The terms “probate litigation” or “trust litigation” generally refer to legal disputes over the administration or the internal affairs of trusts or probate estates, as opposed to disputes between a trust or estate on the one hand and a third party on the other. An example of a legal dispute regarding the internal affairs of a trust would be a lawsuit in which a trust beneficiary claims that the trustee has breached his or her fiduciary duty. An example of a third party legal dispute would be a suit in which a person who was injured on property that is owned by the trust sues the trust for damages related to the injury.
When determining how attorney fees are to be paid in probate or trust litigation, there are two basic principles to keep in mind.
The first is that, as in most litigation cases (not just trust and probate litigation), each party to a lawsuit must generally pay his or her own attorney fees.
The second principle is that a trustee is generally entitled to have attorney fees that he or she incurs paid from the trust assets. Utah Code §75-7-1004(2) provides: “If a trustee defends or prosecutes any proceeding in good faith, whether successful or not, the trustee is entitled to receive from the trust the necessary expenses and disbursements, including reasonable attorney’s fees, incurred.” In addition, trust instruments sometimes expressly authorize payment of the trustee’s attorney fees from the trust funds.
Thus, if there is a dispute between the trustee and the trust beneficiaries, such as when a trust beneficiary sues the trustee for breach of fiduciary duty, the beneficiary must pay his or her own legal fees, and the trustee’s legal fees would be paid from the trust funds, even if the trustee loses the case.
However, both of these principles have exceptions that relax what may seem to be an unjust rule.
In litigation generally (not just trust and probate litigation), Utah Code §78B-5-825 provides that the court may award reasonable attorney fees to a prevailing party if it determines that the action or defense was without merit and not brought in good faith. Rule 11 of the Utah Rules of Civil Procedure has a similar provision. But awards of attorney fees under these provisions are very rare, and one should never anticipate an award of attorney fees under them.
Utah Code §75-7-1004(1) states a broader rule for trusts: “In a judicial proceeding involving the administration of a trust, the court may, as justice and equity may require, award costs and expenses, including reasonable attorney’s fees, to any party, to be paid by another party or from the trust that is the subject of the controversy.” And in Cafferty v. Hughes, 46 P.3d 233 (Utah App. 2002), the Utah Court of Appeals held that, in trust litigation, even “in the absence of a statutory or contractual authorization, a court has inherent equitable power to award reasonable attorney fees when it deems it appropriate in the interest of justice and equity.”
Thus, if a beneficiary successfully sues a trustee for breach of fiduciary duty, the beneficiary may have a good argument (1) that the trustee should pay his or her legal fees from his or her own personal funds, rather than from the trust funds, particularly if the breach was a serious violation of the trustee’s responsibilities, and (2) that the trustee should also pay the beneficiary’s legal fees from the trustee’s personal funds. Conversely, if the beneficiary loses, the trustee may argue that his or her legal fees should be paid by the beneficiary rather than from the trust funds.
It is important to bear in mind, however, that even if a party succeeds in persuading the court to require the other party to pay his or her attorney fees, the court’s order on that issue will not come until the very end of the litigation. That means that he or she will have to pay the legal fees until then, unless the attorney agreed to take the case on a contingency basis.
For a discussion of trustee responsibilities in Utah, see “Serving as Trustee” on the home page of this website.
Rust Tippett is the author of this blog post.
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This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC. The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.