A trustee must do exactly what the trust says to do

Morton & Gettys is discussing the facts of this case with the permission of the client.

By Dan Ballou
Partner, Morton & Gettys

If you are a trustee, you must do what the trust says you must do.

That’s a simple and straightforward principle courts in South Carolina have now strongly affirmed in the case of a living trust created by the late Deborah Dereede. Here’s what happened:

Deborah and her husband Hugh Dereede bought a house on Lake Wylie in York County, SC. Hugh Dereede paid for the house in part with a $250,000 promissory note from his business, Tyre Dealer Network Consultants, Inc.

About eight months before her death, Deborah executed a trust and named as trustee her daughter by a previous marriage, Courtney Feeley Karp.

The trust was specific about what Ms. Karp was to do with the house after her mother’s death:

“As soon as practicable following my death, my Trustee shall sell the house and lot…. The sales proceeds shall be used first to pay off any mortgage against the property, and second to pay off that certain promissory note given by me to Tyre Dealer Network Consultants, Inc. Said promissory note, at the time of the execution of my Trust, is in the amount of $250,000.00, but in no event shall the amount due exceed one-half of the sales price of the property. After payoff of said mortgage and said note, my Trustee shall then distribute one-half of the remaining net sales proceeds to HUGH DEREEDE, outright and free of trust. The other one-half of the remaining net sales proceeds shall be distributed in accordance with the Articles that follow….”

After her mother died. Ms. Karp sold the house, but did not immediately pay Hugh Dereede or his business. As the personal representative of her mother’s full estate, she maintained that she could not distribute the proceeds until she was certain of the net assets of the estate as well as the trust, and the time for creditor’s claims had expired.

But Hugh Dereede insisted he and Tyre should be paid as the trust required, and went to court to ensure that he would be. Ms. Karp not only denied she had an obligation to make the distribution as required by the trust, but also claimed that, by suing her, Mr. Dereede and Tyre had triggered the trust’s no-contest clause, thereby forfeiting their right to the proceeds.

The trial court did not agree. Special Circuit Court Judge S. Jackson Kimball III held that:

  • Karp breached her fiduciary duty by not timely distributing the house sale proceeds to Tyre and Mr. Dereede.
  • Dereede had probable cause to bring this action, and therefore the no-contest clause did not apply.
  • Because Tyre was a creditor, the no-contest clause was inapplicable to it.
  • Tyre and Mr. Dereede were entitled to attorney’s fees and costs from Ms. Karp.

Ms. Karp appealed to the South Carolina Court of Appeals, but to no avail. The appellate court held that “As the trial court noted, Karp’s duty to execute Deborah’s intent… in distributing the proceeds was absolute, not discretionary.” It further found that the trust “did not permit Karp to wait until she could ascertain the liquidity of the estate and the extent of any creditors’ claims.”

“There is no evidence Karp acted in bad faith,” the court noted, but stressed that “good faith alone will not excuse a breach of trust. Once it is determined the trustee has failed to carry out the express terms of a trust, good faith ‘counts for nothing’…” Good faith or no, the trustee is “personally liable” for the terms of the trust.

Ms. Karp then tried taking the appeal a step higher, but the Supreme Court denied the petition for review.

The bottom line is where we started: A trustee must do what the trust says to do. The law leaves little room to do otherwise.

If you have any questions about creating or managing a trust, contact any of the Estate Planning or Litigation attorneys at Morton & Gettys. We can help.

Dan Ballou is a partner with Morton & Gettys. He is a seasoned civil litigator with experience at all levels of federal and state courts in South Carolina. He represents clients at the trial level, and on through the appellate courts if necessary. He can be reached at (803) 366-3388 or dan.ballou@mortongettys.com.

Information or interaction on this page should not be construed as establishing a client-attorney relationship or as legal advice. For advice about your specific situation, please consult one of our attorneys.

Daniel J. Ballou

Partner

P 803.366.3457  F 803.366.4044