Dennis v. Rhode Island Hospital Trust Co Case Brief by Mythri

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									Dennis v. Rhode Island Hospital Trust Co. 744 F.2d 893 (1984)
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Alice created a testamentary trust. The trust contained three buildings. The trustee was charged with renting out the buildings and generating rental income, which was distributed to all her children. o Due to the Rule Against Perpetuities, the longest the trust could run was 70 years after the death of Alice's last surviving child. o At that time, the property in the trust was to be sold and the profits distributed to whatever heirs Alice had left (which turned out to be two great-grandchildren).  The great-grandchildren, who stood to gain the remainder of the trust assets are known as remaindermen. The trustee (Rhode Island Hospital Trust, aka RIHT) ran the buildings in such a way as to maximize rental incomes. They failed to make costly repairs and upgrades that would have preserved the sale price of the buildings. o In addition, due to fluctuations in the real estate market, the buildings were worth $300k at the creation of the trusts, but only $185k when they were sold. The great-grandchildren sued RHIT for mishandling trust assets. The Trial Court found that RHIT had not acted impartially in their administration of the trust. They fined RHIT $365k, which they assessed was the difference in value to the remaindermen between what the assets were worth at time of sale and the historical high point in the assets' value. o The Trial Court found that trustees have a duty to act in the best interest of both the beneficiaries and the remaindermen, and they should not act in the interest of one to the detriment of the other.  See Restatement of Trusts § 232. o The Trial Court found that the trustees should have recognized that the housing market was falling and sold the properties when there was more value The Federal Appellate Court affirmed.

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RHIT unsuccessfully argued that it was only in hindsight that one could know the historical high point for the assets' value. But the Appellate Court felt that since housing prices had been dropping for 20 years steadily, the trustees should have taken some action at some point, which they failed to do.  Restatement of Trusts § 232 says that a trustee is under a duty to the remainderman not to retain property which is certain or likely to depreciate in value, although the property yields a large income, unless he makes adequate provision for amortizing the depreciation. o The Appellate Court also found that the decrease in value of the properties was partially due to lack of upkeep, which was well within the trustee's control. The Appellate Court found that the great grandchildren should pay their own attorney's fees. o Courts have held that when there is a breach of fiduciary duties without willful misconduct or malfeasance, then the trust pays the attorney's fees, but in this case, the Court found that the trustees were not acting in bad faith. The basic rule illustrated by this case is that when a trustee administers a trust, they have to impartially consider the interests of both the beneficiaries as well as the remaindermen, and can't act in such a way to give one more money at the expense of the other. If they do, then the trustee could be held liable for the difference in value. o In this case though the great-gradnchildren were both the beneficiaries as well as the remaindermen. They didn't complain to RIHT when they were getting fat income checks as beneficiaries, so why should they get to complain when they didn't get as much of the remainder?

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