Q: How can trustees reduce the limitations periods for challenges to the trust instrument or the trustee’s administration?
A: In probate litigation, there are two primary challenges a beneficiary will bring: (1) an action to invalidate the trust, or (2) breach of fiduciary duty claims. Fortunately, New Hampshire offers the trustee important opportunities to accelerate the limitations period for each type of challenge.
The typical trust contest arises when, while struggling with memory loss, the settlor changes her trust to favor one child more than another. The “disfavored” child will contest the instrument by alleging that mom lacked capacity or was subjected to the favored sibling’s undue influence. Moreover, the alleged undue influencer often is nominated to become trustee at the settlor’s death and is well aware of family dynamics and perhaps other facts that would suggest a challenge is likely.
In these cases the trustee should shorten the limitations period. For a revocable trust that becomes irrevocable at the settlor’s death, a contestant has three years from the settlor’s death to bring a challenge. The trustee, however, can reduce this period to 180 days from the date the trustee provides the potential claimant the following: (1) a copy of the trust instrument; (2) notice of the trust’s existence; (3) the trustee’s name and contact information; and, (4) the time allowed for commencing a contest (i.e., 180 days from the date of notice).
Especially where the favored child takes over as successor trustee, he does so with a target on his back. The disgruntled sibling will be looking for the trustee to “slip up” so she can bring a breach of duty claim. For these actions, the default three-year limitations period only triggers if beneficiaries have “sufficient information so that the beneficiary . . . knows of the potential claim or should have inquired into its existence.”
Just as a trustee should accelerate the contest period, a trustee should also reduce the limitations period for breach of duty claims. The trustee can shorten the three-year period to one year by sending the beneficiary “a report that adequately disclose[s] the existence of a potential claim . . . and inform[s] the beneficiary of the time allowed for commencing a proceeding.” Thus, it behooves a trustee to provide clear and complete reports, and by simply adding boilerplate notice language to these reports, the trustee can reduce the limitations period to only one year.
Being a fiduciary is hard, do not make it harder on yourself. Reduce limitations periods where possible.
Know the Law is a bi-weekly column sponsored by McLane Middleton. Questions and ideas for future columns should be emailed to [email protected]. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.