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 Must be “interested person”  Beneficiary  Trustee  Attorney general (charitable trusts)  Others affected by the trust?

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Presentation on theme: " Must be “interested person”  Beneficiary  Trustee  Attorney general (charitable trusts)  Others affected by the trust?"— Presentation transcript:

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3  Must be “interested person”  Beneficiary  Trustee  Attorney general (charitable trusts)  Others affected by the trust?

4  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  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  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  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.

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9  Any profit through or arising out of the administration of the trust.  Exception for trustee’s compensation

10  1. Lost value to trust  Causation required  No requirement that trustee personally benefited

11  2. Profit made by trustee  Causation required  No requirement that trust have suffered a loss

12  3. Lost profits  Causation required  Difficult to show

13  4. Punitive damages  “[A]n intentional breach of a fiduciary duty is a tort justifying the award of exemplary damages.”

14  Typical grounds:  Embezzlement  Mismanagement  Trustee becomes incompetent  Trustee becomes insolvent  For other cause, in the discretion of the court

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

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

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19  Court may determine any question arising during the administration of a trust.

20  Depends on state law

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22  1. Knowledge  New trustee knows (subjective)  New trustee should know (objective) Plus  2. Improper Conduct  e.g., not sue prior trustee

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24  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 Trustee’s $Trust’s $Acc’t Balance Opening Balance (that is, before Trustee turns evil) 5000

26 Trustee’s $Trust’s $Acc’t Balance Opening Balance5000 Trustee embezzles $

27 Trustee’s $Trust’s $Acc’t Balance Opening Balance5000 Trustee embezzles $ Trustee withdraws $

28 Trustee’s $Trust’s $Acc’t Balance Opening Balance5000 Trustee embezzles $ Trustee withdraws $ Trustee withdraws $

29 Trustee’s $Trust’s $Acc’t Balance Opening Balance5000 Trustee embezzles $ Trustee withdraws $ Trustee withdraws $ Trustee deposits income tax refund of $

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

31  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 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.

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34  Beneficiary has misappropriated or otherwise wrongfully dealt with trust property.

35  Consented to breach  Participated in breach  Agreed to be liable for trustee’s breach

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38  E.g., beneficiary promises to add his/her own property to the trust and then fails to do so.

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40  Party who breaches contract with trust.  Tortfeasor who damages trust property.  Etc.

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42  The settlor may waive anything except if:  1. Illegal  2. Against public policy  3. Not waivable under state trust law

43  Requirements for valid release:  Legal capacity  Full information  Written  Not under threat (e.g., “no money unless you sign”)

44  The “last hope”

45  Typically, does not run from date of breach.  Does discovery rule apply?

46  Unreasonable delay in asserting rights to disadvantage of defendant  E.g., a good faith change in position.


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