Charles E. Rounds Jr.: When adjudicating trust disputes, the equity court are duty-bound to act, sua sponte if necessary, in vindication of the lawful intentions of settlors (April 20, 2022)

Charles E. Rounds Jr., of Suffolk University Law School, has made available for download his article, “When adjudicating trust disputes, the equity court are duty-bound to act, sua sponte if necessary, in vindication of the lawful intentions of settlors”, published in JDSUPRA. The abstract is as follows:

In a trust dispute, the court, apart from functioning judicially, is “administratively” tasked with defending settlor intent, an affirmative duty that is derived not from the pleadings but from general principles of equity. A trust dispute in litigation is not an action at law. It is an action in equity. That being the case, the court has an affirmative duty, acting sua sponte when necessary, “to see to it that the trust is faithfully executed,” the institution of the trust itself being a creature of equity. See Rock Springs Land and Timber, Inc. v. Lore, 75 P.3d 614 (2003). That a particular equitable remedy has not been requested in any of the pleadings, for example, is no excuse for the court’s failing to mete it out sua sponte, provided to do so will further the trust’s “faithful execution.” Id. The court is duty-bound to do so. Counsel incompetency is no excuse for not doing so. In many cases the settlor will have been long dead and thus be in no position to advocate for the lawful purposes manifested in the trust’s terms. 



















One commentator has explained the “administrative” function of the equity court in the trust context this way: “There is, however, a tendency in the United States for a court that has supervision over the administration of a trust to enforce the trustee’s duties even though the beneficiaries have not asked it to do so.” He goes on, “The notion, although rarely articulated, seems to be that it is the function of the court to see that the settlor’s directions are carried out, even though no one complains to the court; that the court has administrative powers, not just judicial powers; and that once the court acquires jurisdiction over the administration of a trust, it is the court’s function to see that the trust is administered in accordance with the settlor’s directions.” Scott and Ascher on Trusts §24.4.4. 

Now for a case in which the judiciary treated a trust dispute as if it were a mere action at law. Ex-wife deeds a parcel of real estate to ex-husband with the present intention that ex-husband take the legal title, as trustee, not outright. No mention, however, is made of that intention in any property-transfer documentation. Is the trust enforceable or does the property belong to the transferee outright and free of trust? On similar facts, one Washington appellate court, looking only to the state’s statutory trust law, answered outright and free of trust in that the ex-wife had not formally memorialized her entrustment intentions at the time of transfer, nor had the ex-husband formally declared himself an express trustee of the property. See K & W Children’s Trust v. Estate of Fay, 503 P.3d 569 (Washington 2022), discussed in another context in one of my prior JDSUPRA postings. There, however, had been a transfer of legal title. There was/is credible extrinsic evidence that ex-wife had had a present intention to have a trust impressed on the real estate at the time of transfer. By taking title to the real estate as if it were free of trust in contravention of what the ex-wife had intended, the ex-husband had been unjustly enriched. The regimes of constructive trust and resulting trust, each a creature of equity, not statute, have traditionally been exempt from the statute of frauds’ application to land entrustments, specifically its requirement that there be a memorializing writing. Ergo: With or without ex-husband’s consent, by operation of law as enhanced by equity, he at the time of transfer had taken legal title to the real estate as a constructive trustee, and in so doing, had been saddled with a duty to transfer it on to a willing and able express trustee of the court’s selection.

The appellate court could not be bothered with all this equity mumbo jumbo. It dismissively wrote: “Finally, the children’s trust has not asserted in its pleadings or briefing that Kasi and Fay’s conduct or separation agreement created a constructive or resulting trust.” Id at 575. Moving on. O.K. But hadn’t the trial court been sitting in equity? As explained above, the equity court, particularly in a trust matter, is duty-bound not to leave it to the litigants to decide what equitable remedies the court shall or shall not mete out in a given situation. To do so amounts to an improper delegation of the equity court’s sacred “administrative” function.

When the time comes to make an internal victim of a breach of trust whole, the equity court may mix and administer, sua sponte if necessary, a cocktail of procedural and substantive equitable remedies. The difference between the procedural equitable remedy and the substantive equitable remedy is considered in §7.2.3 of Loring and Rounds: A Trustee’s Handbook (2022), which section is reproduced in its entirety in the appendix immediately below. The Handbook’s 2022 Edition is currently available for purchase at https://law-store.wolterskluwer.com/s/product/loring-rounds-a-trustees-handbook-2022e-misb/01t4R00000OVWE4QAP.

Click here to view Charles E. Rounds Jr.’s summary of “When adjudicating trust disputes, the equity court are duty-bound to act, sua sponte if necessary, in vindication of the lawful intentions of settlors”

Posted by Mallory Wentz, Associate Editor, Wealth Strategies Journal.

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