Fall 2011 Newsletter
In Defense of the Suit for Aid and Direction as a Remedy for a Trustee-Beneficiary
By Glen M. Robertson
Virginia practitioners have long been aware of the availability of suits for aid and direction to guide fiduciaries in their administration of estates and trusts. Indeed, the jurisdiction of courts to consider such suits “is firmly established.” 2-28 Harrison on Wills and Administration for VA and WV §28.03. While it also true that, in plain cases, the fiduciary is not justified in seeking aid, guidance or protection from the court and the estate or trust should not be subjected to that unnecessary expense, “when genuine doubt and difficulty con-front the administrator in ascertaining the identity and relationship of the beneficiaries he is entitled to the aid and protection of a court of equity in a plenary suit. Id.
As Judge Lamb stated in his treatise:Such a fiduciary is not required to act at his peril; he need not eat the doubtful vegetable in order to ascertain if it is a wholesome mushroom or a poisonous toadstool…
In such cases of doubt or difficulty the expense incident to instituting and con-ducting such a suit, including an allowance by the court of proper compensation to the fiduciary’s counsel, is to be borne by the estate, not by the personal representative out of his own pocket or out of his compensation or commissions.
Virginia Probate Practice (Lamb, 1957) §133, p. 238. See also, Gaymon v. Gaymon, 63 Va. Cir. 264 (Fairfax County, 2003).
Generations of Virginia practitioners have advised executors, administrators and trustees that “when provisions in a will may be susceptible of differing interpretations, it is prudent and proper for the personal representative to seek the aid and guidance of a court to obtain the correct interpretation.” 2-28 Harrison on Wills and Administrations of VA and WV §28.03. It is well-settled, too, that a personal representative does not exceed his authority by initiating an action to determine a question of law which is the proper province of a court and, where it is reasonably necessary for the fiduciary to engage counsel to represent him in the suit, the fiduciary is entitled to have his reasonable attorney’s fees paid by the estate or trust. Id.
It is also well-settled in Virginia that only a fiduciary may invoke the jurisdiction of a court for aid and direction and that beneficiaries of an estate or trust lack standing to do so. Burns v. Equitable Associates, 220 Va. 1020, 1028 (1980); Brewster v. Lane, 06 Va. S. Ct. UNP 060275 (2006). The character of such a suit as “neutral” among potential beneficiaries is underscored by the rule that the fiduciary may not appeal a circuit court’s ruling in an aid and direction suit since the fiduciary is not an “aggrieved” person under Va. Code Ann. §8.01-670(A) because the only remedy the fiduciary seeks is the court’s direction and guidance and, regardless of the interpretation adopted by the court in rendering that aid and direction, the fiduciary has received the remedy to which he is entitled. Shocket v. Silberman 209 Va. 490, 492-493 (1969)
None of the foregoing history and case law is new and none of these rules come as a surprise to Virginia trusts and estates practitioners. What might, though, is that at least one Virginia court has rejected the availability of an aid and direction suit by a trustee who was also one of the beneficiaries of the trust she administered. In holding that a trustee-beneficiary could not bring an aid and direction suit where the court’s interpretation of the trust documents could result in an outcome favorable to the trustee in her individual capacity as a beneficiary, the court relied upon Va. Code § 55-548.02 and Commercial and Savings Bank v. Burton, 183 Va. 133, 139 (1944), to hold that filing such a suit constituted a breach of fiduciary duty by the trustee.
Relying upon Burton, the court applied a three part test to evaluate the propriety of the trustee-beneficiary seeking aid and direction as to whether or not a certain handwritten document, which the trustee believed to be in the settlor’s handwriting, was sufficient under the terms of the trust agreement to effect an amendment of the trust which would have resulted in distribution of a certain condominium unit to the trustee in her individual capacity as a beneficiary. If the writing was insufficient to amend, the property remained in the trust for the benefit of the charitable income beneficiaries and, ultimately, the charitable remainder beneficiary. Citing Burton, the court considered (1) whether the conduct fell within the scope of the fiduciary’s powers and duties; (2) whether the con-duct was undertaken in good faith; and (3) whether the conduct was consistent with ordinary prudence. Id.
In applying Burton to the facts before it, the court rejected the trustee’s argument that both Va. Code § 55-548.15 (A)(b), (which provides a trustee with “any other powers appropriate to achieve the proper investment, management, and distribution of the trust property”) and Va. Code § 55-548.16 (A)(24), (which empowers a trustee to “prosecute or defend an action, claim or judicial proceeding in any jurisdiction to protect trust property and the trustee in the performance of the trustee’s duties”) provided her with authority and standing to bring the aid and direction suit she had filed. Instead, the court ruled that, since the aid and direction suit involved the issue of whether the trustee, in her individual capacity as a beneficiary, would or would not receive a significant trust asset, a prudent trustee in the ordinary course of business would be unable to overcome the conflict and perform her fiduciary obligations to the trust and to its other beneficiaries.
