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Preliminary Considerations for Litigation Involving a Trust

With the proliferation of trusts in estate planning and real estate over the past two decades, lawyers are increasingly presented with client issues requiring litigation involving a trust.

Litigation may include a trust in a number of circumstances. For example, a beneficiary of a trust may seek the court’s intervention where a trustee fails to administer the trust in accordance with the trust documents. Individuals may attempt to transfer assets to a trust in order to shield them from creditors in violation of a state’s fraudulent conveyance act. A trustee may need to sue to protect assets belonging to the trust. The list of instances where litigation involving a trust may arise is endless. Certain fundamentals regarding trust litigation, however, remain the same.

A trust is merely a right in property held in a fiduciary relationship by one party, called the “trustee,” for the benefit of another party, called the “beneficiary.” The trustee holds title to property or “corpus” in the trust, while the beneficiary collects the benefits. With the exception of business trusts, which are generally more akin to corporate entities in their purpose and characteristic of having freely transferable interests, a trust should be considered a relationship to property rather than a separate entity. A trust’s status as a relationship to property rather than an entity presents preliminary issues for a litigator under both federal and state rules of civil procedure.

Under Federal Rule of Civil Procedure 17(b), the capacity of a trust to sue or be sued is determined by the laws of the state where the court is located. Fed.R.Civ.P. 17(b). The overwhelming weight of authority holds that a trust, under state law, does not have the capacity to sue or be sued in its own name. See Coverdell v. Mid–South Farm Equipment Ass’n, 335 F.2d 9, 12–13 (6th Cir.1964); Limouze v. M.M. & P. Maritime Advancement, Training, Education and Safety Program, 397 F.Supp. 784, 789–90 (D.Md.1975); White v. Lundeberg Maryland Seamanship School, Inc., 57 F.R.D. 128, 130 (D.Md.1972); Yonce v. Miners Mem’l Hosp. Ass’n, 161 F.Supp. 178, 188 (W.D.Va.1958); Colorado Springs Cablevision, Inc. v. Lively, 579 F.Supp. 252, 254 (D.Colo.1984); Powers v. Ashton, 45 Cal.App.3d 783, 119 Cal.Rptr. 729, 732 (1975); Morrison v. Lennett, 415 Mass. 857, 616 N.E.2d 92, 94 (1993); Western Life Trust v. State, 536 N.W.2d 709, 712 (1995); see also Bogert, Trusts & Trustees § 712 (rev.2d ed.1982); IV Scott, Trusts § 280 (1989).

The trustee, as the legal title holder of the trust’s property or corpus, is generally the real party in interest with the power to prosecute or defend actions in the name of the trust under Fed.R.Civ.P. 17(a). See Coverdell, 335 F.2d at 13; Colorado Springs Cablevision, 579 F.Supp. at 254; Limouze, 397 F.Supp. at 789–90; White, 57 F.R.D. at 130; Powers, 119 Cal.Rptr. at 732; IV Scott, Trusts at § 280. Attorneys seeking to affect a trust through litigation should name the individual trustees as parties in their capacity as “trustee on behalf of” the name of the subject trust.

Ensuring personal jurisdiction exists over a trustee presents its own considerations. Article 2-202 of the Uniform Trust Code, adopted by 31 states and the District of Columbia, includes provisions concerning the appropriate jurisdiction. Subsections (a) and (b) of Article 2-202 state that the place of administration of the trust is the place with personal jurisdiction over the trustee and beneficiaries of that trust. Subsection (c) clarifies that “[t]his section does not preclude other methods of obtaining jurisdiction over a trustee, a beneficiary, or any other person receiving property from the trust,” Uniform Trust Code Article 2-202(c), meaning a state’s applicable long-arm statute may afford personal jurisdiction over a trustee where minimum contacts exist with that state.

Fed.R.Civ.P. 4(k)(1)(A) provides that a federal district court may assert personal jurisdiction over a defendant who would be subject to jurisdiction in state court in the state where the district court is located. See Lydia Schweer Family Trust ex rel. Fuqua v. Dingler, 2010 WL 55599 (M.D. Fla. 2010)(Personal jurisdiction over out-of-state life insurance company held proper in lawsuit by trustee on behalf of trust originally settled in Georgia where life insurance’s ongoing communications with trustee, which provided the basis of the tort action, occurred while trustee was living in Florida.) See also Navarro Savings Ass’n v. Lee, 446 U.S. 458, 464, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980) (As the trustee is the real party to the controversy, it is the trustee’s citizenship, not the citizenship of the beneficiaries, that will determine whether diversity jurisdiction exists.)

While litigation involving a trust may involve complex issues, an attorney taking time to consider the fundamentals of civil procedure in that context serves his or her clients best.

© Andrew K. O’Connell
Thomas & Libowitz, P.A.

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