheir transactions,the risk of this typeof "unintentional"self-dealing grows.

dealing as a matter of law and the corporate trustee’sgood faith was no defense.9 As modern financialinstitutions grow in the breadth of their geographiccoverage and in the scope of their transactions, the riskof this type of "unintentional" self-dealing grows.

G. The Existing Mistake: A basic maxim amongpoliticians, and apparently one that is proven nearly asoften as it is ignored, is that the cover-up is worse thanthe original misstep. Despite the name, even a corporatetrustee is ultimately human. The trust professional willmake dozens of trust decisions on a daily basis. The lawof averages alone dictates that even a brilliant and nearlyperfect trust professional will make more than a dozenmistakes of varying significance in any given year. Oncethe mistake has been made and discovered, how it ishandled can significantly increase or decrease thefiduciary’s liability risk.

For example, TO inherits an open trust account fromanother entity recently acquired through a merger. TOexamines the trust’s accounting records and finds arepeated misallocation of a particular category ofreceipts between principal and income. TO has severaloptions for proceeding:

• TO can ignore the mistake andcontinue the status quo allocation,hoping no one will notice;

• TO can quietly note the correctallocation for all future transactionsand hope the beneficiaries do notnotice the prior errors;

• TO can correct the allocation for allfuture transactions and write to the beneficiariesadvising them that the state’s recent adoption ofthe new Uniform Principal and Income Act hasresulted in a change in all future allocations ofthe receipts from certain of the trust’s assets;

• TO can review the file and develop a means ofensuring proper allocation in the future as well asre-adjusting the balance between principal andincome to account for the past misallocation; or

• TO can examine the records, quantify the impact

of the past errors, develop a proposal foraddressing the mistake, and communicate withthe beneficiaries about the mistake as well asTO’s proposed course of action.

Which of these options, or any of the other optionscreativity can develop, TO takes will substantially impactthe corporate trustee’s liability risk for the future.

III. KNOW YOUR A-C-D’S

The categories identified are derived from a review ofliterally hundreds of genuine situations faced by trusteesand reported in cases which were then evaluated withfrontline trust professionals, analyzed with various trustlawyers, and discussed with probate court judges. Roughlyninety percent of these case studies fall within thecategories identified with the remaining qualifying asmore exotic.

In seeking to distill these categories and hundreds ofscenarios into a systemic approach to trust administrationthat will minimize the corporate trustee’s risk of litigationand liability, one applies Sutton’s Law. In so doing, onequickly realizes that the same basic tactics for risk

avoidance could have succeeded in caseafter case. In fact, these same riskavoidance opportunities appear to haveexisted as commonly in the exoticscenarios as they did in the moremundane situations. The simple tacticsbest suited to exploiting these riskavoidance opportunities can be summed

up in three simple steps: Analyze, Communicate, andDocument, the A-C-D’s of lowering a trust professional’slitigation profile. Consistent with Sutton’s Law, they seempainfully obvious tactics, but tactics that are nonethelesseffective and appear to be routinely ignored.

A. ANALYZEEach and every decision made with respect to a trust

should be made only after careful analysis. This advice ismore easily given than fully appreciated and followed.Even a brief review of troubled trust accounts reveals

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Know Your A-C-D’s• Analyze• Communicate• Document

that far too many actions, investments, distributions, andtransactions simply evolve rather than result fromconsidered analysis.

As a trust professional gains experience, the numberof decisions to be made mounts rapidly and manydecisions start to seem "routine." The trust professionalmakes mundane, daily decisions more by instinct andreaction than true analysis. The step-by-step, methodicalanalytical approach taken by the new, unsure trustprofessional quickly fades as confidencebuilds. The analysis becomes morepassive and instinctual; increasingly,maintenance of the status quo seems tobe the result of most "decisions." Evendecisions that depart from the status quoseem to be based on vaguer and vaguerreasoning. Usually though, decisionsseem to be driven more by deference toprior practices or comments of othersthan the trust professional’s ownevaluation of a given situation. As time passes, requestsfrom a beneficiary receive less evaluation and the trustprofessional tends simply to grant the request or grant itwith a slight reduction that is intended to demonstratefiscal responsibility but has little other foundation. Bythese paths does the corporate trustee quickly find thecourthouse.

The trust professional should imagine thequintessential four-year-old child that seems unable toutter any word besides "why?" No matter what theexplanation, the child persists in asking "why?" Trustprofessionals who imagine this persistently inquisitivechild at their elbows when they make trust decisions willbe well served. Any trust professional that cannot answer"why" a decision is being made is on the fastest of allroads to the courthouse. Moreover, if the answer to thequestion is because "that’s the way it was done last time,""because that is what we’re doing with all the trusts,""because the investment committee thinks derivatives aregoing to take off," "that’s what the settlor did," "that’swhat the beneficiary wanted," or "it seems reasonable tome," then no genuine analysis has been undertaken.

The trust professional must genuinely evaluate thefactors that are present and applicable to the trust atissue. The trust professional must consider the goals ofthe trust that are impacted by the decision beingconsidered, the options available, and how each impactsthe purposes of the individual trust. Does the trust itselfhave provisions that set standards for the decision? Thisseems to be one of the most often neglected steps in theanalysis by trust professionals accustomed to making what

they think are routine decisions basedon general principles of equity. If thetrust instrument does not state anapplicable standard to guide thespecific decision, what are thestandards for making the decision? Hasthe trust professional identified all ofthe available options? For example, if abeneficiary proposes one course ofaction that is a change from the statusquo, has the trust officer considered

the reason for the proposed change? Is the trust officermerely choosing between the suggestion and the statusquo or has the trust officer considered whether otheroptions are available and evaluated them?

