May 20th, 2013

Last week, the United States Supreme Court issued its opinion in Bullock v. BankChampaign, N.A., which addressed the circumstances in which a breach of fiduciary duty judgment can be discharged in bankruptcy proceedings.  Specifically, the Court resolved a deeply fractured Circuit split on the scope of the term “defalcation” within Section 523(a)(4) of the Federal Bankruptcy Code.  That Section of the Bankruptcy Code provides that an individual cannot obtain bankruptcy discharge “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”  For years, the lower courts had struggled with what, exactly, “defalcation” means.  Wonder no longer because the Supreme Court has defined it.

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May 10th, 2013

Almost invariably, settlors give their trustees broad powers regarding trust property.  Often these broad powers include the power to convey and encumber trust property and the power to loan trust property.  But, sometimes, the settlor also gives the trustee specific instructions with respect to specific trust property.  In Hamel v. Hamel, the Kansas Supreme Court interpreted a trust instrument that gave the trustee broad general powers, but also specific directions regarding a specific piece of real property, and examined the interplay between the two provisions. (more…)

April 29th, 2013

If we were to identify hot topics in fiduciary litigation during 2012 and 2013, this one would be scorching: what duties do trustees owe the remainder beneficiaries of revocable trusts?  We’ve explored the topic in some detail here, here, and yet again here.

Last week, over at Bryan Cave‘s Private Client Group blog, TrustBryanCave, Kathy Sherby and Stephanie Moll wrapped up a three part series on this topic.  Readers of this blog will definitely be interested:

Part 1 takes a look at Pennell v. Alverson, which we previously looked at here.

Part 2 explores the ongoing saga of In re Estate of Giraldin, which we briefly reviewed here.

Part 3 wraps up the discussion with In the Matter of Trust #T-1 of Mary Faye Trimble, which we took a look at here.

April 19th, 2013

We’ve looked at a lot of cases to figure out who needs to be named as a party in trust litigation.  And we’ve assumed that, if a party is suing to have the trust declared invalid or is suing the trustee for breach of fiduciary duty, then all trust beneficiaries need to be joined as parties to the litigation.  That may be the rule, but where there’s a rule there’s apparently an exception.  In Harvill v. Harvill (link provided by Justia.com), a federal court in Tennessee gives us guidance on possible exceptions. (more…)

April 10th, 2013

We often see trust beneficiaries sue a trustee to compel an accounting of the trust’s receipts, disbursements and assets.  A court should start with the trust instrument to determine whether an accounting is required and, if so, to whom and what it should contain.  That’s what an Illinois federal court did in Drewry v. Keltz.

The trust instrument there required that “[e]ach Successor Trustee shall render an account of his/her receipts and disbursements and a statement of assets to each adult vested beneficiary.”  The plaintiffs were adult vested beneficiaries of the trust who had made requests for the successor trustee to provide an accounting, which the trustee did not provide.  The federal court ordered the trustee to provide the plaintiffs with an accounting of his receipts and disbursements on behalf of the trust and a statement of the trust assets within 30 days of the order.

We’re interested in this opinion for two issues that weren’t central to the court’s decision.

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March 28th, 2013

The potential fallout for an individual trustee who has breached a fiduciary duty can extend beyond a judgment against him or her.  In In re Application of Wiseman, the Supreme Court of Ohio held that a bar applicant who “engaged in prohibited self-dealing while serving as the fiduciary of a trust” would not be admitted to the state bar.

Although the Ohio Supreme Court identified additional “underlying improprieties” that prohibited the applicant’s admission to the bar, the court separately identified “probate litigation” and “breach of fiduciary duties as trustee of life insurance trust” as several of the grounds for disapproving the applicant’s application for admission to the state bar.  Let’s take a brief look at these two issues which might give already-licensed attorneys some pause about serving as fiduciaries.  Because if it’s grounds for denial of admission to the state bar, can the same conduct be grounds for reprimand, censure, suspension or disbarment? (more…)

March 21st, 2013

We spend a lot of time here looking at civil cases involving corporate and individual fiduciaries.  That doesn’t mean that the wrongful acts underlying a breach of fiduciary duty can’t also pose criminal problems for a fiduciary.  Occasionally a criminal fiduciary case catches our attention, like the United States District Court for the Eastern District of Tennessee’s opinion in Elkins v. Gibson (link provided through Justia.com).  This was a case where a fiduciary sued a police detective for malicious prosecution stemming from a warrant issued for the fiduciary’s alleged theft from his principal.  The fiduciary was arrested but was not convicted of any crime.  Why we’re interested is because the alleged theft took place using a power of attorney.

The federal court dismissed the plaintiff’s case finding that the detective was entitled to qualified immunity.  Specifically, the federal court found that at the time the objectionable warrant was issued, the evidence known to the detective at the time supported probable cause that the plaintiff committed theft from the principal of over $10,000.  Let’s take a look at that evidence. (more…)

March 11th, 2013

Sometimes parties have a hard time letting go of trusts and estates litigation even after that litigation has been settled.  For example, we’ve seen trustees sanctioned for failing to sign releases contemplated by settlement agreements.  We also often see settlement regret where a party tries to set aside or ‘undo’ a settlement.  You’re probably more likely to see post-settlement disputes where, as part of a settlement, the parties agree to undertake some other obligations rather than just ‘walking away.’  Often, in estate litigation, those other obligations involve the transfer of property.

In Haney v. Camp, the Georgia Court of Appeals considered questions involving co-executors’ claims for attorneys’ fees in connection with enforcement of a consent order.  The Georgia appellate court’s opinion largely involved various state law legal standards for awarding attorney’s fees.  For us, we’re more interested in the underlying estate litigation and why one party to the agreement claimed they were wronged. (more…)

February 25th, 2013

There are reasons why trust beneficiaries may want to waive or disclaim their interests in a trust.  But, if multiple class members intend or agree to collectively waive their interests, they may want to make sure that each class member actually waives his or her interest.  Otherwise, as we recently saw in the Georgia Supreme Court’s decision in White v. Call, the holdouts may wind up with everything. (more…)

February 4th, 2013

There is a surprising but growing split of authority on the extent of fiduciary duties a trustee owes to beneficiaries of a revocable trust other than the settlor.  Remarkably, state appellate courts are dealing with these issues for the first time now.  We previously took a look at this issue when a Missouri appellate court ruled in In re Stephen M. Gunther Revocable Living Trust that “[b]ecause the trustee owed no duty to the beneficiaries prior to the settlor’s death, they are not entitled to an accounting of trust transactions prior to that date.”  In ruling this way, Missouri joined other states, such as Louisiana, in reaching this conclusion.  We also looked at an Arizona appellate court apply Michigan law to reach the same conclusion.  Seemed to make sense.

But, in late 2012, a closely divided California Supreme Court ruled in In re Estate of Giraldin that after a settlor’s death, remainder beneficiaries of a revocable trust have standing to sue the trustee for breach of fiduciary duty to the settlor occurring while the trust was revocable “to the extent that violation harmed the beneficiaries interests.”  In ruling this way, California joined other states, such as Florida, in reaching this conclusion.  The gist for these states is that once the settlor dies, the beneficiaries succeed to the settlor’s interest in the trust and a trustee shouldn’t get away with wrongdoing it might have concealed during the settlor’s lifetime.

So, now in In the Matter of Trust #T-1 of Mary Faye Trimble, Judith R. Cunningham, Trustee, Iowa has weighed in for the first time.  What side did it come down on? (more…)