Hendrick v. Hendrick
Key Takeaways
- 1 Statutory spousal conflict presumption under Illinois Trust Code section 802(b)(1) survives section 2-615 dismissal when trustee installs spouse in management role.
- 2 Trustee's failure to question spouse's financial reports and act despite years of operating losses states viable prudent administration claim.
- 3 Relevant for trust and estate litigators handling co-trustee breach of fiduciary duty claims involving self-dealing or spousal conflicts of interest.
Summary
In Hendrick v. Hendrick, the Illinois Fifth District Appellate Court reversed the Champaign County circuit court's dismissal of count I of plaintiffs' third amended complaint, which alleged that co-trustee Bobbie Hendrick breached her fiduciary duties in administering two family trusts whose primary asset was Hendrick House, a family-owned corporation. Betsy Hendrick and Rebecca Rowe alleged that Bobbie orchestrated the installation of her husband Terrell Williams as president of Hendrick House, diverted trust resources to benefit her own household, packed the board with her children, excluded other beneficiaries from management, and allowed the corporation to operate at a loss for years while Bobbie, Terrell, and their children received compensation funded by borrowed money.
The appellate court held that all four alleged breaches — loyalty, impartiality, prudent administration, and good faith — were sufficiently pleaded to survive a section 2-615 motion to dismiss. On loyalty, the court applied the statutory presumption of conflict under section 802(b)(1) of the Illinois Trust Code, which arises when a trustee manages trust property through a transaction involving the trustee's spouse, placing the burden on Bobbie to rebut the presumption with clear and convincing evidence. On impartiality and prudent administration, the court found specific factual allegations regarding operational losses, failure to scrutinize Terrell's financial reports, and unequal distributions sufficient to preclude dismissal.
For trust litigators, this decision reinforces that Illinois's fact-pleading standard does not require exhaustive evidentiary detail at the pleading stage, and that the section 802(b)(1) spousal conflict presumption is a powerful tool for plaintiffs challenging trustee self-dealing involving a spouse placed in a management role over trust assets.
Key Holdings
1. Under section 802(b)(1) of the Illinois Trust Code, a trustee's active role in installing her spouse as president of a trust-owned corporation creates a presumptive conflict of interest sufficient to state a breach of the duty of loyalty at the pleading stage, shifting the burden to the trustee to rebut the presumption by clear and convincing evidence.
2. Allegations that a co-trustee's actions financially benefited her immediate family while the trust entity operated at a continuous loss with no income available for distribution to all beneficiaries state a viable claim for breach of the fiduciary duty of impartiality under section 803 of the Illinois Trust Code.
3. A co-trustee's failure to vest a trust-owned entity with competent management, failure to scrutinize a spouse's financial reports, and failure to act despite years of documented operational losses and mismanagement sufficiently states a claim for breach of the duty of prudent administration under section 804 of the Illinois Trust Code.
4. Allegations that a co-trustee diverted trust resources to her own household, excluded other beneficiaries from management, and disregarded the trusts' purposes of equal family participation state a claim for breach of the duty to administer trusts in good faith under section 801 of the Illinois Trust Code, even where some allegations are general in nature.