A thoughtful analysis that can be proven to have beenconducted and explained is the corporate trustee’s mostpowerful defense in the event of litigation. A corporatetrustee in New York presented one of the most forcefuldemonstrations of this point in the late 1970’s. Thetrustee managed four trusts with a substantial portion oftheir investments in only three stocks. Upon undertakingmanagement of the trusts’ assets, the trustee continuedto hold these three stocks. The stocks began to plummet,but still the trustee held them. The trustee held thestocks without change for three years while their marketvalue declined from $940,000 to $93,000 and thebeneficiaries finally sued for mismanagement.

On first blush, this sounds like a very tough case forthe trustee. The trustee appears to have abdicated itsresponsibility and taken no action to preserve the trustassets or diversify their investments over an extendedperiod of time and in the face of clear warnings.

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A thoughtful analysisthat can be proven tohave been conductedand explained is thecorporate trustee’smost powerful defense.

However, at trial, the trustee was able to prove that itsapparent inaction in holding the stocks was the result of acontinuing, careful, and thorough analysis. The trusteewas able to prove that it conducted over 40 carefulanalyses of the individual holdings of the trusts during thethree-year period in question. The analyses drew onseveral sources of information and expertise. Ultimately,the court was convinced that

The Trustee’s retention decisions were theresult of careful and informed deliberations;the fact that in retrospect they may have beenwrong or unwise is no ground for surcharge.10

As the judge’s comments suggest, the lesson in thiscase is that a reasoned analysis is given great deference,even if it turns out to have been wrong. The analysisneed not be elaborate or time consuming, but it must begenuine and it must be followed by the Communicate andDocument steps. The greatest challenge once a disputehas arisen regarding trust administration is to explain whya particular course of action was taken. More importantly,a jury must be convinced of the thoroughness andreasonableness of that analysis years or decades laterthrough the obscuration of hindsight. This task is all butimpossible if the original analysis has been lost to timebecause it was neither communicated nor documented.11

The trust professional must also remain mindful ofthe various tools available in conducting its analysis of agiven issue. Most corporate trustees have specialists invarious areas available for consultation. For investmentdecisions, a variety of committees or specific experts areavailable. Publications exist on most topics that canprovide guidance on issues from the trustee’sresponsibilities to the best method for liquidating aircraftleasehold interests. Inside or outside counsel can beavailable and should be consulted for legal advice. Inmany circumstances, the beneficiaries are also valuablesources of information for a given analysis. Moreover,most corporate trust departments also have a regularmeeting or other means of presenting a particular issue toa select committee or the entire department for input. A

trust professional should not hesitate to consult any or allof these sources in pursuing an analysis of a givenquestion.

When the result of the analysis is that the trustee’sduty is unclear or the trust instrument is unclear, themost powerful analytical tool available to the trustee isthe court system. All jurisdictions should have somemeans by which a trustee can present a questionregarding trust administration or instrumentinterpretation to a court and seek instructions. A typicalstatute allows a trustee broad latitude to present almostany question of trust administration to a court fordecision.12 While this tool could easily be abused andshould not be used by a trustee as an attempt to abdicateits responsibilities,13 in practice, trustees appear to beoverly reluctant to use it in an appropriatecircumstance.14 The specific standards will vary byjurisdiction, but generally, if the trust instrument isambiguous or if the trustee’s duty and power is unclear, apetition for instructions is likely to be appropriate.

The ultimate result of any analysis must be aconclusion and specific course of planned action. Theconclusion may be that the securities held areinappropriate because they are not sufficientlydiversified. That conclusion must be followed by a plan ofaction such as a plan for changing investments to achieveappropriate diversification and the goals of the trust. Asillustrated above, the conclusion may also be that nochange in investment need take place and the plan ofaction may simply be to reevaluate the assets on a givendate or at the time of a given event. Regardless, theanalysis must reach a conclusion and must result in a planof proceeding with concrete steps and a clear time table.

The final step of the analysis is to ensure that theplan of action is carried into effect. One of thoseexcessively generous gifts too often given to a plaintiff’sattorney is a clear record of an analysis that concluded aparticular action was required but never taken.

B. COMMUNICATE The relationship between the trust professional and

the trust beneficiary is ultimately an inter-personalrelationship, no matter how impersonal the form of

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communication may be. Like all inter-personalrelationships, the bedrock of a successful relationship isgood communication and the surest path to a rockyrelationship is poor communication. The best and leastexpensive means of preventing a beneficiary’s concern ordissatisfaction over an issue from escalating into heatedlitigation is not the world’s most skilled trust attorney onretainer, it is a strong personal relationship with thebeneficiary. As noted previously, a beneficiary that feels aconnection to his or her trustee will be much more likelyto discuss a concern or complaint and try to resolve itwith the trustee than to engage an attorney to filelitigation. Strong communication with the beneficiary isthe key to building such a relationship.

