Can a Remainderman Sue a Trustee for Breach of Fiduciary Duty

My question involves estate proceedings in the state of: New York

Hello All,
After approximately 21 years of my deceased grandmother's Trust paying out to my mother (the Beneficiary and co-Trustee), rather out of the blue I have been sent statements of account informing me of the current value of the Trust. Having run my own calculations based on the initial value of the trust, the assumption of a conservative portfolio,the performance of stock and bond markets over this time, and withdrawal rates, I come to find that the Trust value today is far less than what it should be (i.e. on the order of 1/3 of what it should be). I requested further statements from the bank holding the Trust and sure enough, the account took absurd losses in overly concentrated positions over the years. I'm not a newbie to investing and I work in the investment banking field and I can say with a fair degree of certainty the portfolio has not been managed well--lack of diversification, too much idle cash for extended periods of time, over concentrations in certain sectors of the economy (ie bank stocks). So my question is this: What are my courses of action here? Although my mother is co-Trustee, she has very little if any knowledge of investing. I put more of the blame on this debacle on the bank's portfolio manager(s) who I feel should have run the assets in the trust far more conservatively, with far more diversification, etc. Any advice is appreciated. Thanks much.

Kind Regards,
Remainderguy

If you want to try to build a case, you need to have a lot more than "In retrospect, I think that these investments should have been more profitable". Find yourself an expert witness and retain the expert to analyze the trading records to see if there's anything to work with. You also need to find out from your mother what she requested of the co-trustee, what choices she made along the way, and how that impacted revenues and withdrawals.

The trustees will be the only ones who could sue the portfolio manager if they gave bad advice. You could sue the trustees for breach of their fiduciary duties if the failed the prudent investor rule and failed to get professional advice. The returns on the investment are not that good a guide. Trustees are not responsible for performance per se. They are responsible to behave in a prudent fashion. I know some trustees who turn things into cash equivalents pretty quick. In this market, that return is almost nothing. You have to see what the trustees did and not necessarily how the trust performed. The performance of the trust will be relevant to determine damages if there is found to be a fiduciary breach.

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Quoting Mr. Knowitall

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If you want to try to build a case, you need to have a lot more than "In retrospect, I think that these investments should have been more profitable". Find yourself an expert witness and retain the expert to analyze the trading records to see if there's anything to work with. You also need to find out from your mother what she requested of the co-trustee, what choices she made along the way, and how that impacted revenues and withdrawals.

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I think you're misquoting what I said. The issue isn't directly one of returns per se, but the concentration risks the trustee/portfolio manager in the positions they held and the returns consequent to that. Even had the returns been stellar, I still would have an issue with the risks as a result of concentrated positions held. In terms of expertise I think I have enough of it to make the determination as to what was reasonable and what was not reasonable. In my view, a 4 year old would have done a better job of asset allocation and diversification in regards to the portfolio. To take an extreme analogy, it's almost as if the Trustee(s)/Portfolio manager put all the funds in 'Bitcoins" and decided to see what would happen. This isn't prudent money management by any stretch.

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Quoting Welfarelvr

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The trustees will be the only ones who could sue the portfolio manager if they gave bad advice. You could sue the trustees for breach of their fiduciary duties if the failed the prudent investor rule and failed to get professional advice. The returns on the investment are not that good a guide. Trustees are not responsible for performance per se. They are responsible to behave in a prudent fashion. I know some trustees who turn things into cash equivalents pretty quick. In this market, that return is almost nothing. You have to see what the trustees did and not necessarily how the trust performed. The performance of the trust will be relevant to determine damages if there is found to be a fiduciary breach.

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Thanks for your reply. I think then, as you say, the responsibility to behave in a prudent fashion has in fact been breached in my view. I suspect I'll be digging deeper into this, seeking counsel etc. Thanks again.

You shot yourself in the foot with that last post. It doesn't matter how the trust is invested if there is a reasonable return. Arguin your investment strategy must be followed even if there are stellar returns is simply you trying to control the matter and you have no right to do so.

Now, if you wish to sue base on their failure to act prudently and that has caused you losses, then have at it but you do not have the right to direct the methods if investment as directly as you want to.

Sounds ds like somebody needs to put you into your place which is actually far removed from where you think you should be and want to be.

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Quoting jk

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You shot yourself in the foot with that last post. It doesn't matter how the trust is invested if there is a reasonable return. Arguin your investment strategy must be followed even if there are stellar returns is simply you trying to control the matter and you have no right to do so.

Now, if you wish to sue base on their failure to act prudently and that has caused you losses, then have at it but you do not have the right to direct the methods if investment as directly as you want to.

Sounds ds like somebody needs to put you into your place which is actually far removed from where you think you should be and want to be.

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I disagree I've somehow shot myself in the foot or that "somebody needs to put me in my place and blah blah blah". Fact is, the investment returns were anything but stellar. Besides, getting merely "lucky" in the short (or long) term in investing is not the same thing as prudent management if that were the case. I'm personally not looking to direct the investments per se other than to say that any portfolio manager worth his/her salt ought to be holding diversified investments preferably ones whose returns are loosely correlated at best, particularly in this case when the main beneficiary is a person over the age of 70. Are you suggesting, as an example, that a Trust manager should invest all of a beneficiary's holdings in Bitcoin or Beanie Babies? Any financial advisor would open themselves up to lawsuits if they recommended and sold investments or an asset allocation scheme unsuitable to the investment objectives of their client. I'm curious to know what your background in finance is?

