February 7th, 2013
When trust beneficiaries fight, the trustee usually ends up stuck in the middle. The trustee is often then forced into taking a position in the dispute. Not surprisingly, judges tend to be very interested in what the trustee thinks, especially if the trustee is a corporate fiduciary. Chances are that the trustee’s position in the litigation is aligned with one set of beneficiaries but is adverse to the positions being advocated by another set of beneficiaries. So, how far can or should a trustee force the issue of upholding the settlor’s intent as expressed in the trust instrument? In Shelton v. Tamposi, the Supreme Court of New Hampshire gives us some thoughts under the Uniform Trust Code in a case involving an in terrorem clause, and the court suggests that there is a bright line the trustee shouldn’t cross.
In a long, convoluted probate dispute between beneficiaries the Elizabeth M. Tamposi Trusts, one of the beneficiaries was found to have violated the in terrorem clause in the trust and, accordingly, forfeited all her right, title and interest in the trust. The beneficiary and the trustee filed appeals of that ruling. The beneficiary withdrew her appeal, but the trustee continued to pursue her own appeal. The other beneficiaries contended that the trustee did not have standing to challenge the ruling that the in terrorem clause was violated.
The New Hampshire Supreme Court agreed. Turning to the Uniform Trust Code, the court noted the impartiality with which the trustee must administer the trust: “[u]pon acceptance of a trusteeship, the trustee shall administer, invest and manage the trust and distribute the trust property in good faith, in accordance with its terms and purposes and the interests of the beneficiaries . . . .” Specifically, a “trustee has a duty to administer the trust in a manner that is impartial with respect to the various beneficiaries of the trust[;] . . . the trustee must act impartially and with due regard for the diverse beneficial interests created by the terms of the trust.” The ruling that one of the beneficiaries violated the in terrorem clause affected only one of several beneficiaries of the trusts. By pursuing the appeal, the trustee’s interests were adverse to all beneficiaries other than the one who was found to have violated the in terrorem clause. That beneficiary could have appealed the ruling affecting her, but she abandoned the appeal. There was no reason for the trustee to pursue the appeal on her behalf. Thus, the trustee lacked standing to pursue the appeal.
The court distinguished the situation from one where an executor appeals a decision disallowing a will. In that situation, the executor is taking an act that stands to benefit all the beneficiaries under a will. Indeed, in some jurisdictions, the executor may be the only party who has standing to pursue that type of appeal.
So what can we glean from this? A trustee should be cautious in appealing an order that affects only one of many trust beneficiaries, particularly when the affected beneficiary could pursue the appeal in his or her own right.