Why sue trusts? Because that's where the money is

“I rob banks because that's where the money is.”  Celebrity bank robber Willie Sutton gets credit for that gem.  The same logic applies to why trusts are often enmeshed in litigation: because that's where the money is.  The opposite is also true: no trust money usually = no lawsuit.

Can you sue a testamentary trust to collect on a decedent's personal debts? NO

One way to pull off the no-trust-money disappearing act is to obtain a court ruling dismissing a lawsuit against the trust because the trust is an improper party.  In other words, the trustee argues that regardless of the merits of the plaintiff's claims, the plaintiff is simply suing the wrong party. 

A recent case out of the Middle District in Florida is a great example of this defense strategy.  In Ziino v. Baker, --- F.Supp.2d ----, 2007 WL 2433902 (M.D.Fla. Aug 22, 2007), a trust was created by a settlor who subsequently died.  The plaintiff in this case had pending claims against the settlor. The plaintiff sued the deceased settlor's testamentary trust directly rather than suing his probate estate.  Why? I'm guessing because that's where the money was.  Rather than getting caught up in the merits of the case, the trustee successfully diverted the lawsuit away from the trust to the probate estate.  "Poof," claim goes away.  Here's how the Ziino court explained its ruling:

The Trustees move to dismiss the Complaint as against themselves on the ground that Florida law prohibits a creditor from bringing a direct action against a trust or its trustees after the death of the settlor, if that action is dependent upon the individual liability of the settlor.  .  .  .  The Florida Trust Code provides that:

After the death of a settlor, no creditor of the settlor may bring, maintain, or continue any direct action against a trust described in s. 733.707(3), the trustee of the trust, or any beneficiary of the trust that is dependent on the individual liability of the settlor. Such claims and causes of action against the settlor shall be presented and enforced against the settlor's estate as provided in part VII of chapter 733, and the personal representative of the settlor's estate may obtain payment from the trustee of a trust described in s. 733.707(3) as provided in ss. 733 .607(2), 733.707(3), and 736.05053.

Fla. Stat. § 736.1014(1). Accordingly, the Trustees are not proper parties to Count I because the settlor, William Wellman, is deceased and in Count I the Plaintiff purported to allege actions that are dependent upon the individual liability of the settlor. See Tobin v. Damian, 723 So.2d 396 (Fla. 4th DCA 1999).

Can you sue a spendthrift trust because the trust beneficiary isn't paying child support or alimony? YES

However, the issue in Ziino that should be of most interest to estate planners is the issue the plaintiff won on: piercing the protective wall of a spendthrift trust.  These types of trusts are at the heart of many estate plans.  One of the primary arguments for these trusts is their well-deserved reputation as asset protection vehicles.  Ziino is important because it addresses the rare exceptions to the general asset-protection benefits of spendthrift trusts: claims for alimony and child support. 

Here's how the Ziino court articulated this point:

Although Count III is obliquely drafted, in that Count the Plaintiff seeks a writ of garnishment under Florida law. In other words, the Plaintiff is seeking to garnish any disbursement from the Trust to Laura Wellman in order to satisfy her child support obligations evidenced by the promissory notes. Moreover, the Plaintiff has alleged in Count III that traditional remedies are not available to recover the child support owed, in that Laura Wellman does not have sufficient assets to satisfy the promissory notes. When “traditional remedies are not effective,” Florida law permits a court to garnish disbursements from a spendthrift trust to effect the collection of alimony and child support. See Bacardi v. White, 463 So.2d 218, 222 (Fla.1985).

Why do you think the plaintiff in Ziino sued the trust to collect on claims against the beneficiary for unpaid child support?  Answer: "because that's where the money is!"

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