Trustee Breach of Fiduciary Duty in New York: Surcharge, Removal and Accounting Objections

This page is for beneficiaries of New York trusts who believe the trustee has mishandled trust property and want to know what a court can do about it. It covers the three remedies that matter most in practice: compelling the trustee to account, surcharging the trustee for losses, and removing the trustee. It walks through the procedure as it runs in New York County and Kings County Surrogate's Court, the Court of Appeals decisions that fix the measure of damages, the defenses a trustee will raise, and the deadlines that can end a claim before it starts.

Scope note. This page addresses trustees of testamentary trusts (created under a will) and lifetime trusts (also called living or inter vivos trusts). Claims against a corporate officer, partner, or business agent are covered on our breach of fiduciary duty page. Claims against an executor or administrator over estate assets use the same accounting and objection procedure described here, with the estate-specific grounds for removal on our administrator removal page.

The Law Offices of Albert Goodwin represents beneficiaries in trust litigation in the Surrogate's Courts of New York County, Kings County (Brooklyn), Queens County, and the surrounding counties, and in Supreme Court proceedings involving lifetime trusts. Call 212-233-1233 or email [email protected].

The duties a New York trustee can be surcharged for breaking

A trustee is held to the strictest standard New York law imposes on anyone handling another person's property. Judge Cardozo described it in Meinhard v. Salmon, 249 N.Y. 458 (1928), as “the punctilio of an honor the most sensitive.” In litigation, the duties break down into five claims a beneficiary can plead:

• Loyalty: the trustee must act solely in the beneficiaries' interest. Buying from, selling to, or lending to oneself is prohibited. In Birnbaum v. Birnbaum, 73 N.Y.2d 461 (1989), the Court of Appeals called it a duty of “undivided and undiluted loyalty.”
• Prudent investment: under the Prudent Investor Act, EPTL 11-2.3, the trustee must invest and manage the portfolio as a prudent investor would, must diversify unless there is a documented reason not to, and must invest idle cash within a reasonable time.
• Accounting and disclosure: the trustee must keep records and account for every receipt and disbursement. Beneficiaries' pre-litigation rights to records are covered on our trust information rights page; this page covers what happens once the court compels an account.
• Impartiality: where there is an income beneficiary and a remainderman, the trustee may not tilt the portfolio or the distributions toward one at the other's expense.
• Care: the trustee must administer the trust with the care and skill of a reasonably prudent person, and must follow the terms of the instrument. Under EPTL 7-2.4, an act by a trustee in contravention of the trust is void.

Self-dealing and the “no further inquiry” rule

When a trustee transacts with trust property for his or her own account, New York courts do not ask whether the price was fair. The conflict alone makes the transaction voidable at the beneficiary's election. A trustee who sells the trust's Brooklyn two-family to a company he controls, at full appraised value, has still breached the duty of loyalty unless the instrument expressly authorized the sale or the court approved it in advance. The practical consequence is that self-dealing objections are the easiest to win on liability; the fight is usually over the measure of the surcharge.

Which court hears the claim: Surrogate's Court or Supreme Court

The answer depends on the kind of trust.

• Testamentary trusts: a trust created under a will is supervised by the Surrogate's Court that admitted the will to probate. The court's jurisdiction comes from SCPA 201 and 209, and venue is almost always the county of probate. Accountings by testamentary trustees are governed by SCPA Article 22.
• Lifetime trusts: jurisdiction is concurrent. The Surrogate's Court has jurisdiction over lifetime trusts under SCPA Article 15 (SCPA 1501), with venue under SCPA 207, generally the county where the trust has assets or where the trustee resides or does business. The Supreme Court has jurisdiction through a special proceeding under CPLR Article 77 (CPLR 7701) and may suspend or remove a trustee of a lifetime trust under EPTL 7-2.6.

In practice, beneficiaries of a lifetime trust choose the Surrogate's Court when a related estate is already pending there, when the dispute centers on the accounting itself, or when they want a judge and clerk's office that process fiduciary accounts every day. They choose the Supreme Court when the case joins non-fiduciary defendants (a buyer who took trust property with knowledge of the breach, an adviser who assisted it) over whom the Surrogate's jurisdiction is less certain, or when a CPLR Article 77 proceeding on a single discrete question offers a faster decision. Once one court has taken the matter, the other will ordinarily defer.

How a surcharge proceeding actually works in New York

A surcharge is not a separate lawsuit. It is the result of sustained objections to the trustee's account. The steps below describe the process as it typically runs in New York County and Kings County Surrogate's Court.