Additionally, the trust professional that communicatesfreely about the decisions she has to make, the optionspresented, the reasoning for her decisions, the servicesshe will provide, the fees she will charge, the actions shehas taken, the actions she is taking, and the actions shewill take is much more likely to establish those strongbonds with the beneficiary. If the beneficiary hascomplaints about a given decision, an established practiceof regular communications with the beneficiary is muchmore likely to result in the complaint being aired andevaluated early. The beneficiary just may have a validpoint or merely needs a better explanation of theplanned course of action. Regardless, the earlier thetrustee is aware of the beneficiary’s complaint, thebetter. Better the trustee learn of the beneficiary’scomplaint when action can still be taken to address itrather than years or decades later when the damageshave compounded and the trustee can no longer doanything to rectify the situation or persuade thebeneficiary to the trustee’s point of view based on thefacts known at the time of the decision instead ofhindsight.

Communication may also provide more concreteprotection to a trust professional. Certain beneficiariesthat have adequate notice of a trustee’s action aregenerally required by a statute of limitations orequivalent to raise an objection within a given time or bebarred from filing litigation.15 However, this protection

can be limited because it does not apply to beneficiariesthat are not yet vested or whose interests are not yetpossessory, such as a future or contingent remainderbeneficiary whose interest will not become possessory forseveral decades, if ever.16

Some states have enacted narrower but morepowerful notice protections for trustees. Beneficiariesthat have notice of a given plan of action may berequired to raise any objections immediately rather thansit idly by awaiting an easy hindsight challenge withtwenty years of accrued damages. For example, whenCalifornia and Colorado enacted their versions of the 1997Uniform Principal and Income Act, they included a noticeshield provision.17 Under these statutes, a trustee maygive notice of a contemplated action or inaction underthe Act and beneficiaries are required to assertcomplaints in a relatively short period of time or bebarred from later objection. More significantly, the noticeshield is not limited to vested, possessory beneficiariesthat receive actual notice as are most statutes oflimitations. Instead, these notice shields purport toinsulate the trustee from liability to "any current orfuture beneficiary" so long as the notice requirements ofthe statute are fulfilled.18

Finally, the communication step is not limited tobeneficiary communications. The trustee must alsocommunicate with co-trustees or other members of thetrustee’s own team. If the trust professional’s analysisdetermined that a given action must take place and theassistance or approval of some other party or teammember is required, the trust professional had bettercommunicate those needs.

C. DOCUMENT In the event of a dispute, the documentation step is

often the single most important step. Unfortunately, it isalso the step most commonly neglected. Thedocumentation step really serves as a form ofcommunicating with future recipients of the trust file.The most thoughtful analysis of a given trust situation isof limited value if it is unknown to the subsequent trustprofessional with responsibility for the trust in the futurewhen the complaint arises.

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This communication through documentation hasalways been one of the keys to successfully defending thetrustee in the event of litigation. The documentationpermits the trustee to communicate to the courtexamining events of past years what happened and why.Traditionally, the individual trust professional knew whathappened and why and only faced the challenge ofexplaining it to the court through live testimonysupported by file documentation. However, thedocumentation in the file is increasingly important to thepreservation of a corporate trustee’s institutionalknowledge. With long-lived trusts and multi-stage truststhat span the careers of several trust officers, theincreasing frequency of corporate reorganizations thatshuffle trust personnel and files, merger and acquisitionactivity among corporate trustees, and the increasedmobility of employees, the file materials are now oftenthe only source of information a corporate trustee hasregarding the trust and the corporate trustee’s ownactions.

The documentation step must communicate twocritical pieces of information to future file reviewers,first, what happened and, second, why. As noted, the filerecord is increasingly the only source of informationabout the events relating to the trust that occurred. Manytrust disputes involve substantial questions of whathappened and when, e.g., what assets were held, whattransactions occurred, what distributions were requested,what information was provided to the trustee, whatnotices were given to the beneficiaries, what directionwas actually given by the settlor outside the originalinstrument, when the settlor passed away, what heirsexist and when. If litigation erupts over what actuallyhappened, contemporaneous documentation of events isgenerally considered the most persuasive evidenceavailable, even stronger than live testimony from thatincreasingly rare animal, a still available trust officer withfirsthand knowledge.

One of the greater surprises in this field is howfrequently a corporate trustee has no knowledge orrecord of the assets actually held by a trust at a giventime or the transactions made involving trust assets.

Unquestionably, corporate trustees make some form ofrecord of assets and transactions. However, the trust fileitself often does not contain asset and transactionrecords. Instead, master asset, investment, andtransaction records are kept elsewhere in paper orelectronic form, often times these records are notorganized by trust and are not self-explanatory. Thedanger is that most corporate trustees manage to trackand preserve the formal paper file for an individual trust,but records, particularly electronic records, not includedin that file are often lost or become inaccessible. One caneasily understand that two or three mergers thatreshuffle the trust department and a few additionalchanges of computer systems quickly render historicalelectronic records virtually inaccessible.

A recent example involved allegations of investmentsthat violated the trust instrument’s restrictions made inthe late 1970’s. The trust department at issue had beenthrough five mergers in the interim. As is often the case,the paper file for the trust had been carefully preservedand passed down from trust officer to trust officer.However, the file itself had only sporadic records of theassets held by the trust. Since the early 1970’s, theinstitution had relied on computer generated accountstatements sent to the income beneficiary. Thesestatements were generated from a master databasecontaining information for all accounts. The whereaboutsof the 1970’s databases were completely unknown. Evenif the data had been located, whether it could still beaccessed was also unknown. Understandably, theinstitution had focused on converting to new systemsrather than preserving historical information from oldsystems. No paper or electronic copies of the statementssent had been kept because those documents had beenissued from a separate department and, of course, theunderlying information was all considered to be availablefrom the computer databases.

