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Jurisdiction can become issue in litigation involving a trust

On Behalf of | Jul 28, 2014 | Trusts

Jurisdiction is an important concept when it comes to litigation. This is definitely true for estate administration matters that are taken to court in Maryland or in any other state. The question of jurisdiction can be important when a party decides to sue a trust in court.

In the courts, there had been some confusion as to how to determine the correct jurisdiction for suing a trust. In one lower court ruling, a judge held that a business trust should be considered a citizen of each state where shareholders of the trust reside. However, the U.S. Supreme Court disagreed and reversed this decision, holding that the trustees should be considered the true parties to the dispute. The Supreme Court reasoned that the trustee of a trust had exclusive control over assets within the trust — similar to if the trustee was the sole owner of the assets in the trust.

On the other hand, traditional trusts may be treated differently in court as far as determining jurisdiction is concerned. Neither of the two cases dealt specifically with traditional trusts; however, there have been other court cases that have dealt with determining jurisdiction of traditional trusts. One recent case involved a single-member LLC, which was owned by a revocable trust of an individual who was both the trustee and grantor.

In its ruling, the court determined that the trustee was the real party, similar to the Supreme Court ruling regarding the business trust. However, the court’s ruling does not address specific qualities of a revocable trust, where the grantor would have the ability to revoke the trust. Therefore, the issue could become even more confused when the grantor and the trustee of a revocable trust are not the same person or entity.

These complex legal questions, as well as various other legal issues and financial considerations, should be taken into account when attempting to create a trust-planning strategy in Maryland. Although nobody wishes for a legal dispute when making estate plans, it can happen, and one should be prepared. Therefore, keeping up with the latest changes in statutes and case law would be useful.

Source:, “Review of Reviews: “Diversity Jurisdiction and Trusts,” N.Y.U.L. Rev. (forthcoming December 2014)“, Turney P. Berry, July 24, 2014


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