1. Written demand. Counsel sends the trustee a demand for an informal account and the underlying statements. Some trustees comply, which can shortcut the next step. Many do not.
2. Petition to compel an account (SCPA 2205). Any person interested in the trust, including a beneficiary, a co-trustee, or a creditor, may petition. The court issues a citation or an order to show cause; after the return date the court directs the trustee to file an account within a fixed period, commonly 30 to 60 days. If the trustee ignores the order, SCPA 2206 permits the court to punish the trustee for contempt and to revoke the trustee's letters.
3. The trustee files the account (SCPA 2208, 2210). The account must follow the format in the Uniform Rules for Surrogate's Court (22 NYCRR 207.40 and following): schedules of principal received, gains and losses on sales, income collected, disbursements, distributions, commissions claimed, and property on hand. The trustee files it with a petition for judicial settlement and the court issues a citation to every interested party.
4. Return date. Interested parties appear on the return date. Minors, unborn remaindermen, and persons under disability may be bound through virtual representation under SCPA 315 or through a guardian ad litem under SCPA 403. The court sets a schedule for the examination of the trustee and the filing of objections.
5. Examination of the trustee (SCPA 2211). Before objections are due, the beneficiary may examine the trustee under oath about any item in the account and may demand production of the books, records, bank and brokerage statements, appraisals, and correspondence behind each schedule. This is where most breaches surface. Courts commonly set the objection deadline a fixed number of days after the examination is completed, often 30.
6. Verified objections. Objections are numbered and specific: this sale, that fee, these months of uninvested cash. Each objection states the duty breached and, where possible, the amount of the surcharge sought. Vague objections to “the account generally” are routinely stricken.
7. Discovery. After objections are joined, disclosure proceeds under CPLR Article 31, which applies through SCPA 102: document demands, depositions of the trustee and the trustee's advisers, and subpoenas to banks and brokerage firms. Objectants in investment cases usually retain a portfolio expert; objectants in real property cases retain a retrospective appraiser.
8. Motion practice. Trustees often move to dismiss objections as time-barred, released, or precluded by a prior decree. Beneficiaries move for summary judgment on self-dealing objections where the documents speak for themselves.
9. Trial before the Surrogate. Accounting objections are equitable and are tried to the Surrogate without a jury (SCPA 502). The objectant bears the initial burden of showing that the account is inaccurate or incomplete; the burden then shifts to the trustee to prove the account by a fair preponderance of the evidence. See Matter of Schnare, 191 A.D.2d 859 (3d Dep't 1993).
10. Decree. The decree judicially settling the account sustains or dismisses each objection, fixes the surcharge, rules on commissions and counsel fees, and directs the trustee to pay. A decree directing payment can be enforced like a money judgment, and where a bond was posted the beneficiary may proceed against the surety.

Timelines and cost

Compelling the account itself usually takes three to six months from filing to the trustee's filing of the account. A contested accounting that goes through examination, objections, and discovery to a decree commonly takes 12 to 30 months in New York County or Kings County, and longer if the Surrogate must try disputed facts. Many cases settle after the SCPA 2211 examination, once the trustee sees the exposure. Costs scale with the number of objections and the need for experts: a compulsory accounting petition that ends in a negotiated resolution is a fraction of the cost of a tried case with an investment expert and a retrospective appraisal. The section below on who pays describes when those fees can be shifted to the trust or to the trustee.

How New York courts measure a surcharge

The surcharge restores the trust to the position it would occupy had the breach not occurred. The Court of Appeals has fixed the measure for the most common breaches.

Bad-faith or conflicted sales: appreciation damages

Matter of Rothko, 43 N.Y.2d 305 (1977). The executors of the painter Mark Rothko sold hundreds of his paintings to a gallery with which two of them had undisclosed interests. The Court held that where a fiduciary sells in bad faith or under a conflict of interest, the surcharge is not limited to the difference between the sale price and the value at the time of sale; it includes the appreciation the property would have gained had it stayed in the estate, measured as of the decree. For a beneficiary, this means a trustee who sold a Manhattan apartment to an insider in 2015 can be charged with its 2025 value, not its 2015 value.

