Inter Vivos Trust Dispute Falls Outside Probate Exception - U.S. Fifth Circuit
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Inter Vivos Trust Dispute Falls Outside Probate Exception

In 1996, Elmer and Nelva Brunsting established the Brunsting Family Living Trust for the benefit of their offspring. At the time of its creation, the Trust was funded with various assets, and both of the Brunstings' wills included pour-over provisions, providing that all property in each estate is devised and bequeathed to the Trust.

After the Brunstings passed, Candace Curtis alleged in a federal complaint that Amy and Anita Brunsting -- her sisters, who were acting as co-trustees of the Trust -- had breached their fiduciary duties to Curtis, a beneficiary of the Trust.

Last week, the Fifth Circuit Court of Appeals held that, under Marshall v. Marshall, Curtis' claims for breach of fiduciary duty do not implicate the probate exception to federal jurisdiction.

Curtis claimed that Anita and Amy had misappropriated Trust property, failed to provide her documents related to administration of the Trust, and failed to provide an accurate and timely accounting. Her suit demanded compensatory damages, punitive damages, a temporary restraining order against "wasting the estate," and an injunction compelling both an accounting of Trust property and assets as well as production of documents and accounting records.

The district court judge entered a sua sponte order dismissing the case for lack of subject matter jurisdiction, concluding that the case fell within the probate exception to federal diversity jurisdiction. The Fifth Circuit Court of Appeals reversed that decision.

Although a federal court "has no jurisdiction to probate a will or administer an estate," the Supreme Court recognized in Markham v. Allen that the probate exception does not bar a federal court from exercising jurisdiction over all claims related to such a proceeding.

Sixty years later, in Marshall v. Marshall, the Supreme Court expressed concern with lower courts' interpretation of Markham, and clarified the "distinctly limited scope" of the probate exception:

The probate exception reserves to state probate courts the probate or annulment of a will and the administration of a decedent's estate; it also precludes federal courts from endeavoring to dispose of property that is in the custody of a state probate court. But it does not bar federal courts from adjudicating matters outside those confines and otherwise within federal jurisdiction.

According to the Fifth Circuit, after Marshall, the probate exception only bars a federal district court from (1) probating or annulling a will or (2) "seeking to reach a res in custody of a state court" by "endeavoring to dispose of [such] property."

Here, Curtis' case fell outside the scope of the probate exception because the Trust -- an inter vivos trust -- is not property within the custody of the probate court. As such the probate exception is inapplicable to disputes concerning administration of the trust.

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