In this article, we discuss the various defenses available to fiduciaries and their legal counsel in response to a claim against the fiduciary by another party. While this list is not exhaustive, it attempts to give a concise overview of the more common, and some uncommon, defenses available to the fiduciaries under Illinois law. Let’s begin by summarizing what a fiduciary is in Illinois, specifically in estate planning and probate cases.
In probate law, a fiduciary is a person or entity who is tasked with managing a trust (or estate after the death of the settlor) and should make decisions that the settlor would have normally made. The fiduciary’s primary responsibility is to follow the expressly recorded directions of the trust and/or make decisions that the settlor would have made for issues not detailed in the trust.
There are different types of fiduciaries depending on the context, many for situations not involving a trust.
All types of fiduciaries have a duty to act and make decisions in a way that is best only for you, your estate, and your beneficiaries; but each type has a different level of responsibility and power in what they can do. This article will not be breaking down each type of fiduciary, but rather focusing on the different defenses against legal claims that are available for fiduciaries in Illinois. For more information on choosing the right fiduciary check out our article How to Name an Executor, Trustee or Power of Attorney.
Jurisdiction isn’t a direct defense against a claim levied at a fiduciary but rather a reminder that in Illinois the circuit courts have jurisdiction over probate matters. Depending on where the claimant filed the claim the fiduciary may argue that the court does not have jurisdiction over the case.
The attorney for a fiduciary should understand whether a claim brought against a current or former trustee has standing. In many cases, a new trustee may be named if the predecessor was acting in bad faith, or went through the proper channels to voluntary surrender her rights as a fiduciary. In Illinois, it is often found that if a suit is brought against the previous fiduciary it lacks legal standing.
Depending on the situation one or more of the beneficiaries may attempt to sue the previous or current fiduciary. In the case of a breach of fiduciary duty by the current fiduciary a claim against the current fiduciary will likely stand, but if the claim alleges that the current fiduciary made no attempt to look into the previous dealings of her predecessor the claim will likely be struck down, citing no standing. Illinois law seems to make a concession in the case where the current fiduciary fails, whether intentionally or not, to act on the failings of a predecessor fiduciary a claim against the predecessor by a beneficiary may be allowed to move forward.
Nearly all types of claims against a fiduciary have a deadline under Illinois law. For more information on the statute of limitations against fiduciaries in Illinois check out our articles What is the Statute of Limitations Against For Claims Against an Estate in Illinois and Illinois Probate Claims Explained.
The doctrine of laches defense, or sometimes simply referred to as laches, is a type of affirmative defense stating that if the claimant were allowed to bring the claim against the fiduciary or estate the defendant would be so injured or prejudiced by the claim, that could have been entered at an earlier time, that the claim should now be barred. Basically, the doctrine of laches defense argues the claimant should have brought the claim forward earlier and that doing so now is too large of detriment to the fiduciary and/or estate. The burden of proving the lache falls on the fiduciary’s party, and since there are no specific guidelines for the doctrine of laches and the ruling will ultimately fall to the court.
Equitable Estoppel is another type of affirmative defense that must be proven by the defending party. Equitable Estoppel alleges that the beneficiary filing the claim acted in a way previously that is contradictory to his or her current actions and that allowing the claim to proceed would bring undue harm to the fiduciary. Basically, it argues that the beneficiary is going back on her word. For example, if a beneficiary knew about a financial decision or action made by the fiduciary in the past and didn’t raise any objections at that time, the beneficiary cannot turn around and sue the fiduciary at a later date, so long as the action by the fiduciary was not illegal or going against explicit directions in the trust. Another example might be when a legatee accepts a bequest and then later tries to challenge the will.
The doctrine of election is an old equitable principle that is rarely used as a defense but has received some new attention in the last 10 years. While there is a lot of background context to the doctrine of election, it is sufficient to say that it’s an argument focused on wills only where there are two or more benefits available to a beneficiary, but the testator did not originally intend for the beneficiary to receive both and doing so would have significant negative equitable consequences for the other beneficiaries or other who have a claim upon the same property or fund. This doctrine is rarely invoked because real estate deals and property transfers usually avoid the type of circumstance that creates a doctrine of election.
Exculpatory clauses are expressly written clauses that act to protect a fiduciary from liability. Exculpatory clauses cannot protect a fiduciary from reckless or intentional breaches of contract, but they can insulate the fiduciary from liability for claims of poor returns on investment and other behavior that may be detrimental to the estate so long as the fiduciary’s actions were in good faith.
No-contest clauses, also known as in terrorem clauses, are provisions in wills that state that if a legatee (the beneficiary of a will), challenges the validity of the will, she will forfeit her inheritance and receive a lesser amount than what is designated in the will. For more information on no-contest clauses in Illinois check out our article No-Contest Clauses Explained.
There are no clear guidelines for whether a fiduciary is liable if she followed the advice of legal counsel when completing her fiduciary duties. Previous cases in Illinois courts indicate that following the advice of legal counsel does not necessarily protect a fiduciary from liability and that understanding the general responsibilities of a fiduciary and the specific directions laid out in a trust, will or whatever entity the fiduciary is employed by is ultimately the fiduciaries legal responsibility.
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