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Does a Potential Inheritance Give You Standing to Sue For Breach of Trust?

In Cates v. Community Bank & Trust of Florida, the court determined that a potential inheritance gives you standing to sue for breach of trust.  You do not have to be a beneficiary of the trust that you are alleging has been maladministered to sue for breach of trust, but you at least have to have a will and/or trust contest pending that, if successful, would make you a beneficiary of the assets in the trust.

What is standing?

Standing is required to bring a lawsuit.  To have standing, a litigant must show a direct interest in the controversy, which will be affected by the outcome of the litigation.

In Cates, Cruz and Cates (appellants) sued Community Bank & Trust of Florida (Bank) for breach of trust.  The trial court dismissed their case for lack of standing. The trial court said their interest was “hypothetical” and based on uncertain future events.  Since appellants were not beneficiaries of the Trust, they did not have standing to sue.

On appeal, appellants argued that they had standing under the Florida Trust Code as interested persons.  The appellate court agreed and reversed for further proceedings.

Who is an interested person in Florida Trust proceedings?

In Florida trust proceedings, an interested person is defined as:

any person who may reasonably be expected to be affected by the outcome of the particular proceeding involved.  Section 731.201(23).

Facts of Cates v. Community Bank

In Cates, Appellants’ father, Elmer Cates, executed a  2016 pour over will, naming his 2016 Trust as beneficiary of his estate.  The Bank was the trustee of the Trust.  The Trust directed that most of the assets go to two different charities.

After decedent’s death, appellants brought a trust contest.  They alleged the 2016 will and trust were invalid because decedent lacked capacity at the time he executed the documents.

The Bank served appellants with a Trust accounting and account statements.  The Bank also served appellants with a statutory limitation notice.  A limitation notice is defined in section 736.1008 as:

a written statement of the trustee that an action by a beneficiary against the trustee for breach of trust based on any matter adequately disclosed in a trust disclosure document may be barred unless the action is commenced within 6 months after receipt of the trust disclosure document or receipt of a limitation notice that applies to that trust disclosure document, whichever is later.

Appellants then sued the Bank for mismanagement of the Trust.  The Bank moved to dismiss the breach case, arguing that appellants lacked standing because they were not named beneficiaries of the Trust.

The Bank argued that appellants first had to win their will and trust contest, before having standing to bring a breach of trust action.

The trial court agreed with the Bank that the breach of trust action was a hypothetical interest based on uncertain future events, and held that the appellants lacked standing to sue for breach of trust, because they were not beneficiaries of the trust.

The appellate court disagreed.

On appeal, the court framed the question as whether a potential inheritance is an interest that will be affected by the Bank’s management of the Trust.  If so, appellants would fall under the definition of interested persons (any person who may reasonably be expected to be affected by the outcome of the particular proceeding involved) and would have standing to sue under the Florida Trust Code.

Section 736.0815 And Standing Based On The Potential of Inheritance

Section 736.08165 governs the administration of a trust pending the outcome of an invalidation action and states:

Pending the outcome of a proceeding filed to determine the validity of all or part of a trust or the beneficiaries of all or part of a trust, the trustee shall proceed with the administration of the trust as if no proceeding had been commenced, except no action may be taken and no distribution may be made to a beneficiary in contravention of the rights of those persons who may be affected by the outcome of the proceeding.

Section 736.08165 requires a trustee to consider the rights of those potentially affected by an invalidation action when administering the trust.  The appellate court reasoned that Appellants could possibly receive the assets of the Trust depending on the outcome of the invalidation action.  The appellate court held that the appellants were certainly affected persons and stated:

Their rights as ‘persons who may be affected by the outcome of the proceeding’ under section 736.08165(1) can be understood as recognizing their rights to the assets of the challenged trust itself.  As such, we find that Appellants’ potential inheritance is an interest that will be affected by the Bank’s management of the Trust.

Therefore, appellants’ standing was based on the possibility that they would inherit the estate – the potential inheritance gave the appellants standing to sue for breach of trust. This case is important because standing is a threshold issue often disputed by parties.  If someone has a will or trust contest pending, they can also bring a breach action if the assets of the trust could belong to them upon a successful will and/or trust contest.  This creates less hurdles for a would be litigant, who will not have to wait for a successful outcome in a will or trust contest to proceed with a breach action.

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