Fulp v. Gilliland

Indiana Supreme Court
998 N.E.2d 204 (2013)

ELI5:

Rule of Law:

While a trust is revocable, the trustee's duties are owed exclusively to the settlor, not to the remainder beneficiaries.

Facts:

Ruth Fulp placed her family farm into the Ruth E. Fulp Revocable Trust.
The trust named Ruth as the settlor, trustee, and primary beneficiary, with the right to alter, amend, or revoke the trust and use its assets for her benefit.
Her three children, including Harold Fulp Jr. and Nancy Gilliland, were named as remainder beneficiaries who would receive any assets left upon her death.
To pay for her retirement home expenses and keep the farm in the family, Ruth decided to sell it.
Ruth, acting as trustee, entered into a purchase agreement to sell the farm to her son, Harold Jr., for $450,252, a price significantly below its appraised market value of over $1 million.
The price was the same discounted price per acre she had previously given to Nancy's daughter for a different parcel of land.
Nancy learned of the pending sale and objected, believing it would unfairly diminish her inheritance.

Procedural Posture:

Before the sale closed, Ruth Fulp resigned as trustee, and her daughter, Nancy Gilliland, became the successor trustee.
Nancy, as trustee, refused to complete the sale of the farm to Harold Fulp Jr.
Harold Jr. sued Nancy in an Indiana trial court, seeking specific performance of the purchase agreement.
After a bench trial, the trial court denied specific performance, finding that Ruth had breached her fiduciary duty to the remainder beneficiaries.
Harold Jr., as appellant, appealed to the Indiana Court of Appeals.
The Court of Appeals affirmed the denial of specific performance but reasoned that Ruth had acted as settlor to amend the trust, rather than as trustee.
The Indiana Supreme Court granted transfer to address the issue of a trustee's duty in a revocable trust.

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Issue:

Does the trustee of a revocable trust owe a fiduciary duty to the remainder beneficiaries while the settlor is alive and the trust is revocable?

Opinions:

Majority - Rush, J.

No. While a trust is revocable, the duties of the trustee are owed exclusively to the settlor. Imposing a fiduciary duty upon the trustee to the remainder beneficiaries would create an irreconcilable conflict with the trustee's duty to the settlor and would effectively render a revocable trust irrevocable. The primary purpose of trust construction is to effectuate the settlor's intent, and Ruth's trust clearly intended for her to retain full control and use of the property for her own benefit during her lifetime. To hold that Ruth owed a duty to her children would force her to serve two masters, defeating her explicit right as settlor to use, amend, or revoke the trust. This holding aligns with the Uniform Trust Code and the modern trend in trust law, which recognizes that the rights of remainder beneficiaries are subordinate to the settlor's control while the trust is revocable.

Analysis:

This decision establishes a clear, bright-line rule in Indiana, aligning the state with the Uniform Trust Code and the majority of jurisdictions on a key issue of trust law. It solidifies the power of the settlor in a revocable trust, ensuring they can manage their assets without interference from contingent beneficiaries. By clarifying that remainder beneficiaries lack standing to challenge the trustee's actions taken for the settlor's benefit during the settlor's lifetime, the ruling reinforces the utility of revocable trusts as a flexible and effective will substitute for estate planning.

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