Vice Chancellor Adopts Master’s Decision to Deny Trusteeship to Doubly-Conflicted Successor Trustee

Marie Ann Hurd v. Leonard Hurd, Jr., C.A. No. 4675-MG (January 31, 2020)

        We have written about this long-standing case twice before, once in 2016 (https://www.gfmlaw.com/blog/master-recommends-individual-trustee-be-suspended-and-ordered-return-assets-trust ) and once in 2018 (https://www.gfmlaw.com/blog/court-approves-receiver%E2%80%99s-report-requiring-former-trustee-pay-trust-over-1-million ). 

        In this latest opinion, Vice Chancellor Glasscock was tasked with conducting a de novo review of a master’s report denying a motion to discharge a court-appointed receiver for a trust. The settlor had created a trust to benefit his wife and named his son (“Junior”) as trustee. In the event that Junior was unable to serve, the trust provided that the “successor trustee should come from among [Junior’s] children”, including the decedent’s grandson Leonard, who was the decedent’s wife’s step-grandchild.

        In prior decisions, the court had determined that Junior was in flagrant breach of his fiduciary duties, suspended Junior as trustee, and ordered that Junior disgorge the looted funds totaling around $1 million. The present question was whether it was appropriate for Leonard to take over as trustee. The Master concluded no, and for the following reasons, the Vice Chancellor agreed.

        In reaching his decision, the Vice Chancellor acknowledged that a court should exercise its residual authority to appoint trustees only in rare and compelling circumstances. Here, the court found that this was indeed such a rare and compelling case as the settlor very likely had not foreseen that his son would breach his fiduciary duties and loot the trust.

        If appointed as trustee, Leonard’s main responsibility would be to enforce a $1 million judgment against his own father. The Vice Chancellor concluded the obvious; that such a situation would create a significant conflict of interest. The Vice Chancellor also explained that Leonard would face another conflict of interest given that he would be both the trust’s controller and a potential beneficiary, creating improper incentives for him to terminate or settle the litigation in a way that favors his interests as a potential beneficiary over his duties owed to the trust.