The successful defense by the trustee of a removal action will permit the trustee to charge the trust for his or her attorney’s fees:
The classic judicial statement of this principle was by Cardozo in 1918 in the case of Jessup v. Smith, 223 N.Y. 203, 119 N.E. 403. One of the trustees under the will of Samuel J. Tilden successfully defended himself against an effort to have him removed as trustee. In holding that he was, therefore, entitled to the payment of counsel fees out of the trust assets, Judge Cardozo reasoned, at 119 N.E. 404:
‘The question remains whether the services were beneficial in the preservation of the trust. We have no doubt that they were. Mr. Smith had been named in the will as a trustee. He owed a duty to the estate to stand his ground against unjust attack. He resisted an attempt to wrest the administration of the trust from one selected by the testator and to place it in strange hands.’
In 1959 in Weidlich v. Comley, 2 Cir., 267 F.2d 133, Judge Learned Hand, for the Second Circuit, applied the rule of Jessup v. Smith, holding at 134:
‘. . . (T)he plaintiff’s first complaint is the allowance to the defendant out of the trust assets of his expenses in defending himself in the action. The argument is that these expenses were incurred in the defendant’s individual interest, and may not be charged against the trust. That completely misses the true situation: a trustee was appointed to administer the assets; the settlor selected him to do so, and whatever interferes with his discharge of his duty pro tanto defeats the settlor’s purpose. When the trustee’s administration of the assets is unjustifiedly assailed it is a part of his duty to defend himself, for in so doing he is realizing the settlor’s purpose. To compel him to bear the expense of an unsuccessful attack would be to diminish the compensation to which he is entitled and which was a part of the inducement to his acceptance of the burden of his duties. This has been uniformly the ruling, so far as we have found.[1]
Moreover these fees may be charged to the share of the beneficiaries who are bringing the action rather against the common fund.[2]
A beneficiary’s legal fees, on the other hand, generally follows a modified “American Rule:”
Traditionally, legal fees incurred by beneficiaries in connection with the trust’s administration, including accounting proceedings, are not allowable as charges against the trust estate, even if the beneficiary successfully asserts a claim against the trustee. Under the Uniform Trust Code, however, the court is granted the discretion to award attorney’s fees to any party, to be paid by another party or from the trust, “as equity and justice may require,” which has been applied to allow fees of beneficiaries’ counsel to be paid from the trust, even when the beneficiary did not prevail in the proceeding. Further, under exceptions to the traditional rule, fees may be allowed from the trust estate for beneficiaries’ counsel if their attorneys’ services result in a benefit to the trust estate or other beneficiaries or if the fees were incurred to construe the terms of the trust. In many jurisdictions legal fees of a beneficiary or cotrustee incurred in successfully asserting a claim against the trustee for breach may, in the court’s discretion, be charged against the trustee, personally.[3]
As the notes for Section 1004 of the Uniform Trust Code indicate, the equity court in trust cases had “historic authority to award costs and fees, including reasonable attorney’s fees” to beneficiaries. Also, of course, such fees could be seen as necessitates in the support trust context. As discussed below, a wholly discretionary trust may also provide a beneficiary with enforceable rights that could justify such fees being paid. The Maryland Trust Code parallels the Uniform Trust Code in permitting successful beneficiaries to cover their legal fees from the trust.[4]
