March 12, 2015
Authored by: Luke Lantta
The trustee-beneficiary relationship can be a little bit like a marriage, so perhaps it’s not surprising that the phrase “speak now or forever hold your peace” has meaning for both. If a trustee commits a breach of trust, a beneficiary may expressly or impliedly demonstrate satisfaction with the wrongful act thereby preventing that beneficiary from later challenging the act. In other words, the beneficiary may ratify the trustee’s wrongful or unauthorized act by expressly agreeing to it or by failing to object to it. In order for a beneficiary to ratify a breach of fiduciary duty, typically there must be proof that the beneficiary had full knowledge of all material facts. All the more reason for trustees to consider giving beneficiaries more information about the trust administration and the trustee’s actions. If the beneficiary gets the material information and fails to speak up, then that beneficiary may end up forever having to hold his or her peace.
The Minnesota Court of Appeals recently showed us how beneficiary ratification plays out in In re Fallgren Family Trust (unpublished). Here, a trust beneficiary argued that the trustee lacked authority to sell certain real property held in the trust because the trust had terminated. The appellate court found that the beneficiary was right – the trustee lacked the authority to sell the property – but the beneficiary could not challenge the sale because he ratified it. The beneficiary had attended a meeting in which he was shown the proposed sale of the property and did not object. Later, the beneficiary was given a written summary of the proposed transaction and discussed it in detail with another beneficiary. The beneficiary again did not object to the sale. Thus, he ratified the unauthorized sale.