Trust Litigation

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The Court has amended Rule 180 of the Court of Chancery Rules, in conjunction with the recent amendment to 12 Del. C. § 3901, and the recent revisions to Rule 133 of the Superior Court Rules.

These amendments to Section 3901 and the revised rules reduce the need for court-appointed guardians of a minor’s property.  The revised rule establishes a monetary threshold below which a guardian need not be appointed ($25,000, inclusive of costs and attorneys’ fees).

In addition, the revised rule explains the notice and consent provisions required for such petitions, and lists the necessary exhibits that must accompany the same.

The revisions to Rule 180 went effective September 19, 2014.

Carl D. Neff is a lawyer with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Are you a Delaware trust beneficiary? If so, then I have some important information to share with you.

In Delaware, beneficiaries of a trust have the right to petition the Court of Chancery to seek recovery from trustees who have wrongfully spent trust funds for their personal use, or mismanaged assets through neglect.  The recent case of Hardy v. Hardy, C.A. No. 7531-VCP (Del. Ch. July 29, 2014) is an excellent illustration of the types of actions that can be commenced by a beneficiary against self-interested trustees, and the types of relief that the Court will grant.

In Hardy, the beneficiary Duane Hardy placed a large cash settlement in a trust, and named his sister and nephew as co-trustees.  Duane is bi-polar and schizophrenic, and relied upon his family members to manage his assets.

Money burning

By the time of trial, after an incredible spending spree by the trustees, the trust account was $0.00.  The reckless spending by the trustees included purchasing a $49,920 2011 Lincoln MKX, a $33,120 2006 Mercedes Benz CL5 (both for their personal use), and other expenditures including $75,000 towards repairing a property that Duane did not live in.

Duane Hardy brought a petition against the co-trustees for monetary damages and other relief, asserting the following causes of action:

(i)               breach of fiduciary duties,

(ii)              failure to maintain adequate records,

(iii)             recovery of money improperly spent,

(iv)             a constructive trust placed on goods purchased with trust assets, and

(v)              reasonable attorneys’ fees for bringing the action.

The Court found in favor of Duane on many of his causes of action, including finding that the trustees breached their fiduciary duties, and are liable to Duane for approximately $250,000, plus interest.  The Court also held the trustees liable for Duane’s attorneys’ fees, and ordered their removal from the trust.  Finally, the Court placed constructive trusts over the vehicles and the trustee’s interest in the property that received significant repairs.

This case is a must-read for any beneficiary or trustee of a Delaware trust, in that it clarifies the various fiduciary duties owed by a trustee to a beneficiary, and discussed the pertinent causes of action that can be asserted by a beneficiary against a trustee.  Another key takeaway for settlors of trusts: make sure that you take caution when appointing a trustee to your trust.

Carl D. Neff is a lawyer with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.