In this article, we answer the question: When should a fiduciary for an Illinois trust resign? We also answer the following questions:
- What Reasons Would the Fiduciary of an Illinois Trust Have To Resign?
- What Legal Hurdles Might Prevent a Fiduciary From Resigning?
- Is a “Retired” Fiduciary Still Liable?
- How Can an Illinois Fiduciary Protect Herself From Continued Liability?
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.
What Reasons Would the Fiduciary of an Illinois Trust Have To Resign?
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.
- Conflicts of Interest. Conflicts of interest occur when the fiduciary’s personal interests are different from those of the clients she represents. This is often the case for the fiduciary of a family member’s trust or estate where the fiduciary’s interests differ from those of the beneficiaries. An example of this would be a child serving as the trustee or executor of a parent’s estate while also being a beneficiary of the estate. Another example would be a fiduciary holding a higher-up position in a company whose stock is a major asset of the estate. Depending on a fiduciary’s position, conflicts of interest can come in many different forms, so it’s important for the fiduciary and her legal counsel to have a plan in case a conflict materializes.
- Unreasonable Beneficiaries. Sometimes fiduciaries find themselves confronted with a beneficiary who refuses to take the advice of the fiduciary or expects the fiduciary to bend to their every whim. Often, these beneficiaries will threaten to file, or actually file, a petition with the appropriate court to have the fiduciary removed, or sue the fiduciary.
What Legal Hurdles Might Prevent a Fiduciary From Resigning?
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.
Is a “Retired” Fiduciary Still Liable?
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.
How Can An Illinois Fiduciary Protect Himself or Herself From Continued Liability?
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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