Trust Beneficiary Lacked Standing to Enforce Rights of Trust

Standing is required to bring suit on behalf of another person or entity.  In trust litigation, sometimes the beneficiaries want the trustee to bring an action against another person, but the trustee refuses to do so.  But normally, only the trustee can enforce rights of a trust against third parties.  In most situations, the beneficiary would have to bring suit against the trustee, to force the trustee to bring the action or perhaps persuade the court to appoint the beneficiary as a special fiduciary to act on behalf of the trust in pursuing the action in question.  A beneficiary who does not institute the intermediate step of obtaining court permission before bringing suit proceeds at his or her peril.

In Roller v. Collins, 5D22-1114 (5th DCA 2023), the beneficiaries of a trust brought an action against a third party to enforce rights that were properly held by the trust.

James was the grantor and trustee of his revocable trust.  Judith was the wife of James.  James, individually and as trustee of his revocable trust, and Judith, individually, borrowed money from Northern Trust.  James, individually and as trustee of his revocable trust, executed a pledge agreement whereby he pledged securities in the revocable trust as collateral on the loan from Northern Trust.

James then died, making his revocable trust irrevocable.  Cypress Trust became the successor trustee of the trust.  Northern Trust declared the loan in default.  Cypress Trust, acting as successor trustee,  liquidated the pledged securities held in the trust and paid off the loan.  Importantly, the loan proceeds were used to improve the home where James and Judith lived.  At the death of James, Judith became the sole owner of the home, improved via the loan, which was paid off from assets of the trust.  The trust received no benefit from the loan or from satisfying the loan, only Judith did.

James’ three children were beneficiaries of the trust.  The children sued Judith for statutory reimbursement under Florida Statute 673.4191.

Can an Individual Who Benefits From a Loan Satisfied with Pledged Trust Assets be Liable for Reimbursement?

Yes, an individual can be liable to repay a trust when the trust satisfies a loan that benefits the individual.  As explained by the Court:

Section 673.4191 is entitled “Instruments signed for accommodation.” Pursuant to subsection 673.4191(1), an “accommodation party” is a party to an instrument who “signs the instrument for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for the instrument.” The party who receives the benefit is the “accommodated party.” § 673.4191(1), Fla. Stat. (2021). Thus, “accommodation parties remain directly accountable to the holder of the instrument and legally responsible, in contribution, to their co-accommodation makers.” Palma v. S. Fla. Pulmonary &Critical Care, LLC, 307 So.3d 860, 865 (Fla. 3d DCA 2020) (citing Dobrow v. Bryant, 427 So.2d 809, 810 (Fla. 5th DCA 1983)). Subsection 673.4191(5) provides that “an accommodation party who pays the instrument is entitled to reimbursement from the accommodated party and is entitled to enforce the instrument against the accommodated party.”

Neither chapter 673 nor section 673.4191 defines the term “person” or “a party” as a trust. However, section 671.201, Florida Statutes (2021), contains general definitions that apply to chapter 673. See § 671.101(2). Section 671.201(29) defines a “party” as “a person who has engaged in a transaction or made an agreement subject to this code.” § 671.201(29), Fla. Stat. (2021) (emphasis added). Under section 671.201(30), a “person” is defined as “an individual; corporation; business trust; estate; trust; partnership; limited liability company; association; joint venture; government; governmental subdivision, agency or instrumentality; public corporation; or any other legal or commercial entity.” § 671.201(30), Fla. Stat. (2021) (emphasis added). Thus, a “trust” is a person or party for the purposes of section 673.4191.

Grantor, as the then-trustee of the Trust, signed the Note and the Pledge Agreement. In doing so, Grantor, as trustee, pledged Trust assets as collateral for the Note and, acting as trustee, obligated the Trust to repay the debt. Put differently, Northern Trust could have independently sought contribution from either the Trust, Grantor, or Collins, and it would have been Northern Trust’s right to enforce the Note against any of the three parties, which supports Appellants’ claim that the Trust was an accommodation party. See § 673.4191(2), Fla. Stat. Further, the amended complaint alleged that the Trust did not receive a benefit. See § 673.4191(1), Fla. Stat.; see also Lyons v. Citizens Com. Bank of Tallahassee, 443 So.2d 229, 231 (Fla. 1st DCA 1983) (“In determining whether such a person is to be afforded the status of an accommodation party, several factors are to be considered, including . . . whether the party received any benefit from the transaction ….” (internal citations omitted)). As a result, it appears that the Trust could qualify as an accommodation party under section 673.4191(1). Once the Trust paid the debt owed by Collins, it had the right to recover the funds from Collins pursuant to section 673.4191(5).

