A stale trust is a term which refers to the state of a trust instrument when the trustee disregards the trustee’s fiduciary duties. All trustees must exercise ordinary skill and diligence in their employment and they must strictly comply with the instructions contained in the Declaration of Trust. When they do not, a stale trust results.
If the trustors have an AB Trust, a stale trust could originate after the death of the first spouse if the surviving spouse (trustee) fails to fund the “Exemption Trust.” Failing to administer the sub-trusts can mean a stale trust exists. Even a failure to file tax returns can trigger a stale trust situation.
Whatever the cause of the stale trust, it is usually not discovered until years after the fact. Tracing the transactions back in order to cure the problem may require the review of many years of transactions. Some transactions may have not been recorded at all. This problem is compounded because the person with the knowledge of the transactions, the surviving spouse, has died. A history of inadequate record-keeping can exasperate an already complex litigation process and translate into a significant expense to the estate.