• Appeals court reverses $5 million surcharge against trustee of revocable trust — A settlor established a revocable trust with his son as trustee, along with a pour-over will. Thereafter, the settlor invested $4 million in his son's company in exchange for stock that the settlor transferred to his trust. At the time of the settlor's death, the investment was essentially worthless and four of the settlor's other children sued the trustee (their brother) for breach of trust. The probate court held that the trustee breached his duties and surcharged him approximately $5 million. On appeal, in Giraldin v. Giraldin, 2011 Cal. App. LEXIS 1222 (Sept. 26, 2011), the California Court of Appeals reversed the surcharge on the grounds that: (1) the trustee only owed duties to the settlor during his lifetime and therefore the children lacked standing to sue; (2) the remainder beneficiaries have no enforceable property rights in a revocable trust until it becomes irrevocable; (3) the death of the settlor doesn't grant the remainder beneficiaries retroactive rights; (4) the children couldn't enforce any duties owed to the settlor because the only beneficiary under the will was the trust and the claims weren't for the settlor's benefit since he authorized the transaction; and (5) the settlor retained his rights to the trust since he wasn't adjudicated to be legally incompetent and didn't restrict his own rights by making the trust irrevocable; that right included the right to do “financially risky or downright stupid things.”

  • Trust amendment invalidated — The Utah Court of Appeals, in Bowen v. Bowen, 2011 Utah App. LEXIS 347 (Oct. 14, 2011), affirmed the trial court's invalidation of a trust amendment because the amendment didn't comply with the trust terms. The court allowed a beneficiary who was removed by the amendment to challenge its validity after the statute of limitations had run. The court applied the discovery rule that tolled the running of the statute, since the beneficiary had no reason to suspect she was a beneficiary or that she was removed by the amendment and didn't receive any meaningful notice of the amendment. The court also refused to reform the trust to carry out the terms of the amendment, because the settlor knew how to validly amend his trust but failed to comply with the requirements, and there was no evidence of a mutual mistake or fraud justifying amendment.

  • Claim based on trustee's mistake dismissed — In Beaudoin v. Davidson Trust Company, 2011 Idaho LEXIS 138 (Nov. 1, 2011), the Idaho Supreme Court upheld dismissal of claims against a corporate trustee due to a lack of any fiduciary relationship owed to a contingent beneficiary after the interests of the actual beneficiaries had vested. The trustee mistakenly informed the plaintiff that she (rather than her daughters) was the remainder beneficiary and made an incorrect partial distribution. In alleged reliance on the trustee's representations, the plaintiff retired. When the mistake was discovered, the plaintiff sued the trustee for breach of fiduciary duty, negligent representation and infliction of emotional distress. The court upheld dismissal of the suit on the grounds that her contingent interest had expired at the time of the breach by the vesting of her daughters' interests, and the trustee's error didn't create a fiduciary duty because the plaintiff had as much knowledge of the trust terms as the trustee.

  • Court applies Uniform Trust Code (UTC) to uphold trust amendment — In Patterson v. Patterson, 2011 Utah LEXIS 148 (Nov. 1, 2011), the Utah Supreme Court reversed a trial court's application of a common law limitation on amendment of trusts and upheld a trust amendment by applying the UTC, even though the issue wasn't properly raised in the trial court. The court exercised its discretion to apply the new law regardless of the procedural defect because of the significance of the passage of the UTC in Utah.

  • Charity lacks standing to sue for improper distributions — In In re Estate of Brantman v. Brantman et al., 2011 Ill. App. Unpub. LEXIS 3013 (Dec. 2, 2011), the Illinois Court of Appeals blocked an attempt by a charity that was the beneficiary of a trust to sue to recover improper distributions to family members made by a former trustee, claiming that the trustee made the distributions to family members in breach of his fiduciary duties and while failing to make specific distributions to numerous charities. The successor trustee who replaced the former trustee sought to settle his final accounts and be relieved of any duty to pursue recovery of the improper distributions on behalf of the trust. The court granted his request over the charity's objection. The charity sued to recover the improper distributions from the family members directly. But, the court held that the charity lacked standing to bring the claims because the successor trustee had the exclusive right to bring them, the charity filed its suit when the successor trustee was still in office and the successor trustee was discharged from that obligation by the court and no appeal was taken.

  • Personal representative can demand releases from beneficiaries — In Allen et al. v. Ritter, 2011 Md. LEXIS 733 (Dec. 15, 2011), the Maryland Court of Appeals applied a personal representative's statutory right to require releases from the beneficiaries before making distributions, even when the court had already approved a distribution plan. The court recognized the importance of the releases to protect the personal representative from having to defend claims by beneficiaries without funds for the defense. But, it cautioned that the releases couldn't apply to acts of fraud, material mistake or irregularity. The court also upheld the power of the orphans' court to order the beneficiaries to sign the releases.