Are you a Delaware trust beneficiary? If so, then I have some important information to share with you.

In Delaware, beneficiaries of a trust have the right to petition the Court of Chancery to seek recovery from trustees who have wrongfully spent trust funds for their personal use, or mismanaged assets through neglect.  The recent case of Hardy v. Hardy, C.A. No. 7531-VCP (Del. Ch. July 29, 2014) is an excellent illustration of the types of actions that can be commenced by a beneficiary against self-interested trustees, and the types of relief that the Court will grant.

In Hardy, the beneficiary Duane Hardy placed a large cash settlement in a trust, and named his sister and nephew as co-trustees.  Duane is bi-polar and schizophrenic, and relied upon his family members to manage his assets.

Money burning

By the time of trial, after an incredible spending spree by the trustees, the trust account was $0.00.  The reckless spending by the trustees included purchasing a $49,920 2011 Lincoln MKX, a $33,120 2006 Mercedes Benz CL5 (both for their personal use), and other expenditures including $75,000 towards repairing a property that Duane did not live in.

Duane Hardy brought a petition against the co-trustees for monetary damages and other relief, asserting the following causes of action:

(i)               breach of fiduciary duties,

(ii)              failure to maintain adequate records,

(iii)             recovery of money improperly spent,

(iv)             a constructive trust placed on goods purchased with trust assets, and

(v)              reasonable attorneys’ fees for bringing the action.

The Court found in favor of Duane on many of his causes of action, including finding that the trustees breached their fiduciary duties, and are liable to Duane for approximately $250,000, plus interest.  The Court also held the trustees liable for Duane’s attorneys’ fees, and ordered their removal from the trust.  Finally, the Court placed constructive trusts over the vehicles and the trustee’s interest in the property that received significant repairs.

This case is a must-read for any beneficiary or trustee of a Delaware trust, in that it clarifies the various fiduciary duties owed by a trustee to a beneficiary, and discussed the pertinent causes of action that can be asserted by a beneficiary against a trustee.  Another key takeaway for settlors of trusts: make sure that you take caution when appointing a trustee to your trust.

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.