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New Estate Planning Ruling: Trustee Needs Standing to Appeal Court Order

In a recent ruling, a state Supreme Court ruled that a bank, operating as a trustee for two trusts, lacked the standing to appeal a court order when it failed to maintain its status as trustee and only afterwards tried to appeal as an individual with a personal stake in the outcome of the case. The parties to the case were Hanover College, the beneficiary, and Old National Bancorp, the trustee.

Facts of the Case

Hanover College was the beneficiary of two trusts created in 1949 and in 2004. Old National Bancorp was the trustee for both trusts. In June 2012, Hanover College filed a motion in Indiana state court under Indiana Code Section 30-4-3-24.4. The college claimed that maintaining the trusts as entities separate from its own endowment fund was wasteful, provided lower investment returns, and impaired the trusts’ administration.

Hanover College wanted the court to terminate the trusts and have their funds be held as part of its endowment. The court agreed with Hanover College, and it ordered that the two trusts should be dissolved “effective immediately.” The trust assets were to be distributed to Hanover in order to incorporate them into the endowment funds.

Old National, as trustee, did not try to stop or stay the trial court’s orders to dissolve the trusts, but instead the bank directly appealed the decision. On appeal, Old National challenged the trial court’s determination that dissolution of the trusts to Hanover College was warranted. Hanover argued that Old National had already transferred all of the trusts’ assets to the college. Therefore, Old National therefore lacked standing as a trustee to pursue an appeal.

Old National then argued that under the Indiana trust laws it was permitted to appeal as an “aggrieved person.” It argued that it was not pursuing the appeal in its representative capacity as the former trustee of the dissolved trusts but instead was appealing in its individual capacity as a bank.

Indiana Court Decision

The Court of Appeals concluded that Old National lacked standing in its representative capacity as the trustee of the two trusts because it failed to obtain a stay and dissolved the trusts. As a result, it was no longer the trustee. In addition, the Court of Appeals held that Old National did not intervene in its individual capacity as an “aggrieved person” at the trial level so it could not appeal as one now.

The case went up to the Indiana Supreme Court, and this court agreed with the ruling of the Indiana Court of Appeals. It stated that “the general rule has always been that the powers of a trustee–like that of many fiduciaries–cease when the trust is dissolved or otherwise terminated; including the power to litigate as a representative of the trust.” Therefore, it could not bring an appeal as a trustee once the trusts were dissolved.

Furthermore, the Indiana Supreme Court stated that the bank also had no personal standing to bring the appeal as an “aggrieved person.” Old National never intervened as an aggrieved person at the trial level. In addition, it is equally apparent that it did not appeal in its individual capacity, either. Old National filed its notices of appeal from the trial court orders dissolving the trusts with “trustee” still in the name. It paid its attorney fees, accrued during the course of the appeal, from the assets of the trusts which can only be done as a trustee. And finally, Old National’s substantive briefs on appeal are full of references to its status as trustee, and fully without any references to its status as an individual aggrieved person.

The court found the bank’s actions completely inconsistent with the argument that it was acting in its individual capacity. Therefore, the ruling of the Court of Appeals was affirmed.

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