To the Rescue! Lessons Learned from Litigating an Unclear Trust in the Delaware Court of Chancery
Picture it: Loving husband and wife carefully prepare their estate plans with a good attorney. The couple has no children. They amend their plans a few times to name churches and charities as beneficiaries to receive their estates after both pass away. Husband passes. Wife moves to a different state to live near her niece who can provide help and companionship. Wife amends her estate plan in that new state, intending to move niece up in line ahead of the churches and charities, so that after wife’s death, niece can use trust income during niece’s lifetime. Wife also specifies that, on niece’s death, the trust is to pass to a smaller list of churches and charities that wife has revised. Problem is, the amendment is not clear. Wife passes away. Trustee of wife’s trust cannot determine who to give the estate to: income to niece for her lifetime then to the smaller list of charities/churches, or none to the niece at all and only to the long list of charities and churches of the prior plan? Trustee comes to us and says: what do we do?
In these situations, I am humbled by, and reminded of the value of, access to American courts to provide remedies. In particular, in Delaware we are so very privileged to have recourse to the Delaware Court of Chancery, renowned the world over for its expertise, sophistication, organization, efficiency, and developed body of case law. No other state has a Court quite like the Delaware Court of Chancery. One of the many equitable powers of the Delaware Chancery Court is to provide instructions in a trust matter.
And so, we filed a Petition for Instructions under 10 Del. C. § 6504 and Delaware Court of Chancery Rule 207. After multiple rounds of briefing and an in-person hearing, as counsel on behalf Trustee we successfully obtained a Court Order that interpreted the trust to give effect to the trustmaker’s intent as we believed the intent to be. The Court ruled that wife’s intent was to provide niece with a lifetime income right, then on niece’s death the trust was to go to the smaller list of charities and beneficiaries most recently selected by wife.
The day was saved, for: (i) wife who had made a point and paid money to amend her trust to provide for her niece and selected charities and churches, (ii) niece who read the trust amendment and believed she was entitled to the income, not understanding the ambiguity against the prior documents, and (iii) trustee who was faced with the ambiguity and needed Court guidance.
Lessons learned from this successful case include:
- One issue concerned who was the successor trustee. Identify successor trustees in your trust and specify clear mechanics for how they will take office when you become incapacitated or pass away. Banks change. Individuals die or become incapacitated. It can be confusing after your death who is to serve as successor trustee and whether they have taken office correctly. Be clear on the front end so trustee succession is easy on the back end.
- If you are the trustee, make sure you follow the trust mechanics for becoming trustee.
- Trustmaker’s intent is key. “In Delaware, the settlor’s intent controls” trust interpretation. In re Tr. Under Will of Flint for the Benefit of Shadek, 118 A.3d 182, 194 (Del. Ch. 2015) (citations omitted). “This prevents the settlor’s beneficiaries from rewriting of the terms of the settlor’s trust, in derogation of his [or her] wishes, after his [or her] death.” In re The David H. Elliott Revocable Tr., 2015 WL 13884639, at *2 (Del. Ch. Oct. 29, 2020).
- Read and understand your estate plan documents now. If something is unclear to you, tell your attorney. It may be unclear to your trustee or executor, too, after your passing. Would you want your loved ones to have to go to court to interpret your estate plan?
- If you are named successor trustee, executor or agent, read and follow the documents carefully. Don’t do what you think the document says. Do what the document says. If you are unsure, ask an attorney. You have fiduciary duties to follow the law.
- While litigating is a last resort, there is no better Court in which to file a Petition for Instructions for trust interpretation than the Delaware Chancery Court.
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We are here to help you and your agents with all of the foregoing, from beginning with advising the trustmaker and drafting estate plan documents to reflect that intent, to administering trusts and estates on death, and if necessary, successfully and efficiently obtaining instruction from the Delaware Court of Chancery and other courts. Experience matters. We see the issues ahead of time and work backwards to avoid those issues for our clients.