The Illinois Court of Appeals blocked an attempt by a charitable trust beneficiary to bring claims to recover improper distributions to family members made by a former trustee, where the distributions to family members were made in breach of the former trustee’s fiduciary duties and while failing to make specific distributions to numerous charities. The successor trustee that replaced the breaching trustee sought to settle his final accounts and be relieved of any duty to pursue recovery of the improper distributions on behalf of the trust, which was granted by the court over the charity’s objection. The charity filed a sued to recover the improper distributions from the family members directly, but the court held that the charity lacked standing to bring the claims because the successor trustee had the exclusive right to bring the claims, the charity filed its suit when the successor trustee was still in office, and he was discharged from that obligation by the court and no appeal was taken.
Robert Brantman Sr. died leaving a pour over will and trust that provided for (1) specific gifts to his sister, 11 children, 21 grandchildren, the Catholic Archdiocese of Chicago, the Diocese of Rockford, the McDermott Foundation, and three other charities and (2) the residue to pass equally to his 11 children. Robert named his son, Charles, as his executor and trustee.
Robert’s will was probated in 2001 and the estate remained open with little activity. In 2005, nine of the children sued Charles and B.M. Brantman Inc., a corporation in which Charles was the sole shareholder, alleging that Charles (1) converted $2 million dollars from the estate for his and his company’s benefit, (2) made improper distributions to family members, and (3) at the same time, failed to make required distributions to Reverend Thomas Brantman, James Brantman, and several charities. At the time an accounting was finally provided by Charles, only $128,700 remained of the $7 million dollars originally in the estate and trust.
Charles resigned as executor and trustee, and his brother Robert Jr. was appointed by the court as successor. Robert Jr. obtained a consent judgment against Charles for $2 million dollars which the court approved. The court also approved the sale of the company which netted $175,000 for the trust. Robert Jr. then filed a petition to close the estate along with an inventory, final accounting, and request for fees. Robert Jr. credited the $175,000 collection from the sale of the company towards the $2 million judgment against Charles, and designated the remaining $1,825,000 as an uncollectible debt. Robert Jr. also proposed to the court that the trust not pursue recovery of the improper distributions made by Charles, and asked to be relieved of the obligation to pursue recovery.
The McDermott Foundation objected, and argued that (1) the estate should not be closed, (2) Robert was not entitled to fees due to his failure to pursue recovery of improper distributions, and (3) to the extent the trust had insufficient funds for the specific beneficiaries, the assets should have been distributed on a pro rata basis and no distributions should have been made to the residual beneficiaries. The McDermott Foundation also sued to recover assets from the family members. The state attorney general filed and adopted the McDermott Foundation’s objections.
After considering a special administrator’s report that the charities had a right to pursue their claims against the beneficiaries but that the executor need not be involved, the trial court entered an order (1) approving Robert’s final accounting, (2) approving his fees, and (3) discharging him as administrator and trustee on finding no breach of fiduciary duty. The trial court kept the estate open and appointed a special administrator to hold all estate and trust assets pending resolution of the McDermott Foundation’s separate suit to recover assets.
The McDermott Foundation filed an amendment petition adding a claim for imposition of a constructive trust, and asked that the trust assets be redistributed on a pro rata basis. The family members asserted that the McDermott Foundation lacked standing to sue the family members as trust beneficiaries. The trial court, without explanation, imposed a constructive trust on the assets in favor of the McDermott Foundation. The family members appealed.
On appeal, the Illinois Court of Appeals reversed the trial court and held that the McDermott Foundation lacked standing to bring its claims on the grounds that: (1) once a blameworthy trustee has been removed from office and a successor trustee appointed, the rationale for permitting a beneficiary to pursue an equitable claim against a transferee who has received trust property in breach of trust no longer applies; (2) the exceptions to the rule that a trustee has exclusive standing to sue on behalf of a trust doe not apply here because the order discharging Robert as trustee was final and not appealed and the Foundation’s lawsuit was filed while Robert was still trustee; (3) no Illinois court had adopted section 254 of the Restatement (Second), and regardless that section did not apply where there was a successor trustee in place and available to pursue the claims for the trust.