Moreover, the limited copies of account statementsthat did survive indicated only that a certain portion ofthe trust’s investments consisted of shares in "CommonTrust Fund B." The trust file had no record of what madeup Common Trust Fund B, a significant issue in the case.

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At the time, that information had been considered wellknown, reflected among the extensive information in thedatabases, reflected somewhere in one of theinstitution’s prospectuses, and surely buried somewhereamong the wealth of information in the records of otherdepartments. Thus, it did not seem necessary to includeit in the file for the trust. Unfortunately, the only filematerials available to the trustee’s team two and one-half decades later was the carefully preserved paper trustfile. Other records that reflected the contents of thecommon trust fund may have existed, but they were notaccessible by any identifiable means. As noted, theelectronic data had long vanished. What limited paperfiles still existed were not indexed to a degree ofspecificity that would allow any meaningful search. Thebasic question of what assets were held by the trust andwhen was nearly unanswerable. Defending a trustee’sactions can be difficult enough when they are actuallyknown, but the task becomes all but impossible when thetrustee does not even know what its actions actuallywere.

To the extent possible, the file for a specific trustshould be self-contained.

In the event of a complaint from a beneficiary, whyan action was taken is often as important as knowingwhat action was taken. If TO has conducted the perfectand complete analysis of a given situation, that analysis isof limited value if it is not preserved for future referencein the file. As noted, statistical chance alone dictatesthat a fair number of well reasoned decisions, particularlyinvestment decisions, will turn out to be "wrong" in lightof future developments. The challenge is that the futurefile examiner (whether a court or a future trust officerresponding to an inquiry) sees the action that resultedfrom an analysis through hindsight. The well documentedfile allows the future reviewer to see the decision fromthe perspective of the actual decision-maker at the timeand understand why that decision was made.

An excellent example of the persuasive ability of afile that puts the reviewer in the shoes of the decision-maker can be found in the case of In re Estate of Niessen.The case involved another hindsight attack on a trustee’s

investment strategy. The trustee was accused of failing tofulfill its fiduciary obligation to manage the assets of thetrust when it simply held large blocks of stock withoutapparent activity through a substantial decline in value.The corporate trustee was able to present evidence fromits file to convince the court that its decisions to retainthe stock at issue were the result of extensive analysesconducted as part of a regular process and in pursuit ofan overall investment strategy carefully constructed toachieve the goals of the specific trust instrument. In theface of such evidence of thorough analysis, the courtfound no liability even if one considered the trustee tohave made a "mistake or error in judgment in theretention of any securities."19

Some large institutions can be vulnerable to the fearof a "smoking gun" that leads some personnel to avoiddocumenting a file or manipulative documentation. Mediareports and popular culture feed these fears by themanner in which they treat high-profile litigation. Theanti-corporate point of view is regularly expressed withthe corporate evildoer on the verge of getting away withunspeakable acts except for the hero or heroine findingthe smoking gun document that brings them to justice.The "plague of lawsuits" point of view is presented bystories of perfectly honorable companies being broughtdown in litigation by one engineer’s report expressingunreasonable concerns about a product’s safety. Theisolated report is then blown out of proportion as a"smoking gun" thereby forcing a legitimate corporatecitizen to close its doors.

While parties may debate the wisdom of avoidingdocumentation in certain industries, the issue is not evenopen to debate for the professional fiduciary. In fact, aninclination to avoid documentation is exceedinglydangerous for a professional fiduciary. Simply put,thorough and accurate documentation is one of theprofessional trustee’s best friends for two reasons. First, atrustee operating within its authority and discretion isgiven great deference in the event of litigation.20

Consequently, the vast majority of the trustee’s decisionswill be upheld but only if they can be adequatelyexplained from the perspective of the decision-maker.

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Thorough and accurate documentation will permit thisexplanation.

Second, the trustee holds a relatively unique positionamong American businesses because the trustee’sultimate duty is not to its own financial interests but tocomply with the settlor’s intent and provide for thesettlor’s beneficiaries.21 Moreover, the great deferencegranted to a trustee properly exercising its discretionwithin its authority seems to all but evaporate if thetrustee exceeds its authority and discretion or venturesinto areas of self-dealing. Thus, when a trustee has madean error, its own best interests are served by identifyingand correcting that error as early as possible.

Clear documentation in a trust file facilitates futuretrust personnel in identifying and evaluating potential"mistakes." The corporate trustee is best served by findingand resolving genuine errors as quickly as possible, andcertainly prior to expensive litigation. The trustee’srelatively minor mistakes are also more vulnerable to thepassage of time than other industries. Most businesses cantake some comfort when a given number of years havepassed since a particular action with no claims havingbeen asserted. The trustee, however, manages trusts thatmay span several generations and many decades withrelatively few time bars to prevent a newly vestingbeneficiary from challenging decisions made at theoutset. Consequently, a small dollar mistake may layquietly below the surface for many years with damagescompounding annually before it is challenged in litigation.A relatively modest four figure mistake can easily requirea five to six figure solution as well as a five to six figurelitigation bill.

Thus, a responsible trustee seeks to identify genuineerrors and quantify them as early as possible. This task issubstantially enabled by accurate and thoroughdocumentation in the trust file.

