A co-trustee cannot ratify an action by the other co-trustee that violates terms of the trust. Beneficiary was co-trustee of a trust with a corporate co-trustee and the trust terms required that no trustee who was also a beneficiary may exercise any powers of the trustees for his or her own direct or indirect benefit, and whenever “participating in income or principal of a beneficiary who is also a trustee is being considered” decisions must be made solely by the corporate co-trustee. The individual co-trustee entered into a 1031 like-kind exchange with himself. The corporate co-trustee ratified the transaction. Another beneficiary brought an action alleging that the individual co-trustee had violated his fiduciary duties by engaging in the 1031 exchange. After a bench trial, the court found that the co-trustee had not violated his fiduciary duty.
In re Estate of Foiles, on appeal, the Colorado intermediate appellate court reversed and remanded, holding that in the absence of a trust term allowing a co-trustee to ratify otherwise invalid actions of a trustee, ratification can come only from all of the beneficiaries.
Special thanks to William LaPiana (Professor of Law, New York Law School) for bringing this case to my attention.
