Delaware Chancery Court Holds Non-fiduciary Jointly and Severally Liable for Trustee’s Breach

Morris, Nichols, Arsht & Tunnell LLP sent out a Delaware Trusts, Estates, & Tax Law Update (Dec. 2010). The newsletter addresses the Chancery Court’s holding in Paradee v. Paradee, C.A. No. 4988-VCL (Oct. 2010). The introduction is below:

This Delaware Court of Chancery opinion evaluated a trustee’s decision to borrow against a life insurance policy that was the principal asset of an irrevocable trust and to extend a corresponding loan to the couple who funded the trust. The Court found that the trustee acted to please the couple rather than to benefit the trust, breaching his fiduciary duty of loyalty. The Court also held that the trustee’s legal power to make the loan did not excuse his inequitable conduct, nor could the advice the trustee obtained from counsel serve as a dispositive defense. The opinion is also notable in finding that a non-fiduciary was jointly and severally liable for the trustee’s breach of fiduciary duty, premised upon the non-fiduciary’s knowing participation in such breach.