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Remainderguy;775707]I disagree I've somehow shot myself in the foot or that "somebody needs to put me in my place and blah blah blah". Fact is, the investment returns were anything but stellar.

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so what? There are a million people that used to be investment bankers that are now hobos because they thought they had the right stuff. Investment is a crap shoot. As long as the trustee was not negligent in their actions, you got nothing.


[QUOTE]this is how you shot yourself in the foot:

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Even had the returns been stellar, I still would have an issue with the risks as a result of concentrated positions held.

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if the returns had been stellar, you would have no course of action since there would be no damages to address.

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I'm personally not looking to direct the investments per se other than to say that any portfolio manager worth his/her salt ought to be holding diversified investments preferably ones

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I disagree as evidenced by your statement:

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Even had the returns been stellar, I still would have an issue with the risks as a result of concentrated positions held.

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unless that risk bites them in the ass, it means nothing. You don't get to sue for future, unrealized events since they may never come about.


You are getting way ahead of yourself here and overreaching your position's rights. You need to discover what duty the trustee has to YOU as a remainder beneficiary. If the trustee has breached their duties to you, sue until you are happy. If they have not breached their duties to YOU, then you sit home and wait.

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Although my mother is co-Trustee, she has very little if any knowledge of investing. I put more of the blame on this debacle on the bank's portfolio manager(s) who I feel should have run the assets in the trust far more conservatively, with far more diversification, etc. Any advice is appreciated.

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You can blame anybody you wish to blame but since the bank portfolio manager has no obligation or duty to you, you have no action against him/her. If you believe your mother has been negligent in her obligations, sue her but even then, I do not believe you have a cause of action, yet.

I guess your mother must not put a lot of value in your opinion given the fact your mother sought advice elsewhere when it came time to invest the trust assets.

Well, you didn't answer one of my key questions which is 'What is your background in finance?" (and curious to know your law background as well, if any, since your tag line indicates you're not an attorney). You also seem to ignore the question surrounding suitability of investments. So what IS negligence then when it comes to Trust issues and 'fiduciary responsibility"? Maybe that's the question to ask and have answered. At what point can this standard be applied in cases like this? What does it take for a Trustee and/or portfolio manager to be negligent? You seem to suggest that a Trustee or portfolio manager can basically manage a trust in any way they wish--that there is nothing of substance (it seems) that underlies 'prudence'. Investing is not quite the "crap shoot" you make it out to be. There are principles of investing that seek to maximize returns for given levels of risk, and the level of risk sought is assessed ahead of time based on the client's tolerances. And while there is no guarantee these levels of risk and return are achieved, there is nevertheless a framework and sound theory, practice, and common sense applied to back up the practice. Otherwise, why are Nobel prizes awarded to people like Harry Markowitz and William Sharpe?

As to why my mother did not seek financial advice from me? Well, it's certainly not because I don't have the knowledge or credentials. I have a masters in finance and have worked in investment banking for years. I believe it could be perhaps that she didn't want me to know what was coming to me eventually as a Remainderman thinking that that knowledge might somehow change my approach to my own life, etc. In addition, she lives with a former stock broker who thinks he's an oracle about all things finance and seems to have major sway over how she sees these things. For all I know, he's swindling her because effectively she's been withdrawing assets from the trust over the years and investing it with this guy's help. So yes, a confluence of reasons perhaps. Again, I'm speculating but I imagine these are possibilities.

Who is the other co-trustee?

What is your end game? What is your desired outcome?

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§§ 11-2.3 Prudent investor act
...
(b) Prudent investor standard.
(1) The prudent investor rule requires a standard of conduct, not
outcome or performance. Compliance with the prudent investor rule is
determined in light of facts and circumstances prevailing at the time of
the decision or action of a trustee. A trustee is not liable to a
beneficiary to the extent that the trustee acted in substantial
compliance with the prudent investor standard or in reasonable reliance
on the express terms and provisions of the governing instrument.

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http://www.nysl.nysed.gov/libdev/excerpts/ept11-23.htm

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Quoting harrylime

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Who is the other co-trustee?

What is your end game? What is your desired outcome?


http://www.nysl.nysed.gov/libdev/excerpts/ept11-23.htm

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The co-Trustees are the Bank and my mother. Not sure what the end game is, but I suppose my desired or ideal outcome would be perhaps restitution for reasonable returns that should have been afforded by a properly diversified portfolio assuming a conservative risk profile. Another issue I find unsettling is that the bank put funds in a tax efficient account when my mother isn't in a high tax bracket. Generally speaking tax efficient funds are most beneficial to those in higher tax brackets. Now, 'reasonable returns' I would define perhaps as a Monte Carlo type simulation run on the portfolio and some statistical mean result taken. I really don't know how these issues are view in the legal world which is what I'm starting to investigate here. First, I'm just trying to determine IF any damages can be sought for such lack of professional and prudent management on the part of the Bank or even my mother. I suppose if it were the case that I sued my own mother (which I know seems far fetched), I would simply want that any funds she's purposely withdrawn from the Trust be put back into the Trust for her and the Remainderman benefit. In the past, she's threatened to "spend down the Trust" purposely as a spiteful act against my sister and I for not allowing her to break the Trust years and years ago because she was miffed by the reasonable fees they charged.