Can a Trust Protect a Trustee From Being Sued?

You are about to name your daughter as trustee, and the last thing you want is her brothers hauling her into court over every decision. Or you are a beneficiary, and you have just found a paragraph in your father's trust saying the trustee "will not be liable for any act or omission." Does a clause like that actually work?

Partly. No wording in a trust can stop a beneficiary from filing a petition, but a Washington trust can sharply limit what the trustee is liable for. RCW 11.97.010 lets the person who creates a trust, called the trustor, relieve the trustee from any or all of the duties, restrictions, and liabilities that the core Washington trust statutes, including chapters 11.98 and 11.100 RCW, would otherwise impose. The same statute then draws a line no trust can cross: in no event may a trustee be relieved of the duty to act in good faith and with honest judgment.

What a Protective Clause Can Do

Lawyers call these exculpation clauses, and Washington gives them real force. RCW 11.97.010 says that when a trust's terms conflict with the default rules in the trust chapters, the trust's terms control, whether or not the trust mentions the statute it is overriding.

A trust can relax the prudent investor rules of chapter 11.100 RCW, for example by directing the trustee to hold the family home or a block of company stock no matter what a cautious investor would do. A trust can authorize transactions that would otherwise be attacked as conflicts of interest: under RCW 11.98.078, a transaction affected by a conflict between the trustee's personal and fiduciary interests is not voidable under that section if it was authorized by the terms of the trust. And a trust can lower the general standard of liability, so that an honest mistake in judgment does not come out of the trustee's pocket.

For a parent naming an adult child or a second spouse as trustee, a well-drafted clause is often a kindness. Without one, the default rules apply in full, and those rules are covered in can a trustee be held personally liable in Washington.

The Floor No Trust Can Remove

Good faith and honest judgment are not waivable. A clause that says the trustee is never liable for anything will not protect a trustee who acts dishonestly or in bad faith.

RCW 11.97.010 also deals with a favorite drafting move: giving the trustee "absolute," "sole," or "uncontrolled" discretion. The statute names those exact words and says that no matter how broad the grant, the trustee must exercise a discretionary power in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries. "Sole discretion" widens the range of acceptable decisions. It does not put the decision beyond review. RCW 11.97.010 also does not sort misconduct into grades of negligence the way many form clauses do. The line it draws is good faith and honest judgment. Unlike the Uniform Trust Code, Washington's exculpation statute, RCW 11.98.107, does not separately bar relief for reckless indifference, so whether a clause can excuse grossly careless or reckless conduct depends on whether a court finds that conduct was still in good faith and with honest judgment. That is a fact question, not something the clause settles in advance.

The trust also cannot switch off the flow of information. RCW 11.97.010 lists a short set of statutes that trust terms do not override, and one of them is the first subsection of RCW 11.98.072, which requires a trustee to keep qualified beneficiaries reasonably informed about the administration of the trust and the material facts they need to protect their interests. A trustee who is shielded from liability for honest mistakes still has to tell the beneficiaries what is going on.

What if the Trustee Wrote the Clause?

Protective clauses get extra scrutiny when the person they protect had a hand in writing them. Under RCW 11.98.107, an exculpatory term that was inserted as the result of an abuse of a fiduciary or confidential relationship between the trustor and the trustee is unenforceable.

The statute goes further when the trustee drafted the term or caused it to be drafted. In that case the term is invalid as an abuse of that relationship unless the trustee proves two things: that the term is fair under the circumstances, and that its existence and contents were adequately communicated to the trustor. The burden is on the trustee, not the beneficiary.

This matters most where a family member helps an aging parent "get the trust done" and ends up as the trustee the document protects. It is one reason the choice of trustee and the drafting of the trust belong in the same careful conversation, as discussed in how to choose a trustee.

Can the Beneficiaries Sign Away Their Claims?

Yes, and this protection does not depend on the trust document at all. Under RCW 11.98.108, a trustee is not liable to a beneficiary for a breach of trust if that beneficiary consented to the conduct, released the trustee from liability, or ratified the transaction.

There are two limits. The consent, release, or ratification does not count if it was induced by improper conduct of the trustee, or if the beneficiary did not know of their rights or of the material facts at the time. A trustee who wants a release that holds has to disclose first.

When everyone with an interest will sign, Washington also allows a written binding agreement under RCW 11.96A.220, which is binding and conclusive on all persons interested in the trust.

Other Protections Already in the Law

Some protections apply whether or not the trust mentions them. Under RCW 11.96A.070, a beneficiary has three years to bring a breach of trust claim after the trustee delivers, in the manner required by RCW 11.96A.110, a report that adequately discloses the potential claim and states the time allowed. Regular, complete reports are an honest trustee's best protection.

A trust can also split the job. Under chapter 11.98B RCW, a trust may give someone other than the trustee, called a trust director, the power to direct certain decisions. RCW 11.98B.080 says a trustee who takes reasonable action to follow that direction is not liable for it, unless following it would amount to willful misconduct.

A Worked Example

Ray creates a trust naming his second wife, Linda, as trustee after his death, with his children from his first marriage as the beneficiaries after her death. The trust directs Linda to keep the family cabin and says she is not liable for errors of judgment made in good faith. The cabin's value later lags the stock market, and the children complain the trust should have been diversified. The clause, backed by RCW 11.97.010, is a strong answer: Ray relieved Linda of that duty, and she followed his instructions honestly.

Now suppose Linda quietly rents the cabin to her own son for a fraction of market rent and tells the children nothing. The clause does not help her. That is not an honest error of judgment, the duty of good faith cannot be waived, and neither can her duty to keep the children reasonably informed.

Draft the Protection Before You Need It

A protective clause is only as good as its drafting and the circumstances of its signing. If you are creating a trust and want to protect the person you are asking to serve, or you need to know what a clause in an existing trust really covers, the Law Office of Chad Foster can walk through the document with you. Call 425.785.8679 to talk with a Snohomish County estate planning attorney.