In Wyoming, a very useful estate planning and asset protection tool is transferring working assets into a LLC and that LLC interest into a trust. The Maker of the trust, also called Trustor or Settlor of the trust, determines who the assets will be transferred to and who will be the trustee, meaning the person in charge of managing and distributing the assets of the trust. The manager of the LLC manages the assets that are in the company via the terms of the Operating Agreement and the laws of the state of Wyoming.
What I see come across my desk fairly often, and what came before the Wyoming Supreme Court is a case styled S-22-0213, 2023 WY 43, in April Term, regarding the Aimone Trust and the fiduciary duties of both the manager of the LLC and the the trustee of the trust.
When someone passes away, and there is a trust, or LLC, very often the remaining manager and trustee are unclear about how to proceed or in fact whether anything is required of them. Some trustees and managers of LLC treat the trust and LLC like a probate and start distributing assets. Many managers of LLCs have no idea they have a fiduciary duty to manage the LLC.
Fiduciary Duties in a LLC. What does this mean? "Fiduciary duties" are the duties of loyalty, care and good faith. It is a very high and strict duty that requires the manager to act with the care that a person in a like position would reasonably exercise under similar circumstances and in a manner the manager reasonably believes to be in the best interests or at least not opposed to the best interests of the company, to refrain from competing with the limited liability company, and to act in good faith. Managers are also prohibited from engaging in self dealing or conflicts of interest under the duty of loyalty. In this case, the manager of the LLC acted on her belief before a court decision she could amend tax documents and permits and remove several LLC members. The manager did not maintain the status quo--and her actions did not demonstrate a reasonable belief she was acting in the best interests of the LLC and not for personal gain.
Breach of Fiduciary Duty to the Trust. A trustee may be held liable for breach of fiduciary duties when she advocates as a trustee for an interpretation of the trust that favors herself as a beneficiary and acts without court instruction. In this case, the trustee elevated her personal interests over the interests of the other beneficiaries and did not deal fairly with all beneficiaries. Of note is that trusts created on or after July 1, 2003 are subject to Wyoming's Uniform Trust Code. Trusts created before this date may be governed by Wyoming's UTC if certain conditions are met.
One of the largest breach of fiduciary duty by this trustee was the failure to make an annual accounting.
Because the LLC manager breached her fiduciary duties to the LLC she was removed as manager. She breached those duties by managing the LLC for personal gain, and for other reasons.
The trustee also breached her fiduciary duties to the trust. She breached those duties by failing to account to the other beneficiaries, failing to get court direction when required and failure to act in the best interests of the trust.
If you are a trustee of a trustee or the manager of a LLC, I would be pleased to consult with you regarding your duties. Please call 307.200.1914.