Over the years, our world has become significantly more migratory. Until relatively recently, many Americans were born, grew up, lived and ultimately died in the same limited geographic area. Today, the average American moves approximately a dozen times over his lifetime. Not surprisingly, this increased geographic mobility has led to an increased mobility of wealth, in particular, the trusts that individuals create or from which they benefit. It isn’t unusual for the place of administration of a trust to change during its existence or for different aspects of a trust’s administration to take place in multiple jurisdictions (sometimes referred to as “multijurisdictional trusts”).
In this era of multijurisdictional trusts, establishing a trust’s jurisdictional situs with certainty is desirable but often elusive. The jurisdictional situs of a trust is the state where courts have jurisdiction and are most likely to exercise jurisdiction to hear matters concerning the trust.
Because a multijurisdictional trust may have beneficiaries, fiduciaries or trust property located in several different states, a trust may have more than one jurisdictional situs. As state trust laws can vary, parties may seek to obtain exclusive jurisdiction over a trust for all matters. Can parties actually achieve exclusive jurisdiction, and if so, how?
Generally, we can determine a court’s jurisdiction over a trust matter by analyzing the following factors: (1) the presence of an agreement of the contracting parties; (2) the administrative situs of the trust; (3) state statutory authority; and (4) timely commencement of litigation.
Agreement of Contracting Parties
Under principles of contract law, courts give weight to the jurisdiction selected by the contracting parties. It follows then that a trust, as a contractual relationship between the settlor and trustee, should likewise be able to provide an affirmative statement regarding jurisdiction that would be given similar weight; however, the transitory nature of the parties to a trust, the beneficiaries’ lack of participation in the original contract, as well as the ongoing ability to change the trustee ( one of the parties) make this a somewhat more complicated analysis. Such is reflected in the Restatement (Second) Conflicts of Law (Restatement), which states that a private individual can’t alter the rules of judicial jurisdiction.
The settlor’s selection of jurisdictional situs is often one factor in determining jurisdiction, along with the administrative situs of the trust or the place where the trust is principally administered. For example, the commentary to the Uniform Trust Code (UTC) notes that: “locating a trust’s principal place of administration will ordinarily determine which court has primary if not exclusive jurisdiction over the trust.” When there are multiple trustees, the question can be somewhat more complicated, and courts often employ a multi-factor test, including an analysis of facts, such as the places where: the trust records are kept, the assets are held and the trust officers are located.
The Restatement specifically addresses the question of trust jurisdiction. Pursuant to Section 267, the Restatement states that the default jurisdictional situs of a trust should be the state where the trustee has qualified or where the trust is being administered. Therefore, in addition to the express statement of the settlor contained in the trust instrument, a court will look to the state where the trustee is actually administering the trust. But, the Restatement doesn’t go as far as to say that the state of administration will be the “exclusive” jurisdiction of the trust. Instead, the Restatement seems to indicate that even though a trustee has qualified in a particular state, the courts of other states may exercise jurisdiction if they have jurisdiction over the trustee or if they have jurisdiction 6 over trust assets (to the extent of those particular assets).
Other authorities, such as Scott and Ascher on Trusts (Scott and Ascher), analyze the issue similarly. Pursuant to Scott and Ascher, even when a settlor has fixed the administration of a trust in a particular state, the courts of that state don’t have exclusive jurisdiction over the administration of the trust. If another court has jurisdiction over the parties or over the trust property, it may exercise jurisdiction if doing so wouldn’t unduly interfere with control of administration by the courts of the place of administration. Therefore, while a settlor can expressly select exclusive jurisdiction within the trust document, courts will give weight to additional key considerations, such as where the trust is being actively administered, when determining whether such a provision will be enforced.
While establishing exclusive jurisdiction may appear to be elusive, several sources of law support a less definitive but still robust concept of judicial oversight of a trust, often referred to as “primary supervision.” This concept is linked to the administrative situs of a trust through its trustee.