Failure to diversify: lost capital

Matter of Janes, 90 N.Y.2d 41 (1997). The fiduciaries held a concentrated position in Eastman Kodak stock that lost most of its value. The Court held that a fiduciary must weigh concentration risk at the outset of administration and that retaining an undiversified position without a reasoned basis is imprudent. Damages are the “lost capital”: the value of the holding on the date it should have been sold, less the proceeds when it was actually sold or its value when retained, plus interest. The Court rejected a “lost profits” measure based on what a hypothetical diversified portfolio would have earned. Janes was decided under the older prudent person rule, but EPTL 11-2.3(b)(3)(C) now makes diversification an express duty absent a documented reason not to.

Imprudent retention and inaction: judged at the time, not in hindsight

Matter of Donner, 82 N.Y.2d 574 (1993). The fiduciaries let a portfolio of volatile securities ride for months after the decedent's death without reviewing it, while it declined. The Court affirmed the surcharge and stated the standard that governs every investment objection: the fiduciary's conduct is judged by the facts known or reasonably knowable when each decision was made, and the duty to act prudently attaches from the moment the fiduciary takes control of the assets. Inaction is itself a decision. Beneficiaries use Donner to defeat the argument that the trustee “did nothing wrong because he did nothing.”

Authorization to retain is not a command to retain

Matter of Saxton, 274 A.D.2d 110 (3d Dep't 2000). A corporate trustee held a concentrated position in a single stock for years and defended by pointing to language in the instrument permitting retention of the settlor's securities. The Appellate Division upheld a surcharge measured under Janes, holding that permission to retain does not relieve the trustee of the ongoing duty to review the holding and diversify when prudence requires. Beneficiaries dealing with a bank or trust company trustee should also read our page on claims against a bank trustee.

Interest, disgorgement, and commissions

Courts routinely add interest to a surcharge from the date of the loss, frequently at the 9 percent statutory rate under CPLR 5004, and in self-dealing cases may compound it. A trustee who profited personally must disgorge the profit to the trust in addition to repaying the loss. A trustee found to have breached the trust may be denied some or all of the statutory commissions under SCPA 2309, and may be ordered to pay the objecting beneficiary's counsel fees personally where the misconduct made the proceeding necessary.

Removing the trustee

A surcharge recovers money. Removal stops the bleeding. The two are usually sought together, and a petition for removal can be joined with the petition to compel an account.

• SCPA 711 (removal after a hearing): grounds include wasting or improperly applying trust property, investing in violation of law or the instrument, dishonesty, drunkenness, improvidence, want of understanding, and refusal to obey a court order. The court may suspend the trustee's powers while the petition is pending.
• SCPA 719 (removal without process): the court may revoke letters summarily where the trustee fails to comply with an order to account or another court order, mingles trust funds with personal funds, is convicted of a felony, or in the other specific situations listed in the statute.
• EPTL 7-2.6 (lifetime trusts in Supreme Court): the Supreme Court may suspend or remove a trustee of a lifetime trust who has violated or threatens to violate the trust, is insolvent, or for other cause shown.

Removal is treated as a serious remedy. In Matter of Duke, 87 N.Y.2d 465 (1996), the Court of Appeals held that a fiduciary may be removed without a hearing only where the misconduct is established by undisputed facts; where the facts are contested, the fiduciary is entitled to a hearing. Courts also hesitate to override a settlor's choice of trustee for conduct that is merely careless rather than disloyal or dishonest. Objections that show commingling, refusal to account after a court order, or self-dealing have the best chance of producing removal.

After removal, a successor named in the instrument takes over. If none is named, the court appoints one under SCPA 1502 and may require a bond under SCPA Article 8 even where the instrument dispensed with one. The removed trustee remains liable to account for the period of service and remains subject to surcharge.

Defenses a trustee will raise

An expert objectant plans for the defenses before filing. These are the ones that appear in nearly every contested trust accounting in New York.

Exculpatory clause

Many instruments say the trustee is not liable for “any act or omission except willful misconduct.” For wills, EPTL 11-1.7(a) voids any provision that exonerates an executor or testamentary trustee from liability for failure to exercise reasonable care, diligence, and prudence; such a clause is contrary to public policy and the trustee is held to the ordinary standard. For lifetime trusts, EPTL 11-1.7 does not apply and exculpatory clauses are generally enforced, but New York courts refuse to enforce them as to bad faith, reckless indifference to the beneficiaries' interests, or intentional misconduct, and the trustee bears the burden of showing the clause covers the conduct at issue. Self-dealing is never protected.

Authorization in the instrument

The trustee argues the instrument permitted the investment, the retention, or the transaction. Saxton answers the retention argument. For self-dealing, courts require express authorization of the specific conflict, not general language authorizing the trustee to “sell on such terms as the trustee deems advisable.” A beneficiary considering a purchase from the trust should read our page on beneficiaries buying trust property, which addresses the consent and court-approval route that avoids this problem.

