A lot of folks often wonder whether or not a trustee of a land trust has personal liability under EPA or other Federal regulations.
The answer is no—with some caveats. When the trustee acts at the behest of a beneficiary, or whoever holds the power of direction, then the trustee would be themselves insulated from personal liability. The trustee, however, is still personally responsible for what they themselves do. If the trustee were to commit fraud or violate some other federal regulation, then they themselves could, of course, be held liable.
The law can be vague when it comes to certain kinds of EPA violations. This includes chemical dumping on land held by a trust. CERCLA (the Comprehensive Environmental Response, Compensation, and Liability Act) names “owners” of a parcel of land or “operators” of a facility but does not go on to define these terms in detail.
Through a very expansive interpretation of these terms, individuals who had nothing to do with the disposal of chemical waste nor even knew about the disposal could be potentially named in a lawsuit.
A US district court in Illinois, however, determined that a trustee did not qualify under the definition of “owner” and therefore could not be held liable for unlawful acts committed on the property. Other states might, however, decide that the trustee is an “operator” of the property, depending on their role in managing it.
The fact is, when CERCLA was drafted, Congress did not consider the status of the trustee. It became apparent that there was an issue only after CERCLA was passed into law. For land trustees, this represents a legal gray area.
There are two things to consider here. Firstly, trustees provide a valuable service to Americans and the government does not want to interfere with that. However, the government also has a tendency to lean on an easy target when they want testimony or evidence in a trial. Since the law is ambiguous, that option is available to them. Whether or not they can act on the threat is a different story.
Illinois decided that a trustee does not qualify as an owner, and other states may have similar decisions. It will differ from state to the next. No one can be held liable, however, merely for being a “title holder”. Under CERCLA liability regulations or any other law, the trustee would only incur liability under the theory that the trustee is an owner.
While agents of the government are liable to charge an individual with whatever crime they please, in order to prove that the trustee is liable for items held in the trust, they would have to make the case that the trustee is the “owner”. The courts seem opposed to defining a trustee as such.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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