The Court went on to cite Butt v. Murden, 154 Va. 10, (1930), in characterizing the case before it as one in which the beneficiaries of the trust were contesting who took what out of the trust and, as such, it held the matter should be left to the parties to litigate in their individual capacity.
Finally, the court ruled that the aid and direction suit constituted an action taken by the trustee to promote her own interests to the exclusion of the interests of other beneficiaries and, as such, held that the aid and direction suit was not chargeable to the trust and the trustee was ordered to reimburse the trust for attorney’s fees and costs expended in bringing the suit.
Virginia practitioners will recognize the serious implications for use of the aid and direction suit as a tool for trust and estate administration if this analysis is followed by other circuit courts. Obviously, many trusts are established with one or more family members named both as a trustee (or successor trustee,) and beneficiary. Under the analysis discussed herein, none of those trustees would have the ability to seek court guidance in administering the trusts if the advice sought could, in any way, potentially benefit them as beneficiaries notwithstanding the long history of aid and direction suits in Virginia and the express authority provided by §55-548.15(A)(b) and §55-548.16(A)(24).
This analysis, with its potentially broad impact and significant change to trust and estates practice, appears to suffer from at least three flaws on both logical and public policy grounds.
First, a suit for aid and direction seeks only the court’s guidance and does not seek a specific outcome from the court. Where a fiduciary purports to bring an aid and direction suit but, in reality, files an aggressive and adversarial pleading which seeks a specific determination from the court rather than making an honest, un-biased request for guidance, the courts are already fully capable of rejecting the purported aid and direction suit as the adversarial claim that it actually is. See, e.g. In re Harold J. Dooley Trust, 2005 WL 877937 (Va. Cir. Ct.) The trustee’s lack of interest in the specific direction received is borne out by his previously discussed lack of standing to appeal the court’s direction given to him. Shockett, 209 Va. at 492-493.
Since an aid and direction suit is a neutral undertaking by its very definition, the suggestion that a fiduciary could be engaged in a conflict of interest by merely asking a court for guidance as to how he is to proceed is intellectually inconsistent with the very nature of the remedy itself.
A second flaw is that preventing trustee-beneficiaries from seeking the aid and direction of the courts not only effectively eliminates this administrative tool for a large percentage of fiduciaries, but, even worse, eliminates it for those who are most at risk of liability and accusations of misconduct by disappointed beneficiaries. A fiduciary who has no “skin in the game” might still be accused of favoritism or breach of fiduciary duty by disappointed beneficiaries; however, it is inarguable that trustee-beneficiaries who are left to make such decisions on their own without the protection provided by the aid and direction suit are much more likely to be the target of such accusations. To eliminate the aid and direction suit as a remedy in the very cases in which it is the most important and most valuable flies in the face of the long history of this remedy in Virginia and renders the analysis highly suspect. It also flies in the face of the broad public policy which is articulated in the cases cited above.
The third flaw in the analysis is the logical extension and outcome of the second. Without the ability to bring an aid and direction suit, trustee-beneficiaries are left with two choices. They can decide the questionable issue against themselves in order to avoid potential suits by other beneficiaries. After making such an adverse decision as trustee, the only remedy then available to the trustee beneficiary in his capacity as a beneficiary is to file suit against himself as trustee for breach of fiduciary duty. While such an outcome seems farfetched and inconceivable, it is, in fact, the very one required by the court’s application of Butt v. Murden and its order that the parties “litigate the matter in their individual capacities.” Since a beneficiary has no standing to bring a suit for aid and direction, a trustee-beneficiary would have no other recourse other than to sue himself in his capacity as trustee. The other alternative for such a trustee beneficiary would be to decide the disputed issue in his own favor and simply expose himself to suit by the other beneficiaries for alleged breach of fiduciary duty and self-dealing. Of course, protection from such suits is the reason for the existence of suits for aid and direction in the first place. The public policy goal is to decrease controversy and increase certainty.
Given the highly unfavorable alternatives available to a trustee-beneficiary denied the remedy of an aid and direction suit, it appears highly likely that this analysis would deter those closest to--and most trusted by--the settlor from serving as his fiduciary and leaving him, instead, to rely upon more expensive corporate fiduciaries who lack the same close commitment to him and who would lack the same great moral obligation to carry out his wishes as fully as they can be determined. In the final analysis, this is the greatest criticism of all.