The legitimate corollary to the "smoking gun" concerndirects that the documentation be accurate andthorough. Incomplete, ambiguous, or misleadingdocumentation can become a false "smoking gun" and beworse than no documentation. In a recent case, a newly

vested remainder beneficiary challenged a fifteen-year-old distribution of $25,000 as improper and unauthorizedunder the trust instrument. The trust professionalinvolved was no longer with the institution which left onlythe file entries to determine what had happened. Anaccounting entry confirmed the date of the distributionbut did not identify the recipient or the reasoning. Ahandwritten note reflected that shortly after thedistribution was made, an income beneficiary called thetrust officer. The notation said only "our distribution waswrong." The complaining remainder beneficiary filedlitigation and argued that the notation was an admissionby the trustee of wrongdoing.

With no other information available, the corporatetrustee was hard-pressed to mount a defense until theretired trust officer that had made the note was locatedin another state. He explained that the note merelyrecorded the statement of the beneficiary and that, atthe time, he had conducted a thorough evaluation anddetermined the distribution was proper.

Unfortunately, the documentation he left for futurereference did not provide any of this information and wassufficiently ambiguous that, even with his testimony, aresolution of the dispute favorable to the corporatetrustee cost tens of thousands of dollars in legal bills andincalculable lost value in resources that were diverted toresolving the dispute. Most of this could have beenavoided had the trust professional’s evaluation of thebeneficiary’s concern been accurately and thoroughlydocumented. Had the actual trust officer not beenlocated or not been able to recall the incident, or notbeen able to convince a court of his explanation, thecorporate trustee would surely have been liable for amistake that never actually happened.

Again, thorough and accurate documentation isamong a trustee’s best allies. Certainly, expecting a threepage file memorandum for every twenty secondtelephone call with a beneficiary is impractical. However,for every action or decision taken, some basicdocumentation of the action/decision and the reasons forit should be in the primary file.

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IV. APPLY YOUR A-C-D’S

This simple, three-step process of Analyze,Communicate and Document is intended as a guide totrust duties that will minimize the trustee’s likelihood ofbecoming involved in a dispute and maximize thetrustee’s ability to explain its actions in the event of adispute. It is designed to be simple and flexible enough sothat the trust professional can incorporate it as part ofhis or her daily routine, such that it becomes secondnature. Your A-C-D’s should be part of practically everyaspect of your trust duties.

For example, if the trust professional is fortunateenough to be involved in the incipient stages of creating atrust, the A-C-D approach is invaluable. A trustee thatlearns that it is being considered to act as trustee underan instrument being prepared should, to the extentpossible, request a copy of the draft instrument. Whilenot always possible, the trustee may save itselfsubstantial difficulty in the future by carefully analyzingthe instrument while it is still a draft. Drafting attorneyssimply do not have the experience of having to "live with"a given instrument over time that a professional trusteehas. This perspective allows the professional trustee toidentify impractical provisions, ambiguous, or inconsistentworking provisions in the instrument that may otherwisebe overlooked.

Consequently, when possible, the trustee shouldobtain an early copy of the trust instrument and performa thorough analysis to determine whether the instrumentis sufficient for the trustee’s needs. The trustee shouldthen communicate any difficulties in the design of thetrust instrument that it finds.22 As with anycommunication, the trustee should begin attempting tomanage the expectations of the interested parties byexplaining what duties the trustee understands it is toperform under the agreement, what duties it will notperform, and how it will charge for its services.

These communications themselves should be writtenand designed to document exactly what evaluation the

trustee performed. Part of the documentation step shouldbe to make clear the limitations of the trustee’s review ofthe draft instrument. The trustee should document in itscommunication to the settlor that it did not undertake toprovide estate planning advice.23

This early analysis and communication, reflected byclear file documentation, will substantially decrease thelikelihood of future misunderstandings as to the role ofthe trustee. It should also help focus the settlor onproviding the trustee with express directions on thoseareas of importance to him or her. "The trustee says shewill consider basic food, shelter, and health needs inmaking discretionary distributions. So, if I want Frank tobe given money to buy a sports car on his sixteenthbirthday, I better put it in the trust agreement."

More commonly, a trust officer’s first contact with atrust is after the instrument has been executed and thetrust has gone into effect. The trust officer is introducedto the trust either when it is being activated or when it isalready active and is being passed along by another trustofficer. In either situation, the trust officer shouldremember his/her A-C-D’s and apply them from theoutset.

First, analyze the contents of the trust file. Is itcomplete, are the essential documents present, does itinclude relevant contact information, does it identify theassets, what file notes are present, and what issues dothey raise?

Second, analyze the trust instrument. Is it complete,are there any amendments, is it executed, is there anyindication of subsequent documents issued by the settlor,is it registered, is the document intelligible, what are theduties of the trustee, are they complete and intelligible,what are the powers granted the trustee, are theysufficient to accomplish the duties imposed on thetrustee, what benefits are to be funded by the trust,what guidance or restrictions on asset management areprovided, are there particular accounting directions, arethe beneficiaries sufficiently identified, are the standardsfor making distributions adequately stated, are therereporting requirements, is there a co-trustee or identified

