Written by Brian Spiro • December 13th, 2016
The citizenship of a traditional trust for purposes of federal court’s diversity requirement is determined by the citizenship of the trust’s trustees. Diversity jurisdiction is a form of subject matter jurisdiction permitting a federal court to hear a particular case. Complete diversity between the plaintiffs and defendants is required. That means that none of the plaintiffs may be from the same state as any of the defendants.
In Yueh-Lan Wang v. New Mighty U.S. Trust, Case No. 12-7038, 2016 U.S. App. LEXIS 21878 (D.C. Cir. Dec. 9, 2016), the United States Circuit Court of Appeals for the District of Columbia held that a traditional trust carries the citizenship of its trustees. There, the appellate court reversed the district court’s dismissal for lack of subject matter jurisdiction which had previously held that the parties lacked complete diversity.
The case centers around the surviving spouse of a Taiwanese billionaire attempting to account for and reclaim billions of dollars in assets which had previously been transferred into a trust in the Washington D.C. area during the waning years of Decedent’s life. The trust was controlled by rival members of the widow’s family.
The Court analyzed the trust at issue and determined it to be a “traditional trust” defined for diversity describes a “fiduciary relationship regarding property where the trust cannot sue and be sued as an entity under state law” concluding that a traditional trust lacks juridical person status. See Yueh-Lan Wang, 2016 U.S. App. LEXIS 21878 at *18; see also Americold Realty Trust v. ConAgra Foods, Inc., 136 S. Ct. 1012 (2016). Juridical person—or an entity other than a natural person—status can be determined by the state law where the trust is formed.
In this case, the trust at issue was not a juridical person under D.C. law. The trust was a donative trust that cannot sue or be sued. Therefore, it is a traditional trust. Under the facts in Yueh-Lan Wang, complete diversity exists because the Plaintiff (surviving spouse) is a citizen of Taiwan and the trustees were citizens of the District of Columbia, Delaware, and Virginia.
Although not all courts have read the above-referenced Americold decision to distinguish between traditional trusts and other artificial entities such as corporations or associations, Yueh-Lan Wang did. Unlike previous decisions which held that the citizenship of the beneficiaries determined the citizenship of the trust, Yueh-Lan Wang held that the citizenship of the trustees was outcome-determinative of the citizenship of the trust itself.
The significance cannot be understated. A large business entity for example, may have shareholders or beneficiaries in each and every state in the United States. Under the prior test for citizenship an expansive entity would easily defeat diversity. Traditional trusts, i.e., donative trusts, now appear to be afforded this more favorable citizenship determination: one that analyzes the citizenship of the trust’s trustees.
Brian M. Spiro litigates probate and trust disputes, including international inheritance disputes. Mr. Spiro may be reached at (561) 842-4868 or (888) 752-8633 for a free consultation.