JUNE 23, 2014 VOLUME 21 NUMBER 23
It’s a small point, but important — and the Arizona Court of Appeals reiterated it in a decision released last week. So it seems to us that it would be appropriate to call attention to this simple rule: generally speaking, a trustee is not personally liable for her (or his) actions as trustee.
There are, of course, exceptions. A trustee may so intermix her personal interests and those of the trust that she is liable both personally and as trustee. There are some trusts that will be treated as the alter-ego of the trustee — so that creating the trust does not shield the trustee from personal liability. Sometimes the trustee’s actions are so clearly wrong that she might be liable, to trust beneficiaries or others. But in the vast majority of cases, a person acting as trustee can bind the trust without exposing herself to liability.
This concept is not esoteric. It is central to the whole idea of trusts. If you name your daughter as trustee, she needs to know that she can administer the trust without exposing her own assets to liability. If you take over a trust after the death or disability of someone else, or even if you are a professional trustee, you need to be comfortable that you will not be liable for the ordinary business of running the trust.
How was this issue involved in last week’s Arizona court case? It was simple: a trust owned a piece of real estate, and the trustee signed a listing agreement to get the property sold. Later the trust canceled the listing agreement, and the listing agent sued the trust — and the trustee — for the amount specified as payable in the listing agreement upon early termination. A jury found in favor of the listing agent, and judgment was entered against both the trust and the trustee. The trustee appealed, arguing that she should not be liable for the trust’s violation of the terms of the agreement — even if she was the one who both signed and terminated the listing agreement.
The Arizona Court of Appeals reversed the jury verdict against the trustee individually, while upholding the judgment against the trust itself. There were arguments about whether the real estate agent was actually qualified to act, and whether he breached his duties to the trust — but those arguments only went to whether the trust could terminate the listing agreement without paying damages. For our purposes, the important part of the court decision is the simple observation that when a trustee signs as trustee, she is not personally liable on the contract. Focus Point/Kantor v. Johnson/Oak Acres, June 19, 2014.
This principle is actually pretty straightforward, and well-established. Why would the listing agent argue that the trustee should be personally liable in this case? Apparently because when she signed the listing agreement, she did not write “as trustee” or similar language on the contract. But, noted the appellate court, her signature only appeared once, and she couldn’t be signing that one time as both trustee and individually — and there was no dispute that the trust, not the trustee, owned the property being listed. Besides, the contract terms clearly indicated that they were between the listing agent and the property’s owner, and the trust was the owner.
Although the listing agent argued that a handful of cases from other states supported holding the trustee liable, the Arizona court disagreed. In some of those cases, noted the court, the trustee had expressly signed as an individual, guaranteeing the performance of the agreement by the trust. In one other, the trustee had failed to make the argument before the trial court (and so was deemed to have waived it). In yet another case, the officers of a corporation signed in one place as officers and another without any designation — and they were deemed to have been signing in both capacities.
So what does this simple appellate case tell trustees about the discharge of their duties? It just makes sense to clearly indicate that you sign “as trustee” when you are acting in that capacity — it helps head off any argument, even if it is otherwise obvious that you are acting as trustee. The same can be said for someone acting under a power of attorney, or for the personal representative of a decedent’s estate. Just to be safe and clear, after your signature you should write something like “as Trustee of the Pyramidal Trust Dated January 7, 2010” or “as agent for John Roe,” or “as personal representative of the estate of Jane Roe” (substituting, of course, the actual names of the individuals or entities as appropriate).
Even if you do not add that language, you probably are not creating any possible personal liability — at least in any document that is clear about your signature being in a representative capacity. Be very, very cautious, however, about language that seems to include some personal liability — if a pre-printed form recites, for instance, that you are signing “as trustee, and personally as guarantor”, take the agreement to an attorney for review before signing. At the very least, strike out the offending language. Acting properly on behalf of someone else should not cost you personally.
