What Constitutes Breach of Fiduciary Duty By a Trustee?

The Minnesota Trust Code, found in Chapter 501C of the Minnesota Statutes, imposes specific fiduciary duties on a trustee. If a trustee breaches any of those duties, a court may grant relief to a person who suffers harm. In determining whether a trustee breached a duty, the courts apply specific statutory provisions, as well as principles established in Minnesota court decisions.

In 2018, the Minnesota Court of Appeals reviewed a district court decision involving a number of claims asserting breach of fiduciary duties. While the decision in the case of In re Weitzel 2007 Irrevocable Tr., A17-1698, 2018 WL 4201181, (Minn. App. Sept. 4, 2018), is unpublished (and therefore not precedential), it includes references to prior court decisions that establish standards for a number of different types of claims against a trustee that allege breach of fiduciary duties.

Background of the Case

Parents John and Mary Weitzel created an irrevocable trust in 2007. Their daughter Terese and her children were the beneficiaries. The trust was funded solely by contributions that the parents made from time to time. The trustee fully distributed each contribution to the trust beneficiaries within a short time after receiving it.

In 2016, the parents stopped making contributions to the trust. The trustee informed the beneficiaries, which included Terese’s son W.B., that no more contributions would be made to the trust, and that therefore no further distributions would be made. W.B. was still a minor. His father brought an action against the trustee, asserting numerous claims of breach of fiduciary duties.

The district court denied all the claims. The father appealed to the Minnesota Court of Appeals.

Appellate Court Review of Claims Against the Trustee

The petition requested an accounting and continuing court supervision. It claimed that the trustee committed multiple breaches of fiduciary duties in failing to provide income to the beneficiaries, intentionally inflicting emotional distress on the beneficiaries, and failing to protect the beneficiaries.

The district court granted summary judgment in favor of the trustee on all of the claims in the petition. On appeal, the Court of Appeals considered each claim individually. A summary of the primary claims follows.

Claims Relating to Distributions From the Trust

The appellant asserted that the trustee breached fiduciary duties by discontinuing distributions when the settlors stopped making contributions. The balance of the trust was negative at that that time.

The Court cited principles for interpretation of provisions of a trust from previous court cases that state:

• A trustee derives his authority from the instrument creating the trust, and each case involving a question as to authority of the trustee must be decided in light of the provisions of the particular trust instrument.
• So long as the trustees act in good faith, from proper motives, and within the bounds of reasonable judgment, the court will not interfere with their decisions.

In reviewing the trust terms, the Court concluded (as did the district court) that the trust agreement did not require the settlors (or anyone else) to make contributions to the trust. When they stopped making contributions, the trustee had no funds to distribute. As such, there was no evidence of a breach of fiduciary duty concerning contributions to and distributions from the trust.

Failure to Protect the Beneficiaries

The appellant also claimed that the trustee breached a duty to protect the beneficiaries. In reviewing that claim, the Court cited previous decisions recognizing that the same elements apply to negligence and breach of fiduciary claims and that to establish a breach of duty in Minnesota, a person must show four elements:

• Existence of a fiduciary duty
• Breach of that duty
• Causation
• Damages

The district court concluded that under the terms of the trust, the trustee had no duty to protect the trust beneficiaries, so even the first element could not be demonstrated. The Court of Appeals agreed with that conclusion.

Breach of the Duty to Provide Information

Another claim involved breach of the trustee’s duty to provide information. In that regard, the Court referred to Minn. Stat. § 501C.0813, which provides that the trustee must keep the beneficiaries reasonably informed about administration of the trust and of facts necessary to protect their interests. Since the record demonstrated that the trustee kept the appellant and beneficiaries informed and provided all information they requested, the Court concluded that the district court correctly denied this claim.

Other Claims Against the Trustee

Other assertions included an allegation that the trustee committed fraud in administration of the trust. Citing a previous Minnesota court decision, the district court applied the standard of whether there was evidence of a “false representation, with the intent to deceive, inducing reliance and resulting in damage,” which are the elements required for a claim of fraud. The Court of Appeals concluded that the district court properly ruled that the record contained no evidence of fraud under this established standard.

The appellant also claimed intentional infliction of emotional distress by the trustee. The Court reviewed the standards set by previous court decisions for intentional infliction of emotional distress, which include “conduct that was extreme and outrageous, intentional, or reckless, that caused severe emotional distress.” Further, the conduct does not include the type of distress people “commonly encounter and endure in their lives.”

The alleged distress related to the beneficiary W.B. no longer being able to attend the school of his choice. The district court summarily dismissed the claim on the basis that there was no evidence of any conduct rising to the level required under the standards, and that whatever distress discontinuation of funding of the trust caused for W.B., it did not rise above the level that people commonly endure. The appellate court agreed.

The Court of Appeals also reviewed several other claims in the petition, all of which were dismissed by the district court. The appellate court agreed with the lower court’s actions and affirmed the district court’s decision dismissing all the claims.

Claims For Breach of Fiduciary Duty By a Trustee

The Weitzel case illustrates how a district court analyzes varying allegations relating to breach of fiduciary duties by a trustee, and how an appellate court reviews the lower court decisions. The courts look to applicable statutes, then to prior court decisions interpreting the statutory provisions and setting standards for review.

In applying the law to the circumstances of the case, courts examine the record for evidence that meets the standards or requirements set by statute or court decisions. When no basis to support an allegation exists in the record, the claim is vulnerable to dismissal by the court.

In other words, for a beneficiary to substantiate any claim of breach of fiduciary duty by a trustee, the beneficiary must be able to demonstrate existence of the duty, breach of the duty, causation, and injury. If any single element is absent, a claim for breach of fiduciary duty cannot be established.

Talk With an Experienced Twin Cities Probate Litigation Attorney

My practice at the Dave Burns Law Office focuses on probate and estate litigation, which includes matters relating to trusts and trustees. I work with trustees and beneficiaries facing issues relating to management and administration of a trust.

If you would like to discuss a situation involving a possible breach of fiduciary duties by a trustee, I invite you to contact me at (612) 677-8351 or by emailing dave@daveburnslaw.com. I welcome inquiries from clients and referring attorneys throughout the State of Minnesota and am available to meet with clients in both Minneapolis and St. Paul.