Trust Beneficiaries are Necessary Parties in Litigation Involving No Contest Provisions

Recently, a federal court in Virginia reviewed the issue of whether beneficiaries are necessary parties to trust litigation involving no contest provisions. This dispute was about two descendants that believed two great-grandchildren contested a trust containing a no contest clause because they opposed a co-trustee. In the case, the plaintiffs did not include Rebbecca Hudson one of the beneficiaries of the trust. Plaintiffs aware of Ms. Hudson’s interest in the trust tried stipulating they would not enforce the no contest provision against Ms. Hudson. The plaintiffs did this strategically. Adding Ms. Hudson would have destroyed diversity jurisdiction. Without diversity jurisdiction the case could not be tried in federal court.

In Graves v. Vitu, the court ruled all trust beneficiaries need to be joined as parties to trust litigation over a no contest provision in the trust. As a result, the court dismissed the case because diversity jurisdiction no longer existed. The court reasoned that trying the case without Ms. Hudson might hinder her ability to care for her interests. The court held that the stipulation made would not change Ms. Hudson’s status from a necessary and indispensable party to a ‘disinterested bystander’ in the litigation. Additionally, the court explained the alliance between Ms. Hudson and her two sisters, the two accused of violating the no contest clause, could potentially threaten her interest in the trust if evidence proved she supported her sisters. Moreover, because Ms. Hudson was not a party to the litigation she would not be bound by the judgment and could have the case retried.

See Luke Lannta, All Trust Beneficiaries Were Necessary Parties To Litgation Over A No-Contest Clause In A Trust, Bryan Cave Fiduciary Litigation, Feb. 18, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.