For example, the Restatement provides that if a trustee is qualified in a court of the state where the trust is to be administered, that court will have primary supervision over the administration of the trust. Likewise, if a trustee hasn’t qualified as trustee in any court but the trust will be administered in a particular state, the courts of that state will have primary supervision over the administration of the trust. In expounding on his concept, the Restatement notes that a court exercising primary supervision “has and will exercise jurisdiction as to all questions which may arise in the administration of the trust.” Similarly, the Restatement (Second) of Trusts provides that when a trust is administered under the supervision of the courts of a state, such courts have jurisdiction to determine the interests of any claimant, whether a resident or nonresident of that state, with respect to the administration of the trust.
With the concept of primary supervision, we again see that the place of administration of a trust is critically important. Because a multijurisdictional trust may have more than one trustee or fiduciary located in different jurisdictions, state law will always play a significant role in exactly what “place of administration” means. The clearer a jurisdiction’s law regarding trust administration, the more confidence parties can have that administrative situs in that jurisdiction has been established. Although the fact that a court has primary supervision wouldn’t preclude the courts of a state where the trust doesn’t have its administrative situs from hearing a matter relating to the trust, it does strongly support the proposition that the court exercising primary supervision is best suited to handle any matters relating to the administration of the trust and that if a claim is brought in that court, all parties can be confident that jurisdiction is proper. Therefore, though not determinative of exclusive jurisdiction, the concept of primary supervision is likely to continue to find explicit acceptance as multijurisdictional trusts proliferate and questions of jurisdiction become more complex.
State Statutory Authority
If maintaining primary supervision in a particular state doesn’t secure exclusive jurisdiction over the trust, are there any other methods available to establish exclusive jurisdiction? For example, could a state statute confer exclusive jurisdiction on the courts of that state over all matters relating to a trust established under the provisions of such statute? At least one court has answered this question in the negative: In IMO Kloiber Dynasty Trust (Kloiber), the Delaware Court of Chancery considered a proceeding brought by the trustees of a Delaware trust seeking an order that the Delaware court had exclusive jurisdiction over the trust and seeking an injunction against a party trying to enforce a judgment involving a Delaware trust in the courts of Kentucky. The Delaware corporate trustee of the trust sought to rely on a provision in Delaware’s Qualified Dispositions in Trust Act, which provides that, “[T]he Court of Chancery shall have exclusive jurisdiction over any action brought with respect to the qualified disposition.” The court ruled that the statute could only allocate jurisdiction among the Delaware courts.
In citing constitutional concerns, including implication of the full faith and credit clause, the court ruled that the statute couldn’t allow the Delaware court to assert jurisdiction against the world so that no court outside of Delaware could exercise jurisdiction over the type of case described in the statute. The analysis in Kloiber also appears to preclude the possibility of a court specifically establishing exclusive jurisdiction by its own judicial order, as such an act would presumably fail to give “constitutional respect to the judicial proceedings” of another state’s court that’s hearing a claim involving the trust.
The Delaware court in Kloiber did, however, leave a potential opening with respect to establishing exclusive jurisdiction, by noting that parties do have the right to voluntarily contract to an exclusive forum.18 Circling back to the commentary in the Restatement regarding contract law and its application to trusts, this would likely require the prior agreement of an aggrieved party who brings a claim involving the trust ( such as a trust beneficiary or creditor) to exclusive jurisdiction in the desired forum.
Absent a prior agreement with the aggrieved party, is it possible to secure exclusive jurisdiction for matters involving a multijurisdictional trust by being the first party to file the action in the desired court?