Consent, acquiescence, and ratification

A competent adult beneficiary who consented to a transaction in advance, with full disclosure of the material facts, cannot later object to it. The same is true of a beneficiary who learned of the transaction and accepted its benefits. The defense fails where disclosure was incomplete, where the beneficiary was a minor or under disability, and as to remaindermen who never consented. Virtual representation under SCPA 315 binds minors and unborns only in a court proceeding, not to an informal consent.

Release

Trustees frequently obtain a receipt, release, and refunding agreement when making a distribution. A release bars objections to matters within its scope, but it is voidable if the trustee procured it without disclosing the facts the beneficiary needed to evaluate it. A release obtained in exchange for a distribution the beneficiary was already entitled to receives close scrutiny.

Prior accounting decree

Matter of Hunter, 4 N.Y.3d 260 (2005). The Court of Appeals held that a decree judicially settling a fiduciary's account is conclusive as to every matter embraced in the account, and bars later objections to those matters even by beneficiaries who did not actively participate, so long as they were cited or represented. The ordinary exception is for fraud or newly discovered evidence that could not have been found with diligence. The lesson for beneficiaries is to object in the first proceeding; the lesson for trustees is that an intermediate accounting cuts off exposure.

Hindsight and reliance on advisers

The trustee argues the decision looked reasonable at the time. Donner makes this a legitimate defense, and it is the center of most investment trials. Reliance on an investment adviser is not a complete defense: EPTL 11-2.3(c) permits delegation, but the trustee remains responsible for prudently selecting the adviser, setting its scope, and monitoring its performance.

Laches and the statute of limitations

Addressed in the next section. Laches requires both unreasonable delay and prejudice to the trustee and rarely succeeds against a beneficiary who was kept in the dark.

Statute of limitations: what actually governs

Three rules interact, and a beneficiary who understands them can usually reach conduct going back many years.

First, the baseline periods. In IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132 (2009), the Court of Appeals confirmed that a breach of fiduciary duty claim seeking only money damages is governed by the three-year period in CPLR 214(4), while a claim seeking equitable relief (an accounting, removal, restoration of specific property, rescission of a self-dealing sale) is governed by the six-year period in CPLR 213(1). Where fraud is essential to the claim, CPLR 213(8) supplies six years from the fraud or two years from discovery, whichever is later.

Second, the open repudiation rule. In Matter of Barabash, 31 N.Y.2d 76 (1972), the Court held that the limitations period on a beneficiary's claim to compel an accounting does not begin to run while the fiduciary continues to act, unless and until the fiduciary openly repudiates the fiduciary obligation and the repudiation is brought home to the beneficiary. The trustee bears the burden of proving repudiation. A trustee who is still serving, who has never disavowed the duty to account, and who never delivered a final account can be compelled to account for the entire period of administration, and every transaction in that account is open to objection. Repudiation can occur through delivery of a final account, a letter denying that the claimant is a beneficiary, or a distribution accompanied by a clear statement that the trusteeship is at an end; the clock starts then.

Third, objections to a judicial account. When the trustee petitions for judicial settlement, the beneficiary may object to any item within the accounting period regardless of when it occurred, subject only to a prior decree under Hunter or a valid release. The trustee cannot use his own delay in accounting as a shield.

One carve-out matters. In Tydings v. Greenfield, Stein & Senior, LLP, 11 N.Y.3d 195 (2008), the Court of Appeals held that the open repudiation rule tolls only the claim against the trustee. A claim against the trustee's lawyers for malpractice runs under the three-year period in CPLR 214(6) from the malpractice itself, subject to the continuous representation doctrine, and is not extended by the trustee's failure to account. A beneficiary who wants to reach the attorneys or other professionals behind a breach must move much faster than the trustee claim alone would require.

Three fact patterns from New York practice

The scenarios below are illustrative composites, not descriptions of particular matters or results. Each identifies the remedy a beneficiary in that position would pursue.

The brownstone sold to the trustee's LLC

A testamentary trust holds a Brooklyn brownstone. The trustee, who is also one of three remainder beneficiaries, deeds it to a limited liability company he owns for a price supported by an appraisal he commissioned, without notice to his siblings and without court approval. Four years later the property has roughly doubled in value. The siblings petition under SCPA 2205 to compel an account, object to the sale as self-dealing under the no further inquiry rule, and seek either rescission of the conveyance or appreciation damages under Rothko measured at the date of the decree. They also seek removal under SCPA 711 for improperly applying trust property and denial of commissions under SCPA 2309.

Nine hundred thousand dollars in a checking account for six years

After the settlor's death, a lifetime trust receives the proceeds of a life insurance policy and a brokerage liquidation, about $900,000 in total. The trustee deposits it in a non-interest-bearing checking account and leaves it there for six years while paying income distributions irregularly. The income beneficiary petitions in Surrogate's Court under SCPA 1501 to compel an account and objects under EPTL 11-2.3 for failure to invest within a reasonable time. The surcharge sought is the income the funds would have earned at a conservative rate over the period, with interest, plus denial of commissions. Cash held briefly for an imminent distribution is defensible; six years is not.

“Management fees” on top of commissions

A trustee pays herself annual commissions under SCPA 2309 and also pays herself a monthly “management fee” for overseeing the trust's rental building, with no authorization in the instrument. SCPA 2309 is the exclusive compensation for a trustee's services unless the instrument provides otherwise or the court approves additional compensation. The beneficiaries object to every fee payment as unauthorized self-dealing, seek a surcharge for the total with interest, seek denial of the statutory commissions for the years in question, and ask the court to consider removal. If the trustee performed professional services distinct from her fiduciary role, she bears the burden of proving them and justifying the charge.

Who pays for the litigation

The beneficiary retains and pays counsel at the outset. At the end of the proceeding, SCPA 2110 permits the court to fix the compensation of the beneficiary's attorney and direct that it be paid from the trust where the services benefited the trust as a whole, for example by recovering assets or exposing an overstated account. In Matter of Hyde, 15 N.Y.3d 179 (2010), the Court of Appeals held that the court may instead allocate those fees to the shares of the beneficiaries who benefited, rather than spreading them across the whole trust. Where the trustee's misconduct caused the litigation, courts can and do charge the objectant's fees to the trustee personally.

The trustee's own defense costs are the mirror image. A trustee who successfully defends the account is ordinarily reimbursed from the trust. A trustee who is surcharged for self-dealing or bad faith is frequently denied reimbursement, because the defense served the trustee, not the trust. A beneficiary should raise this at the outset by asking the court to bar the trustee from paying defense counsel with trust funds pending the decree.

Frequently asked questions

Do all the beneficiaries have to join the petition?

No. Any person interested in the trust may petition under SCPA 2205. The other beneficiaries will be cited and may join the objections, stay neutral, or support the trustee.

Can a co-trustee who did nothing be surcharged?

Yes. A co-trustee who knew or should have known of the breach and failed to take reasonable steps to prevent or remedy it may be held jointly liable. Passivity is not a defense.

What if the trustee has died or is insolvent?

The claim survives against the trustee's estate, and SCPA 2207 governs the account rendered by the fiduciary of a deceased fiduciary. If a bond was posted, the surety is liable up to the penal sum. If the trustee is insolvent and unbonded, recovery may require tracing trust property into the hands of transferees who took with notice.

Can I get a jury?

No. Objections to a trustee's account are equitable and are tried to the Surrogate (SCPA 502). The same is true of a CPLR Article 77 proceeding in Supreme Court.

Can the case settle?

Yes, and most do. Settlements are typically documented in a stipulation so-ordered by the court or in a receipt, release, and refunding agreement, often with a reduced or waived commission and a resignation in favor of a successor trustee.

Is the trust instrument public?

A testamentary trust is part of a probated will and is a public record in the Surrogate's Court file. A lifetime trust is private, but once it is the subject of a court proceeding the instrument is filed with the petition. See our pages on whether trusts are public record and on trust representation in New York City.

About the author

This page was written by Albert Goodwin, Esq., a New York attorney whose practice concentrates on estate and trust litigation in the Surrogate's Courts of New York City and the surrounding counties. Read more about Albert Goodwin.

Speak with a New York trust litigation attorney

If a trustee has sold trust property to an insider, left funds uninvested, paid unauthorized fees, or refused to account after a demand, the accounting and objection process described above is the path to recovery. The Law Offices of Albert Goodwin represents beneficiaries in surcharge, removal, and accounting proceedings in New York County, Kings County, Queens County, and the surrounding jurisdictions. Call 212-233-1233 or email [email protected] to discuss your situation.

This page provides general information about New York law and is not legal advice. The scenarios described are illustrative and do not describe any particular matter or result. Outcomes depend on the specific facts of each case.