In this article, we answer the question: When should a fiduciary for an Illinois trust resign? We also answer the following questions:
Unfortunately, not all financial relationships last forever. Despite a fiduciary’s best efforts to fix a situation that could lead to fiduciary liability, a fiduciary may find herself in a position in which it is favorable for her and the beneficiaries to step down from the fiduciary position. However, the process is not as simple as handing in a two-week notice. The attorney representing the fiduciary must understand the legal reasons for resignation under the fiduciary agreements, what hurdles to resignation the fiduciary could encounter, and the potential for continued liability.
Despite some of the obvious and uncontrollable reasons an individual would have for wanting to resign from a given responsibility, such as illness, death of family members, monetary issues, etc., fiduciaries often come across two categories of issues that have the potential to force their resignation.
The Illinois Probate Act provides that a “representative” may resign from his or her position upon petition and subsequent permission of the court. “Representative” covers executors, administrators, guardians, etc. The Illinois Trust and Trustees Act provides that a trustee (fiduciary) may resign at any time with written notice to all parties involved and benefiting from the trust, such as the settlor (if still alive), co-trustee, beneficiaries, etc.
However, resigning fiduciary responsibility is not always as simple as giving written notice. Many fiduciary agreements have provisions that control the process for fiduciaries resigning in order to protect the interests of the estate or trust. For example, a trust agreement might state that “A trustee may resign only in accordance with the trust and with permission from all beneficiaries and the appropriate court,” or in the case of a trust with two or more trustees, the trust may have a provision restricting the resignation of a single remaining trustee.
The amount of case law discussing the liability of a former fiduciary is scant. The law is fairly clear on what liability a current fiduciary has, and that the current fiduciary is exempt from the actions of a previous fiduciary if the proper procedures are followed, but the law is fuzzier in describing the liabilities a former trustee carries. For a more in-depth discussion on the fiduciary liability check out our article Legal Protections For Fiduciaries In Illinois | Illinois Probate Law.
There are a few different precautions a current fiduciary can take to limit their liability now and after their time as a fiduciary has ended. For more information check out Legal Protections For Fiduciaries In Illinois | Illinois Probate Law. A common option for fiduciaries to rid themselves of liability is to obtain a Receipt of Release from the beneficiary. The Receipt of Release Acts as a legal document showing that distribution was made to the beneficiary, the beneficiary acknowledges the distribution and releases the fiduciary from any future claims from the beneficiary. While a Receipt of Release is legally binding it does not protect against any and all future claims. Also, the fiduciary should be careful when constructing the language of the Receipt of Release as more overreaching stipulations may raise suspicion in the beneficiary and damage the fiduciary relationship, potentially leading to more issues down the road.
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