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advisor, and a host of other case specific issues. Third, the trust officer should examine the assets and

conduct an analysis to determine if they comply with theinvestment standards established in the trust. Thisanalysis should be conducted regardless of whether thetrust is being established or has been administered by thesame corporate trustee for many years. In the firstinstance, the trust assets will commonly need to beadjusted. The second instance too commonly falls victimto a passive acquiescence to the institutional status quo.By this means, simple mistakes grow dramatically overthe years into ridiculously expensive problems. Afteranalyzing the assets for compliance with the trust’sinvestment standards, the appropriateness of the assetsshould also be analyzed from the perspective of whetherthe investment strategy is fulfilling the purposes of thetrust and whether it adequately accounts for marketconditions. Next, the assets should be analyzed forcompliance with the trustee’s own investment standards.One of the easier plaintiff’s cases, and surprisinglycommon, is presented when the corporate trustee hasdeparted from its own investment standards without goodand clearly documented reasons.24

Next, the trust officer should analyze priortransactions. A successor trustee is not generally liablefor the breaches of duty made by its predecessor.25

However, the successor may be liable if it permits acontinuing breach of duty to occur or fails to require thepredecessor trustee to redress its breaches of duty.26

Moreover, a successor trust officer at a given corporatetrustee is not a "successor trustee." Thus, the samecorporate trustee remains in place and remains liable forits errors, discovered or not, regardless of which prioremployee made the error. Consequently, any change oftrustee or trust personnel should serve as a trigger toconduct at least a limited review of prior transactions sothat, at a minimum, the new trustee or trust officer canunderstand how the trust came to its current situation. Inthe event any errors are discovered in this review, actionshould be taken to address them.

After any and all issues have been analyzed, the trust

officer should develop a plan of action for the trust. Theplan may be as simple as continuing the status quo or itmay require actions from other departments, a completereadjustment of the investments, ranging up to courtproceedings to address a potential problem or ambiguousprovision of the trust instrument. Regardless of the natureof the plan, the analysis must result in some form ofconcrete plan of proceeding.

The trust officer must then communicate. If the trustis being initiated or a new phase in the trust is beinginitiated, seize the opportunity to manage theexpectations of the beneficiaries. The trust officer shouldcommunicate with them the role of the trustee under thetrust instrument, the general standards for distributions,the investment plan and current performance if available,and the anticipated expenses for the trust. If the trustofficer is faced with a simple transfer of personnel, theindividual situation dictates the nature of thecommunication but, at a bare minimum, the beneficiariesshould be advised of the new trust officer’s name andcontact information and be invited to raise any issues orquestions. The trust officer should always keep in mindthat underlying goals of any communications withbeneficiaries are to manage expectations and identify anyobjections they may have as early as possible forresolution.

Human nature is to shy away from inviting criticism.However, the trustee’s goal should always be to "lean intothe punch" and get complaints out in the open as early aspossible for handling and resolution one way or another.

Similar communications should be sent to any co-trustee or advisor or otherwise interested party. To theextent the analysis has resulted in a determination thatother personnel need to take some action, the trustofficer must communicate with those departments orpersonnel to instigate those actions. The trust officermust then maintain those communications until thosetasks are completed.

Next, the trust officer must document each step ofthe process. The trust officer should document theanalysis itself, the findings of the analysis, the

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anticipated plan of proceeding as well as its reasons, thevarious communications launched and any responses,minutes of any internal meetings held to address issuespresented by the trust, file memorandum on key points ofanalysis or decisions, and the accomplishment or revisionsof the plan of proceeding should also be clearlydocumented. Again, one of the easier cases for theplaintiff to pursue is presented when the file reflects adetermination that certain acts needed to be taken butwere never accomplished.

This basic three step approach should be applied toall actions undertaken and decisions made with respect toa trust. It should be applied to a request from abeneficiary, to investment decisions, to distributiondecisions, to consolidations, and to periodic reviews. Iffollowed, it will put the corporate trustee in a goodposition to avoid disputes, resolve issues before theyblossom into expensive problems, and, in the event oflitigation, place the corporate trustee in the best positionto defend itself.

V. SOME SPECIFIC WORDS OF ADVICE FROM THETRENCHES

A list of specific items of advice or mistakes to avoidis always destined to be misplaced and forgotten.Consequently, such lists can never provide the trustofficer with the degree of day-to-day guidance as can asimple, systemic approach that is flexible enough toaddress most situations and implemented to the point ofbecoming habit. However, the advice "checklist" canprovide helpful illustrations of a point. The following is alist of "words of advice" collected from dozens ofinterviews with trust professionals of every type. Inreviewing the list, note that each could be considered acorollary or subpart of knowing and following one’s A-C-D’s.

A. Read and Re-read the Instrument Read the instrument first, read the instrument throughoutand read the instrument last. This was by far the mostcommonly repeated suggestion from trust professionals ofevery type. It is usually stated with the emphasis born of

frustration with the commonality of errors experiencedthat could have been avoided by simply reading theinstrument.

The understood but too often neglected risk of notreading the instrument is ever growing. While recentyears have seen an explosion of "trust mills" that churnout hundreds of boilerplate form trust instruments, manysegments have also seen an increasing customization oftrust instruments, each with its own unique peccadilloes.Most trust professionals appreciate the need to consultthe trust instrument for distribution or investmentstandards. However, trusts are increasingly customized inother areas as well. A reaction to some of the dramaticchanges being effected by the 1997 Uniform Principal andIncome Act is that some estate planners are creatingcustom principal and income allocation standards in eachtrust instrument. This new trend in customizing whathave been more traditional and uniform administrationcan create a nightmare for the corporate trustee handlinglarge numbers of trust accounts.