Timely Commencement of Litigation
The answer, from a Delaware perspective, depends on the unity of the parties and issues involved. If the parties are the same and the issue is the same, the party who files an action first should garner exclusive jurisdiction in the selected court. In Williams Natural Gas Co. v. BHP Petroleum Co., a contract dispute, the two parties to a gas purchase contract were corporations incorporated in Delaware but headquartered outside of Delaware. When a contract dispute arose, one party filed an action for declaratory judgment in Delaware, and the other party filed a similar action in Texas, five days later. The Delaware plaintiff filed a motion in the Texas court to stay the Texas action in favor of the Delaware action. The Texas court denied the motion. Then, the Delaware defendant filed an action to stay the Delaware action in the Delaware Court of Chancery. That court granted the stay on the grounds that the Texas court already declined to issue a stay. It reasoned that if the Delaware court didn’t issue a stay, the two courts would end up rendering decisions on the same issue between the same parties, which would put the two courts on a collision course. In the interests of comity with a sister state, the Court of Chancery decided to issue a stay in deference to the Texas court, which acted first. The Delaware Supreme Court accepted the plaintiff’s interlocutory appeal and reversed the Court of Chancery, admonishing the court:
The collision ‘course’ envisioned by the Court of Chancery should have been avoided by entering an injunction, in aid of its jurisdiction to proceed with the first-filed Delaware action, which enjoined the parties from proceeding in the subsequently filed Texas action.
In the context of a trust dispute directly involving a trust matter, Williams favors assertion of exclusive jurisdiction over the matter by the court where the action is filed first.
Notwithstanding, if an action is filed first in a court not having primary supervision over the trust, and the action only tangentially involves trust matters, the court having primary supervision over the trust may permit later-filed actions to proceed. In Kloiber and in Bessemer v. Wilson, the trust actions weren’t filed first in a Delaware court, but the trustees were able to demonstrate a significant trust issue that warranted the court’s involvement. These cases didn’t directly involve matters of trust administration.
Kloiber involved a divorce action filed in Kentucky in which the divorcing wife, Beth Kloiber, sought access to a trust established for the divorcing husband, Daniel Kloiber, by his father. Beth alleged that the trust’s funding was a fraudulent transfer by Daniel, necessitating the inclusion of trust assets in the marital estate. While the divorce action was pending, the Kentucky court issued a series of status quo orders designed to prevent the dissipation of trust assets.
As the trust was established under Delaware law and administered in Delaware by a corporate trustee, the corporate trustee, as well as the special trustee, each filed actions in Delaware’s Court of Chancery. Ultimately, the court accepted supervision of the trust for purposes of assisting the Kentucky court in preventing the dissipation of trust assets.
Wilson was a wrongful death claim indirectly involving a Delaware trust. The plaintiffs first filed the wrongful death action in a Florida court against the settlor of the trust. In that action, the plaintiffs sought discovery about the Delaware trust to assess whether it was a source for payment of a potential damages award against the settlor. The trustee sought a declaratory judgment to establish certain facts about the trust ( such as whether it was irrevocable and whether the settlor was a beneficiary of it) and to limit discovery. The Delaware court agreed to continue the case but only to address questions regarding the trust, and not the discovery issue, which the Florida court was handling. Thus, the court having primary supervision over the trust agreed to assert jurisdiction over trust matters but not exclusive jurisdiction over all matters.
It’s not possible to compel a court to assert exclusive jurisdiction over trust matters, but parties can effectively lay the foundation for an optimal jurisdictional result. Establishing primary supervision over a trust and being the first to file an action will likely be influential. You can establish primary supervision by drafting a jurisdiction selection clause under the terms of the trust agreement, choosing a trustee to serve in a jurisdiction with clear law on trust situs and ensuring sufficient administration is occurring in that jurisdiction. With this foundation, securing exclusive jurisdiction, while never an absolute certainty, may prove to be less elusive than capturing the mythical unicorn.
1. "Calculating Migration Expectancy Using ACS Data," www.census.gov/hhes/migration/about/cal-mig-exp.html. Using 2007 American Community Service data, it's estimated that a person in the United States can expect to move 11.7 times in his lifetime based on the current age structure and average rates and allowing for no more than one move per single year. At age 18, a person can expect to move another 9.1 times in his remaining lifetime, but by age 45, the expected number of moves is only 2.7.
Jocelyn M. Borowsky is a partner at Duane Morris LLP in Wilmington, Del., Cynthia D.M. Brown is president of Commonwealth Trust Company in Wilmington, Del. and Daniel F. Hayward is a director at Gordon. Fournaris & Mammarella, P.A. in Wilmington, Del.
This article originally appeared in Trusts and Estates and is republished here with permission.