Trustee Malfeasance Leads to Loss of Fees and Expenses

On July 22, 2020, the Iowa Court of Appeals issued an opinion regarding a trustee’s request for fees and expenses incurred in administering a trust. The court affirmed the lower court’s ruling finding that the trustee was only entitled to a small portion of the claimed fees and expenses because she had not fulfilled her obligations to the trust or the beneficiary—likely in order to preserve trust assets for herself.

Background

In 2014, a daughter created a trust for her mother’s benefit. The trust named six remainder beneficiaries, but did not require the trustee to preserve the principal for those six. When the daughter passed away in 2015, her friend—who was also a remainder beneficiary—became the successor trustee. Upon her appointment, the trustee refused to purchase basic necessities for the eighty-eight-year-old beneficiary, such as hearing aids, a lift chair, or a stair lift. The beneficiary petitioned to have the trustee removed and require the trust to distribute funds from the account for these necessities. The district court ordered the trustee to buy the items, but she refused. After nearly a year and a half of court orders, the beneficiary was able to get the needed items. The trustee eventually resigned and sought compensation for services rendered on behalf of the trust, as well as reimbursement attorney fees and expenses. For the period of approximately 27 months that she served as trustee, the trustee claimed trustee fees and expenses of $42,059.81, and attorney fees and expenses of $73,989.83 (later reduced to $62,958.83). The district court accepted the resignation, but directed the trustee and her attorney to submit detailed information on the fees claimed.

The district court found that the trustee overstated the amount of hours worked on behalf of the trust and did not sufficiently explain how some of her work or the claimed expenses benefited the trust. Due to the lack of evidence for the claims and the trustee’s self-serving actions, the court rejected claims after November 4, 2016, awarding $8,505 in trustee fees and expenses. The district court authorized a $3,745.50 payment for attorney fees and expenses for the work performed in tax filings and the 2016 annual report, but found that all other fees incurred were due to the trustee’s efforts to avoid her duties as the trustee. The trustee appealed.

Trustee Fees and Expenses

Trustee fees are governed by the Iowa Trust Code, Iowa Code § 633A. Trustees are entitled to “compensation that is reasonable under the circumstances” if the trust does not specify further. See Iowa Code § 633A.4109. The trust document in this case stated that the trustee was entitled to “reasonable compensation.” The trustee claimed $42,059.81 in fees and expenses for services rendered. She claimed to be owed $30,000 for investment services based on one percent of the trust value per year. However, the trust did not allow this type of compensation calculation. The Court of Appeals affirmed the lower court’s rejection of this claim.

Additionally, the court found that the trustee did not provide sufficient evidence of how many of the hours claimed related to the benefit of the trust. Rather, the court found that the trustee spent most of her time trying to avoid her fiduciary duties. Therefore, the Court of Appeals affirmed the lower court’s decision rejecting fees claimed after November 4, 2016.

Attorney Fees and Expenses

A trustee may be reimbursed for attorney fees and expenses incurred in administering the trust. Like the trustee fees and expenses, these also must be reasonable.  Here, these fees were not incurred in administering the trust and did not benefit the trust. The trustee involved at least eight attorneys and one paralegal to fight providing necessities to the beneficiary. This appeared to be a simple trust to manage with only one beneficiary and mostly liquid assets. Additionally, the trust permitted the trustee to invade the principal for the care of the beneficiary. Therefore, the court affirmed the award of only $3,745.50 in attorney fees and expenses.