B. Specialized Assets and Transactions RequireSpecialized HelpWhen specialized situations are presented, the trustofficer should not hesitate to obtain specialized advice orassistance. Is the trust officer truly qualified to liquidatethe privately held water company held by the trust? Ofcourse, the trust professional must keep in mind that thetrustee may not delegate its duties to the specializedconsultant. The trustee can merely take the consultant’sadvice into consideration in making its own decision, adecision for which the trustee remains responsible.27

C. Assure the BeneficiariesMany beneficiary concerns can be allayed simply byreassuring the beneficiary that someone is activelymonitoring the trust, the assets, and the distributions.Their expressed concerns are often driven by afundamental fear of being lost among the accountsprocessed by a faceless bureaucracy. A simple reassurancethat they have not been lost in the shuffle willaccomplish a great deal and provide very inexpensive riskavoidance.

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D. Avoid Institutional FocusCorporate trustees each have their own personality, pointof view, culture, and means of proceeding. The trustofficer should be aware of these biases and evaluatewhether they are appropriate for the trust account atissue. The trust department may always use Company Xto liquidate hard assets, but does Company X really havethe experience and contacts to sell the mink farm held bythis trust?

E. Follow the Trustee’s Own Guidelines/PoliciesAs noted previously, one of the plaintiffs bar’s favoritetypes of cases involved a trustee that has taken actioncontrary to its own policies. The trustee can and shoulddepart from general guidelines or policies whenappropriate, but only after careful analysis and thoroughdocumentation of the reasons for doing so.

F. DocumentOne of the more frustrating situations for a corporatetrustee is the file that simply contains no information onthe matter at issue. In the event of a dispute, thecorporate trustee is effectively immobilized in theabsence of documentation.

G. Disclose Errors EarlySetting aside the powers of compounding, history isreplete with examples where the cover-up was worsethan the mistake being concealed. Find errors early,disclose them early, and resolve them early.

H. Speak in Plain LanguageMost beneficiaries are "lay people" and are unlikely to beeither informed or impressed by explanations inunfamiliar language. The purpose of communications is tocommunicate with the recipient. Obtuse language orjargon do not accomplish this task. This caution applies toall forms of communication, including those too oftenindecipherable computer generated form accountstatements.

I. Get ConsentsWhen an action is taken, communicate it to identifiablebeneficiaries and obtain their consents wheneverpossible. Consents will not relieve the trustee of liabilityin all circumstances, but they are always a powerful tool

in seeking to resolve a complaint raised by the party thatconsented.28

J. Follow the Instrument’s RequirementsThis is an obvious corollary to the advice to read theinstrument.

K. Schedule Regular Trust ReviewsThe trust professional should not rely on external eventsto trigger reviews of a trust. A regular schedule ofperiodic, targeted and comprehensive reviews of a trustshould be scheduled and acted upon.

L. Know the UPIAThe Uniform Principal and Income Act provides standardsfor allocating receipts from assets to either principal orincome. This allocation decision has a substantial impacton most trusts requiring a balance between payments toan income beneficiary and management of assets for aresiduary or principal beneficiary. Several states haveadopted the 1997 version of the Uniform Principal andIncome Act which effects several significant changes fromthe old law. Trust professionals should be well aware ofthe law applicable to a given trust and follow its dictates.

M. Follow ThroughOnce a trustee determines that a given course of action isrequired, the trustee must actually follow through andtake the required action.

VI. CONCLUSION

Trust professionals spend their careers "where themoney is" and make tempting targets for predatorylitigants because of the broad scope of fiduciary liability.Considering the broad scope of potential liability and theinevitability of errors in judgment, a conscientious trustprofessional should strive to adopt a method of makingdaily trust administration decisions that will maximize thequality of the services delivered, minimize the risk ofmistakes, encourage the beneficiary to express itsconcerns or complaints to the trustee, and provide thetrustee with its strongest defense in the event acomplaint escalates to litigation. Each of these goals isserved by a systematic pursuit of analysis,

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communication, and documentation with respect to trustadministration activities. Thus, a trust professional whoremembers and uses its A-C-D’s will be well served andwill minimize its litigation profile.

FOOTNOTES1David Prince is a trial and appellate attorney, his

practice focuses on resolving fiduciary disputes. Mr. Princerepresents a number of national corporate fiduciaries andbeneficiaries. In preparing these materials, Mr. Princedrew on his experiences as well as input frominnumerable contributors in the ranks of professionaltrust officers.

2See, e.g., Nedd, Sibling Rivalry Moves To The Courts-Disputes Among Siblings About Aging Parents’ Care Are OnThe Rise, Legal Inteligencer, January 21, 2000, at S1("Some estimates have put the amount of money inquestion at $10 trillion, which would make it the largestinter-generational transfer of wealth ever"); Marino,Passing the Bucks: Baby Boomers Stand to Inherit TrillionsJournal Record, Oct. 1, 1993 ("Economists estimate $8trillion in collective net wealth will transfer from onegeneration to the next over the coming 20 years, thelargest movement of inherited wealth in the nation’shistory").

3W. Sutton, Where the Money Was: The Memoirs of aBank Robber 120 (1976). The great irony is that a reporterinvented the quote; Mr. Sutton never actually said it. Id.

4Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545,546 (1928).

5See, e.g., Stowers v. Norwest Bank Indiana, N.A., 624N.E.2d 485, 487 (Ind. App. 1993) (case involving issues ofestoppel and consent arose out of situation in whichtrustee distributed trust property per capita despiteexpress language in trust instrument directing "perstirpes" distribution).

