Suppose you live in Texas, and you establish a revocable living trust. Your trust document is clear. The trust is a Texas trust, and is “to be governed, construed, and administered” according to Texas laws. Does that mean any challenge by trust beneficiaries must be filed in Texas courts?
The Roger McCarty Trust
Roger McCarty had established a revocable living trust before his 2011 death. With his death, the trust divided into three shares. All three shares named his second wife (and widow) Jane as trustee. All three shares were for her benefit for the rest of her life. On the death of Jane McCarty, the three trusts will terminate and be divided between into two trusts for the benefit of Roger’s children.
A few years after Roger’s death, Michele McCarty Woods (one of his children) began to question her stepmother about administration of the trusts. Jane provided balance sheets showing assets, income, expenses and distributions for the years 2014 through 2016. Michele was not satisfied with the information, and filed a court petition, seeking more information.
The first question, though, was where to file the court proceeding. The trust document, remember, said that it was a Texas trust. Jane claimed Texas residency. She voted in Texas, had a Texas driver’s license, and considered herself a resident of that state. Or at least she did until 2016, when she moved to Nevada.
During the litigation, Jane lived in Nevada. She claimed it as her residence — and, in fact, her domicile. An individual can only be domiciled in one place, even if they live part-time in another, and she intended Texas to be her domicile and residence until 2016, and Nevada thereafter.
But Jane did spend her winters in Arizona. She hired an Arizona attorney to represent her as trustee, and an Arizona accountant to prepare tax returns and trust accounts. Did that make the trust an Arizona trust?
What does it mean to have a “Texas trust”?
We have written about the problem of interstate trust jurisdiction before. Application of the rules depends on a collection of factual determinations. The Arizona probate court considered the relevant facts, and decided that Arizona did not have jurisdiction over the trusts and Jane as trustee. Her stepdaughter appealed that decision.
The Arizona Court of Appeals disagreed. Its decision is unreported, which means that it can not be cited as precedent in other, similar cases. But it still spells out some of the principles a court should apply in determining jurisdiction over the trust.
Statutory vs. personal jurisdiction
Arizona’s trust code provides one way for Arizona courts to assert jurisdiction over even a Texas trust. Arizona courts have the authority to manage trusts if they are administered in our state.
The appellate court noted that Jane lives in Arizona part time, and she hired an Arizona attorney and accountant to help her administer the trust. She also has a number of other connections to Arizona, including listing her Arizona address on trust tax returns and other legal documents. But, said the Court of Appeals, that was not enough to invoke the statutory provisions giving Arizona courts jurisdiction.
That doesn’t mean that the Arizona court proceedings should be dismissed, however. If the court had jurisdiction over Jane personally, she could still be hailed into the Arizona courts and required to answer for the trust’s administration.
Because Jane lived part-time in Arizona, and performed at least some of her duties as trustee while in Arizona, the probate court should have asserted authority over her actions, ruled the appellate court. Jane affirmatively hired the Arizona attorney and accountant, knew that they would perform their work in Arizona, and had regular communications with them. That gave the Arizona courts permission to intercede in the trust’s administration.
Does that turn the trusts into Arizona trusts?
Once the Arizona courts assert jurisdiction, however, they are still required to follow the trust’s rules. One of those was that Texas law should apply. So Arizona courts would have to figure out what Texas courts would have required if the action had been brought there.
One of the key questions in interpreting the trusts: did stepdaughter Michele even have authority to challenge Jane’s trust administration? Remember that Michele is not actually a beneficiary of the trust. She will not receive any share of the trust even after Jane’s death. Michele is the beneficiary of a trust that will receive assets after Jane’s death.
Does that mean that only the trustee of that trust could challenge Jane in court? That might be the outcome under Arizona law, since a challenge could only be brought by a “qualified beneficiary.” But that’s not how the Arizona Court of Appeals evaluated the case.
Because the McCarty trusts are Texas trusts, and recite that Texas law applies, the court had to look to Texas trust rules. Unlike Arizona, Texas has not adopted the Uniform Trust Code (though it has adopted a few provisions from the UTC). Instead, Texas allows trust challenges by “interested persons.” And, ruled the appellate court, Michele is such an interested person under Texas law.
What is the takeaway message?
Interstate trust jurisdiction rules can be confusing. Sometimes more than one court might have authority to interpret a trust, or supervise a trustee.
It’s even possible for a trust to say that it is governed by the state law of a given state, but not be subject to that state’s courts. Imagine, for example, a trust signed in Montana by a Montana resident, and reciting that Montana law would apply. Imagine that the signer then moved to Wyoming. After the signer’s death, the sole trustee lived in Washington. All the trust’s property was located in Idaho and Arizona, and no beneficiary lived in Montana. In those facts, Montana courts might not have any authority.