Trust Enforcement

1. Trust Enforcement

2. Procedural Matters

3. Standing to enforce • Must be “interested person” • Beneficiary • Trustee • Attorney general (charitable trusts) • Others affected by the trust?

4. Necessary Parties • Must determine under state law the parties who MUST be involved with the lawsuit. • Note that you may wish to involve other parties to get them bound to the judgment.

5. Jurisdiction • Must bring lawsuit in a court which has jurisdiction over the trust. • Inter vivos vs. testamentary? • Amount involved? • Court system in state • Court system in county

6. Venue • Must bring lawsuit in county with proper venue. • County of trustee’s residence? • County of situs of trust administration? • County of beneficiary’s residence? • County where breach occurred? • Different for individual and corporate trustees? • Different for multiple trustees?

7. Virtual Representation • Can an order binding a party bind non-parties? • Bind guardian, bind ward (minor or incompetent)? • Bind parent, bind minor child? • Bind person with substantially similar interest to a party if no conflict of interest.

8. Remedies Against Trustee

9. 1. Money Damages (trustee not in breach) • Any profit through or arising out of the administration of the trust. • Exception for trustee’s compensation

10. 1. Money Damages (trustee in breach) • 1. Lost value to trust • Causation required • No requirement that trustee personally benefited

11. 1. Money Damages (trustee in breach) • 2. Profit made by trustee • Causation required • No requirement that trust have suffered a loss

12. 1. Money Damages (trustee in breach) • 3. Lost profits • Causation required • Difficult to show

13. 1. Money Damages (trustee in breach) • 4. Punitive damages • “[A]n intentional breach of a fiduciary duty is a tort justifying the award of exemplary damages.”

14. 2. Remove trustee • Typical grounds: • Embezzlement • Mismanagement • Trustee becomes incompetent • Trustee becomes insolvent • For other cause, in the discretion of the court

15. 3. Decree to carry out the trust

16. 4. Injunction • Used if trustee threatens to commit a breach of trust. • If trustee does not obey, punishable as contempt.

17. 5. Receivership • Used when court fears trustee will not obey injunction. • “Receivership is an extraordinary harsh remedy and one that courts are particularly loathe to utilize.”

18. 6. Require or increase bond

19. 7. Declaratory Judgment • Court may determine any question arising during the administration of a trust.

20. 8. Award Attorney Fees • Depends on state law

21. 9. Criminal Sanctions

22. 10. Liability for acts of prior trustee • 1. Knowledge • New trustee knows (subjective) • New trustee should know (objective) Plus • 2. Improper Conduct • e.g., not sue prior trustee

23. Remedies AgainstTrust Property

24. 1. Tracing • Goal = recover actual trust property from trustee or non-BFP. • Double recovery (money and property) not allowed. • What is the key benefit of the tracing remedy?

25. Tracing into Commingled Account

26. Tracing into Commingled Account

27. Tracing into Commingled Account

28. Tracing into Commingled Account

29. Tracing into Commingled Account

30. 2. Subrogation Trust Property 4. B uses rights of creditor against Trustee and Trustee’s other creditors 3. Beneficiary is subrogated to rights of “paid off” creditor 1. Trusteeembezzles $1,000 2. Trustee uses money to pay secured/priority creditor Trustee’s Secured/Priority Creditor

31. 3. Marshaling • A creditor with the right to recover from several funds/items, must first resort to fund/item not subject to the rights of another creditor who has recourse to only one of the funds/items.

32. 3. Marshaling Example • Trustee personally owns two assets: • Asset A = $10,000 • Asset B = $6,000 • Beneficiary has claim for $5,000 against Asset A via subrogation due to Trustee’s embezzlement; no claim against Asset B • Creditor has priority claim against both assets totaling $10,000.

33. Remedies Against Beneficiary

34. 1. Misappropriation • Beneficiary has misappropriated or otherwise wrongfully dealt with trust property.

35. 2. Involved with breach • Consented to breach • Participated in breach • Agreed to be liable for trustee’s breach

36. 3. Failure to repay loan or advance

37. 4. Failure to repay excess distribution

38. 5. Breach of contract to contribute to trust • E.g., beneficiary promises to add his/her own property to the trust and then fails to do so.

39. Causes of ActionsAgainst Third Parties

40. Trustee may sue others: • Party who breaches contract with trust. • Tortfeasor who damages trust property. • Etc.

41. Barring of Remedies

42. 1. Settlor’s approval in trust • The settlor may waive anything except if: • 1. Illegal • 2. Against public policy • 3. Not waivable under state trust law

43. 2. Release by beneficiaries • Requirements for valid release: • Legal capacity • Full information • Written • Not under threat (e.g., “no money unless you sign”)

44. 3. Court decree • The “last hope”

45. 4. Statute of Limitations • Typically, does not run from date of breach. • Does discovery rule apply?

46. 5. Laches • Unreasonable delay in asserting rights to disadvantage of defendant • E.g., a good faith change in position.