Bauer v. Bauernschmidt

Summary

The court reviewed surcharges imposed against a trustee for alleged mismanagement of two inter vivos trusts. It held that the trustee generally acted in good faith and with adequate prudence, but affirmed a reduced surcharge of $2,500 for each trust based on improper capital expenditures from trust funds that the trustee personally enjoyed.

Holdings

1. A surcharge requires proof that a financial loss resulted from the trustee's negligence or failure to exercise the degree of care employed by prudent persons of discretion and intelligence in similar affairs.
2. An exculpatory provision in an inter vivos trust relieving a trustee from liability for good-faith conduct is valid so long as there is some accountability, at least to the settlor.
3. Whether a surcharge should be imposed for a particular investment or expenditure depends on the circumstances of the individual case, including the settlor's intent, the parties' relationship, and the history of the investment viewed when the challenged act or omission occurred.
4. The trustee was properly surcharged $2,500 from each trust because those capital expenditures constituted an improper personal appropriation of trust property.

Questions Presented

1. Whether the trustee's inability to provide a satisfactory accounting established negligence or a failure to exercise the degree of care required to support a surcharge.
2. Whether the trust's exculpatory provision and informal-accounting provision were valid and limited the trustee's liability.
3. Whether the trial court's $21,985 surcharge for each trust was warranted under the circumstances.
4. Whether the trustee's $2,500 capital expenditures from each trust constituted an improper appropriation of trust property.

Disposition

remanded