McCormick v. Cox

Robert Cox, decedent, established a family trust for the benefit of his four children and his widow. Arthur McCormick (plaintiff) was appointed trustee. The sole trust asset was a 100-acre property in Lynnfield, Massachusetts, operating as a golf course. In 2002, McCormick had the property appraised for $2.5 million in its current usage. However, the appraiser reported that the property would be more valuable if converted to residential use. McCormick used the $2.5 million value on the trust’s estate tax return without further investigation. Shortly after, Lynnfield offered to buy the property for $12 million to build a housing development. The sale closed approximately three years later in 2005. Between 2002 and 2005, McCormick did not provide the required annual trust accountings to the beneficiaries and did not inform the beneficiaries that the $2.5 million appraisal had undervalued the property. Because McCormick never updated the property valuation on the estate tax return, before closing the deal with Lynnfield, he had to structure a complicated Internal Revenue Code Section 1031 like-kind exchange for a qualifying Florida shopping center to avoid the trust incurring massive capital-gains taxes. The Section 1031 exchange incurred over $2.1 million in expenses for the trust. Without the beneficiaries’ authorization, McCormick then directed the closing agent to distribute $1.5 million from the Lynnfield property sale proceeds to him for his trustee’s fees. Gail Cox (defendant), one of Robert’s children, sued McCormick for breach of trust, arguing that McCormick’s undervaluation of the Lynnfield property resulted in the trust incurring massive, unnecessary costs and that he should be (1) removed as trustee, (2) denied any trustee’s fees, and (3) required to reimburse the trust for the $2.1 million in expenses incurred for the Section 1031 exchange. The trial court granted Gail her requested relief, and McCormick appealed.