What is the fiduciary tolling rule?

In Estate of Mathai Kolath George, the Appellate Division, Third Department applied the fiduciary tolling rule to a constructive trust claim in a case involving a fiduciary’s misconduct and her removal.  There, after the decedent passed away, the estate’s fiduciary terminated the decedent’s contract for the purchase of a mansion and entered into a new contract to purchase the property on behalf of an LLC, an entity in which she was the managing member, for the remaining purchase price left on the decedent’s contract.  The then-fiduciary also allegedly used estate funds to pay the remainder of the purchase price left on the contract.    

Several years later, following a trial, Surrogate’s Court removed the fiduciary from her position as executrix and revoked her letters testamentary, finding that she violated her fiduciary duty to the estate by, among other things, failing to identify or account for the estate’s assets, engaging in self-dealing, and commingling the estate’s assets with her personal assets.

A petition was later filed in the estate seeking, among other things, the imposition of a constructive trust on the mansion.   The LLC and another entity filed motions seeking to dismiss the case based on the statute of limitations defense. 

The court concluded that a constructive trust is subject to a six-year statute of limitations and accrued on the date on which the former fiduciary cancelled the decedent’s contract and entered into the contract to purchase the property on behalf of the LLC.

The Court held as follows:

“Under the fiduciary tolling rule, a claim alleging wrongful conduct by an individual in his or her fiduciary capacity does not accrue until there is an open repudiation of the fiduciary obligation or a judicial settlement of the fiduciary’s account ….  This rule tolls the statute of limitations for all misconduct committed by the fiduciary prior to repudiation of its obligation or termination of the fiduciary relationship ….  since, absent either repudiation or removal, the aggrieved parties were entitled to assume that the fiduciary would perform his or her fiduciary responsibilities …, and it is highly unlikely that a sitting fiduciary would assert a constructive trust claim against himself or herself” (internal punctuation marks omitted).

Under this rule, the toll continued until a successor fiduciary was appointed.  The Court found that the statute of limitations was tolled from the date the fiduciary received letters testamentary, until her removal and continuing until letters were granted to a successor fiduciary for the estate, a total toll of four years, five months and 14 days.  Taking this tolling into account, the Court concluded that Surrogate’s Court should not have dismissed the claim based on the statute of limitations defense.


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