No matter how many times it comes up, plaintiffs constantly seem to forget that when a lawsuit seeks some relief regarding a trust, then all beneficiaries of the trust must be joined as parties.  In these cases, one or more trust beneficiaries usually get omitted by a plaintiff’s attorney trying to seek what they perceive to be a more advantageous venue or jurisdiction (for example, state court versus federal court).  Those forum shopping tricks usually end up failing because, like the United States District Court for the Middle District of Florida recently reminded us in Butler v. Saunders, when a plaintiff seeks relief regarding a trust, all trust beneficiaries must be joined as parties.

In Butler v. Saunders, however, the federal court encountered a different scenario: a trust beneficiary had been named as a defendant in a lawsuit, but several of his co-defendants argued that he was not a proper defendant.Nevertheless, the federal court in Florida reaffirmed the longstanding law that all beneficiaries of a trust must be joined as parties to any lawsuit that seeks to:

  • terminate the beneficiaries’ interest in the trust;
  • remove the trustee;
  • require an accounting; or
  • restore trust assets.

 

In this case, M. Ashley Butler, Ph.D. filed suit as court-appointed guardian of Claudine B. O’Connor.  Claudine and Thomas F. O’Connor had executed a prenuptial agreement expressing their desire to keep certain property separate.  The O’Connors also each executed and amended multiple revocable trusts at various times before and during their marriage.  Butler alleged that, after the execution of two individual trusts, Claudine’s assets were improperly transferred to Thomas, to members of his family, and/or to members of the Saunders family.  Butler also alleged that she was unable to locate millions of dollars of Claudine’s assets.  On the other hand, Thomas’s assets had appeared to increase, including the assets in a 1998 trust.

In prior proceedings, both Claudine and Thomas were determined to be incapacitated, so guardians were appointed for them.  Butler was appointed as Claudine’s guardian, and Ernie C. Lisch was appointed as Thomas’s guardian.  Butler alleged that Claudine was unduly influenced in making transfers of assets to Thomas, the O’Connor family, and the Saunders family.  Butler also alleged that Claudine lacked capacity to make the transfers.  Butler sought a declaratory judgment regarding Thomas’s 1998 trust, suspension of the trustee of the trust’s powers, removal of the trustee, and other relief.  Lisch, as Thomas’s guardian, was named as a defendant.

Several of the defendants claimed that Lisch was an improper defendant.  The federal court, however, determined that Thomas was required to be a party to the lawsuit because it was an action (1) seeking to determine the source of assets, and (2) to remove trustees of trusts of which he was a beneficiary.  Because Thomas was incapacitated, his guardian “steps into his shoes” to sue or be sued.  Therefore, Thomas’s guardian was an indispensable party to the action.

Once it was determined that Thomas’s guardian was required to be a party to the action, the next question was how the guardian should be aligned in the action.  Even though the plaintiff had not alleged any wrongdoing against Thomas (or his guardian), had actually sought the guardian’s appointment as a special fiduciary to ensure the trust was used for Thomas’s benefit, and did not seek any relief with respect to Thomas’s property, the guardian was properly aligned as a defendant.  The plaintiff alleged that Thomas’s trusts were used as “receptacles” for some of Claudine’s assets and, thus, Thomas’s interests as a beneficiary of the trusts could be affected if the plaintiff prevailed.  Therefore, the guardian belonged as a defendant.