On April 20, 2017, the Supreme Court issued a decision in Glassie v. Doucette, No. 2014-108-Appeal (R.I. 2017), holding that a Trust beneficiary lacked standing to sue as a third party intended beneficiary of a contract which called for the creation and funding of the Trust.
During divorce proceedings, Donelson and Marcia, husband and wife, entered into a property settlement agreement under which Donelson agreed to create a trust for their minor child, Jacquelin and to fund the Trust with $10,000 per year until it contained a principal amount equivalent to Trusts that were previously created for her older sisters, Alison and Georgia. One month later, Donelson established the Trust. However, the Trust did not contain language that it was created pursuant to the property settlement agreement, or that he was required to fund the Trust with the sum of $10,000 per year until the value equaled the value of the Trusts for Alison and Georgia.
Donelson died on February 3, 2011, having contributed $123,336.82 to the Trust – an amount which did not equal the value of Jacquelin’s sisters’ trusts. Jacquelin filed a claim against her father’s estate which was denied. On a petition for determination of the disallowed claim, the Probate Court ruled that the claim should be decided by the Superior Court. Thereafter Jacquelin filed a Superior Court action alleging that Donelson had breached the property settlement agreement. About five months later, Jacquelin died unexpectedly and the Executrix of her estate was substituted as plaintiff.
Defendant moved for summary judgment on grounds of standing, arguing that only the trustee has the capacity to file suit on behalf of the beneficiaries of a trust, and the claim was not cognizable since the Trust terminated upon Jacquelin’s death. The Executrix responded that she was not suing on behalf of the Trust, but as the intended third party beneficiary to the property settlement agreement. The Superior Court granted defendant’s motion for summary judgment and the Executrix appealed.
On appeal, the Rhode Island Supreme Court wrote that “[A]lthough the beneficiary of such a trust is the beneficiary of the promise [under the contract], his rights must be enforced in accordance with the law of [trusts.” Finding it undisputed that Donelson created a Trust pursuant to the property settlement agreement, the Court turned to Plaintiff’s claim that it was not properly funded in breach of the contract and held that the provision requiring Donelson to fund the Trust “relates to Jacquelin’s status as a beneficiary of the Trust and not as a third-party beneficiary of the property settlement agreement.” Under the law of trusts, trust beneficiaries may only maintain proceedings in limited circumstances such as where the beneficiary is entitled to an immediate distribution or the trustee is unable, unavailable, unsuitable, or improperly failing to protect the beneficiary’s interest. Thus, neither Jacquelin nor the Executrix of her Estate, as Trust beneficiary, could maintain an action as a third party beneficiary of the property settlement agreement.
For more information, please contact our trust and estate attorneys, Bernard A. Jackvony, Gene M. Carlino and Rebecca M. Murphy at 401-824-5100 or email [email protected], [email protected] and [email protected].