Can a Beneficiary of a Trust Bring a Suit to Enforce an Obligation of the Trust?

The Court dismissed the case, holding that the beneficiaries of the trust did not have sufficient standing to bring suit on behalf of the trust.

Florida law has long recognized that it is generally the trustee, and not a beneficiary, who is the real party in interest with authority to bring an action on behalf of the trust. See Buerki v. Lochner, 570 So.2d 1061 (Fla. 2d DCA 1990) (holding that the trustee, the legal title holder to the trust property, would be the real party in interest to a suit brought to determine the trust’s assets); see also First Union Nat’l Bank v. Jones, 768 So.2d 1213, 1215 (Fla. 4th DCA 2000) (holding that a trustee “is merely the legal entity who is sued when an action is brought against” a trust). See generally Cady Huss &Elizabeth Hughes, The Real Party in Interest: Trustees, Actionline Vol. 20, no. 2 (Winter 20182019) (a publication of the Florida Bar Real Property, Probate, and Trust Law Section discussing the legal principle that the trustee, rather than the beneficiary, is the real party in interest when bringing an action on behalf of the trust). Accordingly, Florida Rule of Civil Procedure 1.210(a) provides that “every action may be prosecuted in the name of the real party in interest,” and recognizes that the trustee of an express trust may bring a suit on behalf of the trust.

Both rule 1.210(a) and Florida’s court decisions are in accordance with the longstanding principles governing the trustee’s authority to act on behalf of the trust. As a general rule, the trustee may exercise the power conferred upon it by the terms of the trust and all powers that an owner would have over the trust property. Jones v. First Nat’l Bank in Fort Lauderdale, 226 So.2d 834, 835 (Fla. 4th DCA 1969) (providing that the “duties, powers and liabilities of executors and trustees are ordinarily fixed by the terms of the . . . trust agreement” (internal citations omitted)). “From the trust, the trustee derives the rule of his conduct, the extent and limit of his authority, the measure of his obligation.” Id. (citing Valley Nat’l Bank of Phoenix v. Hartford Accident & Indem. Co., 136 P.2d 458 (Ariz. 1943)).

Finally, except to the extent modified by the Florida Trust Code or otherwise under Florida law, the common law of trusts still applies. See § 736.0106, Fla. Stat. (2021). Notably, the common law provides that the real party in interest in litigation involving a trust is the trustee. 90A C.J.S. Trusts § 575; 76 Am. Jur. 2d, Trusts § 601 (stating that the “trustee . . . is the real party in interest in litigation involving trust property”); see also 76 Am. Jur. 2d, Trusts § 602 (stating that “a trustee is a necessary party to assert or defend title to trust property, particularly in an adjudication of the rights of the beneficiaries in a trust”).

However, Appellants do not argue a common law exception on appeal. Rather they argue that they have standing because they are the “real party in interest,” by relying on our sister court’s holding in St. Martin’s Episcopal Church v. Prudential-Bache Securities, Inc., 613 So.2d 108 (Fla. 4th DCA 1993). But as we will explain, we think Appellants read that opinion too broadly.

In St. Martin’s, a beneficiary of a trust brought an independent claim against a securities dealer and the trustee, where a conflict of interest arose with the trustee. Id. at 108-09. In particular, the beneficiary alleged that the securities dealer and the trustee who was employed by the securities dealer, colluded to “churn” an investment account to make unnecessary stock trades and earn unwarranted commissions which dissipated trust assets. Id. at 109. The trial court dismissed the action, ruling that the beneficiary lacked standing. Id.

We disagree with Appellants’ position that St. Martin’s stands for the broad proposition that the beneficiary is actually the real party in interest to bring an action against a third party on behalf of the trust. Rather, we agree with the ruling in Buerki, that generally the trustee is the real party in interest to bring an action on behalf of the trust. Buerki, 570 So.2d at 1061. Absent any argument that a common law exception applies, Appellants have not demonstrated that they have standing to bring an action against Collins for statutory reimbursement.

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