6Compare In re Hyde Trust, 458 N.W.2d 802, 804-05(S.D. 1990) (trustee violated trust instrument thatauthorized prudent investments by investing incommodities which could not be considered a prudentinvestment).

7See III A. Scott and W. Fratcher, Scott on Trusts § 187(4th ed. 1988) (hereinafter "Scott on Trusts") ("so long as[the trustee] acts not only in good faith and from propermotives, but also within the bounds of a reasonablejudgment, the court will not interfere"). See, e.g., Hurtigv. Gabrielson, 525 N.W.2d 612, 614 (Minn. App. 1995)(court upheld trustee’s decision to reduce beneficiary’sshare of distribution by amount of prior debt owed totrust as within trustee’s discretion even though debt hadbeen extinguished as a matter of law throughbankruptcy).

8See, e.g., In re Lerch’s Estate, 399 Pa. 59, 58-69, 159A.2d 506, 511-12 (1960) (trustee whose commercialdepartment extended periodic loans to company withfinancial difficulties did not act improperly where nofunds from trust were lent, no unusual terms for loanswere noted, trust had held stock in company sincecreation, and company had been indebted to trustee’scommercial department at inception of trust as well)

9Estate of Pitzer, 155 Cal. App. 3d 979, 992, 202 Cal.Rptr. 855, 862 (second district, division 5, ct app 1984).

10Stark v. United States Trust Company of New York,445 F. Supp. 670, 680 (S.D.N.Y. 1978).

11Ironically, the trustee in Stark had less than perfectdocumentation of its "more than forty" analyses. See id.at 681. However, the corporate trustee had the nowunusual situation of having the two trust officers whohandled the trusts throughout the relevant periodavailable to testify. Their detailed testimony along withother available evidence and documentation wassufficient to overcome the lack of completedocumentation. See id.

12See, e.g., Cal. Probate Code § 17200 (West 2001)(authorizing petition to the court to resolve issuesregarding "internal affairs" of trust); Colo. Rev. Stat. § 15-16-201 (2001) (granting district court jurisdiction to"determine any questions arising in the administration ordistribution of any trust").

13See generally Wilmington Trust Co. v. Haskell, 282A.2d 636, 639 (Del. Ch. 1971) (though instructions onquestions submitted may aid the trustee and thebeneficiaries, the court cannot provide advisory opinions).

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14See generally Robertson v. Central Jersey Bank &Trust Co., 47 F.3d 1268, 1274 n. 6 (3rd Cir. 1995) (innoting that a trustee has a duty to act in the interest ofthe trust, sometimes even in contrast to the terms oftrust instrument, court noted, "[i]f it be in doubt in asituation then it behooves [the trustee] to seekinstructions from the courts as to its course of action,"quoting Liberty Title & Trust Co. v. Plews, 142 N. J. Eq.493, 60 A.2d 630, 648 (1948), rev’d on other grounds, 6N.J. 28, 77 A.2d 219 (1950)).

15See, e.g., Cal. Probate Code § 16460 (West 2001)(prohibiting beneficiary from asserting claim more thanthree years after the trustee has provided a report oraccounting that makes adequate disclosure of theexistence of the claim).

16See Scott on Trusts at § 219.4.17See Cal. Probate Code § 16337 (West 2001); Colo.

Rev. Stat. § 15-1-405 (2001).18Id. at Cal. Probate Code § 16337(f); Colo. Rev. Stat.

§ 15-1-405(6).19In re Estate of Niessen, 489 Pa. 135, 141, 413 A.2d

1050, 1053 (1980).20A typical statement of the applicable standard can

be found in In re Trusts Created By Hormel, 504 N.W.2d505, 512 (Minn. Ct. App. 1993) ("When a matter isentrusted to the trustee’s discretion, a court generallyshould not intervene unless that discretion has beenabused."). See generally Scott on Trusts at § 187(discussing scope of liability relating to exercise of powerwithin scope of discretion and authority). And see note 7,supra.

21A typical phrasing of the trustee’s ultimateobligation states "the trustee’s primary duty is to carryout the settlor’s intent." Austin v. U.S. Bank ofWashington, 73 Wash. App. 293, 304, 896 P.2d 404, 410(1994).

22In fact, a trustee may have an obligation under itsduty of "vigilance" to alert the settlor to identifiableimpediments to the settlor’s intent. In re McCoy, 142 Wis.2d 750, 757, 419 N.W.2d 301, 305 (Wis. Ct. App. 1987).

23The trustee’s review alone may give rise to certainduties to the settlor. See id.

24See, e.g., First Alabama Bank v. Martin, 425 So. 2d415, 418-19 (Ala. 1983) (corporate trustee surchargedtotal of $2.6 million for unexplained violation of owninvestment standards even with consent of beneificaries).

25See Scott on Trusts at § 223 (discussing liability ofsuccessor trustees).

26Id. at §§ 223.1-223.3.27See, e.g., Krug v. Krug, 838 S.W.2d 197, 203 (Tenn.

Ct. App. 1992) ("a trustee may only take professionaladvice into consideration as to the management of thetrust; it is his duty to exercise his own judgment in thelight of the information and advice which he receives",emphasis in original)

28See Scott on Trusts at § 216 (discussing requirementsfor and scope of protection afforded by consents ofbeneficiary to trustee action).

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