November 2nd, 2011

Discretionary distributions of trust corpus probably rank near the top of trustees‘ or trust administrators‘ headaches.  No matter how the discretion is exercised someone is going to be angry – maybe even angry enough to sue.  Either the beneficiary requesting the encroachment will complain that it’s not enough or the remainder beneficiaries will complain that it was too much.

Corporate trustees have gotten pretty good at documenting and formalizing the manner in which they handle discretionary distributions, usually routing the requests through committees.  In making a discretionary distribution, one question will always come up: “Do I have to consider the beneficiary’s other means of support?”  Some states, like Georgia, have statutes stating that, in the absence of a trust provision to the contrary, a trustee has no duty to investigate a beneficiary’s resources prior to making a discretionary distribution.  Other states do not.

In Harootian v. Douvadjian, the Appeals Court of Massachusetts was faced with the all-to-common, but classic fight over whether a discretionary distribution of trust corpus was proper. (more…)

October 21st, 2011

When trust beneficiaries sue their trustee, there will almost invariably be a demand for an accounting.  Even if the trust instrument relieves a trustee from having to provide regular accountings, the trustee is almost always going to be required to provide some accounting to the beneficiaries.

Trust litigation often deteriorates into fights over the depth of the accounting.  How far back must the accounting go?  What level of detail is required?  Must the trustee provide receipts for every expense?  In the case of a trust where the grantor is also a beneficiary during his or her lifetime, one of the most common disputes is whether the trustee must provide the remaindermen or successor income beneficiaries with an accounting for that period of time preceding the grantor’s death.

In In re Stephen M. Gunther Revocable Living Trust, the Missouri Court of Appeals decided that, with respect to a revocable trust, the answer to that question is  “no.”  (more…)

September 12th, 2011

A lot of family trust disputes get resolved either through pre-litigation settlement agreements or pre-trial settlement.  Unfortunately, poor drafting of a settlement agreement often defeats the purpose of the original settlement by leading to litigation concerning the settlement agreement itself.  In Purcella v. Purcella, the Wyoming Supreme Court reminds us that if you are going to enter an agreement altering the terms of an original trust, you need to be explicit that you are actually altering the terms of the original trust. (more…)

August 15th, 2011

It’s not uncommon for one person to establish a trust, fund it with some nominal amount (say, $100.00), and then have another person come along and contribute a more significant amount to the trust (say, $70,000.00).  Under these circumstances, who is the settlor of that trust?  A federal appellate court recently answered that question in Roberts v. McConnell.  So, why did a seemingly simple question of “who was the settlor” have to go from a bankruptcy court, to a federal district court, to a federal appellate court? (more…)