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When Does a Fiduciary’s Obligation End For Purposes of the Statue of Limitations?

A fiduciary is a person who acts on behalf of another and is legally required to act in that person’s best interest. The administrator of a trust or estate is a fiduciary and owes an obligation to the beneficiaries of the trust or estate as well as the estate’s creditors. Where a fiduciary has engaged in wrongdoing, an important question is when does the fiduciary’s obligation end because that affects how long other parties have to sue under the statute of limitations. If you are a fiduciary or beneficiary, it is important to understand these rules.

In the Matter of the Estate of Mathai Kolath George, the New York Supreme Court, Appellate Division, Third Department addressed the issue of when the statute of limitations starts to run in a lawsuit against the fiduciary. The case involved a Decedent who died on June 14, 2009, at which time he was party to a contract, pursuant to which he was to buy a residence, known as Llenroc Mansion in Clifton Park, New York (the “Property”). At the time of his death, there was a balance due to the Seller of over $1.8 million and on October 23, 2009, the Decedent’s wife (“Annie”) terminated the contract on behalf of his Estate and entered into a new contract to purchase the Property for the exact amount that was still outstanding, on behalf of a limited liability company (“LLC”) of which she was the Managing Member and her children and her brother were Members.

The Decedent’s Will was admitted to probate and Letters Testamentary were issued to Annie. Numerous creditors thereafter filed claims against the Estate, including the Decedent’s brother and sister who also petitioned to compel an accounting and to have Annie removed as Executor. The Surrogate’s Court in March of 2013 granted that petition and revoked Annie’s Letters. Thereafter in April of 2014, Letters Testamentary were issued to the Decedent’s brother, Thomas George. Mr. George was subsequently removed as Executor for procedural reasons and in July 2016, Andrew B. Jarosh, the Public Administrator of Saratoga County, was appointed administrator of the Decedent’s Estate.

Mr. Jarosh filed a Petition seeking judicial settlement of his accounts and the imposition of a constructive trust on the Property in January 2019. The administrator sought to put the Property into a constructive trust for the benefit of creditors of the estate and argued that the Property may have been improperly transferred to the LLC. However, the LLC and another entity which had granted a mortgage on the Property, contested the constructive trust on the grounds that the six-year statute of limitations had expired since the purchase complained of had been made in October of 2009. The Surrogate’s Court granted the motion and dismissed the constructive trust claim and various creditors appealed.

A constructive trust is an equitable remedy created in order to prevent a party from being unjustly enriched. A claim seeking to impose a constructive trust is generally subject to a six-year statute of limitations which starts to run upon the occurrence of the allegedly wrongful act. The Third Department, however, citing the “fiduciary tolling rule,” stated that a fiduciary must perform his responsibilities until the time he is removed and, as such, any misconduct committed by the fiduciary prior to repudiation of his obligations or termination of his authority are subject to the tolling provision.

The Court concluded that the toll should continue until a successor fiduciary was appointed, meaning that the statute of limitations, which would have otherwise expired on October 22, 2015, was tolled from November 16, 2009 until April 30, 2014, (4 years, 5 months and 14 days) and that the Administrator had until April 5, 2020 to commence the proceeding. As such, the Court concluded that the Petition filed in January 2019 was timely. The Court held that the Surrogate improperly dismissed the constructive trust claim and the matter was remanded to the Surrogate’s Court for an adjudication on the merits of that claim.

The takeaway for fiduciaries is that to the extent you commit any wrongdoing which harms the persons to whom you owe such duty (even if the wrongdoing occurred before the date of your actual appointment), the statute of limitations with respect to such conduct will not commence to run until after you have either resigned or been removed and your successor has been appointed.

If you are a fiduciary who is unsure of your obligations or a beneficiary who thinks you may have a claim against a fiduciary, please contact one of our estate litigation attorneys