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FATHER MAKES HIS BROTHER TRUSTEE FOR SON AND BROTHER NOW PAYS SON $850,000 FOR GIVING MONEY BACK TO THE FATHER

FACTS 

John C. Woolard (Plaintiff) sued his uncle Robert C. Woolard (Defendant) for mismanaging a trust established by Plaintiff’s father for which Defendant was the trustee. The district court granted Plaintiff’s motion for summary judgment, holding that Defendant breached the express terms of the trust and also violated his statutory and fiduciary duties under Illinois. We affirm. 

Plaintiff’s father, John F. Woolard, established the John C. Woolard Present Interest Trust in 1983 for his infant son. Plaintiff was the Trust’s sole beneficiary and Defendant, the settlor’s brother, agreed to serve as Trustee. The terms of the Trust permitted Defendant to distribute the income and principal of the Trust for the sole benefit of Plaintiff. The Trust provided that payment of income or principal to a minor may be applied directly in the sole discretion of the Trustee for the benefit of such person or may be made to any one or more of the following: (a) directly to such beneficiary; (b) to the legally appointed guardian . . . of such beneficiary; or (c) to a custodian under the Uniform Gifts to Minors Act in any jurisdiction.  

The Trust Agreement allowed Defendant to loan “any part of the trust property to any person (other than [Plaintiff’s father]) or entity upon adequate security and at current interest rates.”  Plaintiff’s father initially funded the Trust with $500, but at one point it contained over $800,000. When Plaintiff’s father died in 2002, the value of the Trust was approximately $18,000. Between 1990 and 2001, Defendant distributed more than $850,000 to Plaintiff’s father, including over $300,000 in one six-month period. Defendant kept no record of the purposes for which the funds were distributed and never requested or received any receipts from Plaintiff’s father indicating how the funds were benefitting Plaintiff. Defendant claims he believed the distributions were being applied for Plaintiff’s benefit, but does not deny that he made the disbursements without any specific knowledge regarding how Plaintiff’s father would use the funds. 

The district court held that distributing funds to Plaintiff’s father was an express violation of the terms of the trust. The court also found that Defendant’s failure to keep any substantive records regarding the purposes of the distributions violated his duties under the Illinois Trusts and Trustees Act. Finally, the district court held that Defendant breached his fiduciary duties by failing to take reasonable steps to ensure that the Trust’s assets were used according to the Trust’s purpose and solely for Plaintiff’s benefit.  

Because a trustee who breaches the terms of a trust agreement is personally liable for any losses that result from the breach, judgment was entered against Defendant in the amount of the wrongful distributions plus interest. Defendant Uncle appealed. 

The 7^th Circuit of the U.S. Court of Appeals said . . . 

Affirmed.  Plaintiff contends that this case turns simply upon a violation of the express and exclusive terms of the Trust, which did not allow for distributions to his father. 

When a trustee breaches a trust agreement, whether willfully, negligently, or by oversight, he is liable for any loss to the estate resulting from the breach and must place the beneficiaries in the position they would have held had the breach not occurred.   

The Trust Agreement provided that distributions to a minor may be applied directly in the sole discretion of the Trustee for the benefit of such person or may be made to any one or more of the following: (a) directly to such beneficiary; (b) to the legally appointed guardian . . . of such beneficiary; or (c) to a custodian under the Uniform Gifts to Minors Act in any jurisdiction.  None of the money was distributed directly to Plaintiff and there was no legally appointed guardian or custodian.  

The settlor, Plaintiff’s father, took pains to protect the Trust’s assets from his own intermeddling” and his “obvious intent [was] to use the trust as a preventive barrier against his own financial management.” The Trust Agreement anticipated and provided for distributions to, or for the benefit of, minors; the conflicting provision of the Trusts Act, allowing distributions to an adult relative, does not apply to this case. 

Defendant was not authorized to distribute funds to Plaintiff’s father by the terms of the Trust, by the Illinois Trusts and Trustees Act, or by any vague common sense approach. By distributing funds to Plaintiff’s father, Defendant breached the express terms of the Trust and the district court appropriately held Defendant liable for the resulting losses.   The trust agreement did not authorize distributions to Plaintiff’s father,” entitling Plaintiff to judgment as a matter of law.  

Trustees have the obligation to carry out the trust according to its terms, to use care and diligence in protecting and investing trust property and to use perfect good faith. 

It is particularly telling that Defendant disbursed over $300,000 to Plaintiff’s father through a series of distributions in one six-month period when Plaintiff was seventeen years old. The law requires that a trustee must act in good faith in the management of all matters relating to the trust, and employ such vigilance, sagacity and diligence as prudent men of intelligence ordinarily employ in their own affairs.  (John C. Woolard vs. Robert C. Woolard, 08-1174, 7^th Cir. USCA, 10-29-08) 

MORAL 

1. Do not be the trustee for your brother’s trust.
2. If you are a trustee have a bond posed to protect against loss and try not to be a personal guarantee on the bond.
3. Now the brother thinking he is a good person by giving the money back to the father settlor has to come up with over $850,000 to give to his nephew.
4. Aren’t family relationships wonderful?

THE INFORMATION HEREIN IS NOT LEGAL ADVICE. AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE