Hasta La Vista, Exoneration Clauses
September 26, 2018
Exoneration clauses seek to excuse fiduciaries, most notably executors and trustees, from liability for the failure to exercise reasonable care (cf. Margaret Valentine Turano, Practice Commentary: EPTL § 11-1.7  [discussing exoneration clauses]; Matter of Knox, 98 AD3d 300, 312-13 [4th Dep’t 2012]). Until recently, Estates, Powers and Trusts Law (“EPTL”) § 11-1.7 provided that exoneration clauses in testamentary instruments (i.e., wills and codicils) were void as against public policy, but did not address whether similar provisions in lifetime trust instruments were enforceable. In late-August 2018, Governor Cuomo signed into law amendments to EPTL § 11-1.7, which my colleague, Ilene S. Cooper, and I drafted as members of the New York State Bar Association’s Trusts and Estates Law Section, and which provide that exoneration clauses in lifetime trust instruments executed after August 24, 2018 are void as against public policy. This blog post discusses EPTL § 11-1.7 and the August 2018 amendments to that statute.
Prior to August 2018, EPTL § 11-1.7 prohibited a testator from exculpating an executor or trustee of a testamentary trust nominated in the testator’s will from liability for failing to “exercise reasonable care, diligence and prudence”. Will provisions that purported to do so were deemed void as against public policy (see Matter of Egerer, 30 Misc3d 1229[A], at *3 [Sur Ct, Suffolk County 2006]). Surrogate’s Court judges have described exoneration clauses in testamentary instruments as “toothless tiger[s]” (see Matter of Lubin, 143 Misc2d 121, 122 [Sur Ct, Bronx County 1989]), and “nothing more than a waste of good white paper” (see Matter of Stralem, 181 Misc2d 715, 719-20 [Sur Ct, Nassau County 1999]).
Although EPTL § 11-1.7 unquestionably applied to exoneration clauses in testamentary instruments before August 2018, the statute was silent as the enforceability of exculpatory provisions in lifetime trust instruments until August 24, 2018. That statutory silence led courts to conclude that exoneration clauses in inter vivos trust instruments generally were enforceable, except to the extent that they sought to excuse a trustee from liability for gross negligence, reckless indifference, self-dealing, or bad faith (see Matter of Tydings, 32 Misc3d 1204[A], at *6 [Sur Ct, Bronx County 2011]; Boles v Lanham, 55 AD3d 647, 648 [2d Dep’t 2008] [opining that a “trustee is liable if he or she commits a breach of trust in bad faith, intentionally, or with reckless indifference to the interests of the beneficiaries”]).
Fortunately, the August 2018 amendments to EPTL § 11-1.7 fill the aforementioned silence in the statute, and make clear that EPTL § 11-1.7 applies to executors, trustees of testamentary trusts, and trustees of lifetime trusts. Going forward, trustees of inter vivos trusts will not be able to rely upon exoneration clauses in order to avoid liability for losses that arise from their negligence, provided that the lifetime trust instruments under which they act are dated on or after August 24, 2018. In short, the August 2018 amendments to EPTL § 11-1.7 provide greater protection to beneficiaries of lifetime trusts who suffer losses as a result of negligence on the part of the trustees who administer their trusts.