You may be surprised to learn that there are a number of ways that a bad Trustee can escape liability in Court. For starters, if the Trustee disclosed a questionable transaction in writing to you, you only have three years in which to file a lawsuit. But that’s just the start.
Consent, release, and exculpation come next. If you consented to a transaction before it was taken, you may have waived your right to complain about that transaction in the future. The same applies with a release, if you signed a release of liability, then you may have waived any lawsuit against the Trustee for wrongdoing. Luckily, both consents and releases require that you be given full disclosure of all material facts and circumstances surrounding a transaction; otherwise the consent or release is invalid.
And then we come to exculpation. Exculpation is a terrible Trust provision that says a Trustee does not have to take responsibility for being negligent with Trust property. That means a Trustee can violate any of his or her duties as Trustee, and there is nothing you can do about it. There is one catch, every Trustee is still liable for gross negligence, recklessness, and intentional harm. But each of those claims are harder to prove than basic negligence. In order for exculpation to work, the Trust has to specifically provide for it in the Trust document. Most people who create Trusts that contain an exculpation clauses have no idea the clause is there or what it even means. Unfortunately, exculpation can cause more harm than good to the Trust assets.
Finally, there is good-old fashioned equity. If all else fails to let a Trustee off the hook, the Court is authorized, in its discretion, to excuse any Trustee wrongdoing. Probate Court’s are courts of equity, meaning they do not just apply to the law, they also are given wide discretion to determine what is fair and reasonable in a given situation. If a Trustee has breached a legal duty to the Trust and caused damage, the Court still has the power to excuse the Trustee’s breach if the Court believes it fair to do so. This can be a huge loophole that allows Trustees to escape legal liability for their mistakes.
The bottom line: it is not so easy to hold a Trustee accountable. There are many ways in which a Trustee can escape liability even where harm is caused to the Trust assets. That means it is up to you to build your case, and tell your story to the Court, so equity falls in your favor instead.