In a case of first impression, the Rhode Island Supreme Court recognized a statutory right for trustees to recover their attorneys’ fees when a trust beneficiary refuses, without any basis, to release the trustee of his or her fiduciary duty. See In re: The Janet S. Bagdis Living Trust, No. 2015-40-Appeal (“In re Bagdis”). Thus, the Supreme Court’s decision provides fiduciaries with considerable recourse when a beneficiary, for no legitimate reason, obstructs or otherwise fails to cooperate with a trustee’s administration of a trust.
In In re Bagdis, the trustee commenced suit in Rhode Island Superior Court after having spent years attempting to distribute the assets of the trust. While three of the four trust beneficiaries had accepted their respective shares of the trust, one trust beneficiary repeatedly refused to respond to communications from the trustee and refused to release the trustee from personal liability in exchange for a distribution of the trust assets.
In the Superior Court, the trustee sought (1) permission to deposit the beneficiary’s trust share into the Superior Court registry, (2) approval of the proposed distribution of the trust, and (3) an award of the trustee’s attorneys’ fees. The Superior Court granted all of the trustee’s requested relief; the beneficiary appealed.
Before the Supreme Court, the trustee argued that R.I. Gen. Laws § 18-6-2 authorizes a trustee to deposit a beneficiary’s share of an estate or trust and to have the trustee’s accounting approved by the court when a beneficiary cannot “for any reason” discharge a trustee of his or her fiduciary duty. The trustee further argued that R.I. Gen. Laws § 18-6-2 authorizes a trustee to charge its attorneys’ fees against the beneficiary’s trust share when the circumstances warrant such fee shifting.
The Supreme Court agreed. In addressing an issue of first impression, the Court held that if a trust beneficiary refuses to release the trustee of personal liability in exchange for a distribution of trust assets, the trustee may deposit the beneficiary’s share into the court registry and seek an order permitting the trustee to charge its attorneys’ fees against the beneficiary’s share. In doing so, the Supreme Court observed that R.I. Gen. Laws § 18-6-2 “strikes an appropriate balance between incentivizing an individual to serve as trustee, by ensuring that a trustee does not face the specter of future personal liability, while also providing a beneficiary with the opportunity to demonstrate the trustee’s liability for any potential breach that may have occurred before the assets were deposited in the court’s registry.” In re: The Janet S. Bagdis Living Trust, No. 2015-40-Appeal at 12.
While the Court recognized that R.I. Gen. Laws § 18-6-2 authorizes a trustee to seek an order permitting the trustee to charge its attorneys’ fees against the beneficiary’s share, it was careful to note that such an order should only issue “in light of reason as applied to all the facts and with a view to the rights of all the parties to the action while having regard for what is right and equitable under the circumstances and the law.” Id. at 13.
Applying that standard to the facts of In re Bagdis case, the Court concluded that the trustee could charge her attorneys’ fees against the beneficiary’s trust share. In so concluding, the Supreme Court recognized that any delay in the distribution of the beneficiary’s share was “the result of her own recalcitrance, her refusal to respond to notices, her requests for continuances, and her refusal to sign the release after [the Trustee’s] continued efforts to make contact with her in an attempt to distribute the funds.” Id. at 13. The Court was also persuaded by the fact that the beneficiary offered no legitimate reason for her refusal to sign the release and that if the beneficiary had signed the release, the litigation would not have been necessary. Id.
The Supreme Court’s decision in In re Bagdis case represents a new benchmark for trustees in Rhode Island and establishes standards that a trustee and a trustee’s counsel may follow when a beneficiary refuses to release a fiduciary of any liability.
In In re Bagdis, the trustee was represented by Adler Pollock & Sheehan attorney Joseph R. Marion III in the Rhode Island Superior Court and attorneys Nicole J. Benjamin and Marion on appeal before the Supreme Court.
