Breach of Fiduciary Duty Claims Against Trustees/Managers of Closely Held Businesses

Description

Breach of fiduciary duty claims often arise in the context of closely held businesses held in trust. Estate planning by the owner or founder may result in placing some or all of the company in a trust. Disputes often arise when the trustee also serves as an officer or manager of the business owned or controlled by the trust.

The legal standards for measuring the actions and decisions of a trustee and an officer and director are different and potentially conflicting. Striking a balance between differing legal standards, the needs of the ongoing business, the directives of the trust, and the wishes of the beneficiaries can be challenging, frequently leading to breach of duty claims against the trustee.

Conflicts can arise regarding whether to make distributions from the trust, how to manage the business, or even in determining whether to sell part or all of the company. These conflicts lead to the question of whether the trustee is complying with his fiduciary duty to act in the interests of the beneficiaries.

While the "business judgment" rule often protects a trustee acting as an officer/manager when making these decisions, the trustee's fiduciary duties require a higher standard in evaluating decisions. As a result, some jurisdictions are applying an enhanced scrutiny standard of review to determine whether a trustee is entitled to rely upon the business judgment rule, with some courts holding that a stricter "fairness standard" of scrutiny is appropriate for trustees/managers.

Counsel involved in breach of fiduciary duty claims involving trusts holding closely held business assets must evaluate the level of scrutiny courts will impose on trustees/managers in these types of disputes.

Listen as our experienced panel provides a practical guide to the issues involved in pursuing or defending breach of fiduciary duty claims against trustees who are also officers or managers of closely held businesses held by trusts.