A Guide to Wills, Estate, Trust and Guardianship Litigation
X. Litigation of Trust Issues Before the Clerk of Court
The clerk is given jurisdiction over all proceedings involving “the internal affairs of trusts.” This article will describe some of the fundamentals of trust proceedings.
N.C.G.S. § 36C-2-201(c) provides, “a judicial proceeding involving a trust may relate to any matter involving the trust’s administration, including a request for instructions and an action to declare rights.” The court’s jurisdiction under this section may be invoked even absent an actual dispute. Id. Official Comment. Traditionally, courts in equity have heard petitions for instructions and have issued declaratory judgments if there is a reasonable doubt as to the extent of the trustee’s power or duties. Id. Under this provision, the trustee, or a beneficiary, can seek guidance from the court on virtually any issue that arises out of the administration of a trust. While these actions are typically brought as a declaratory judgment action in superior court, the clerk has jurisdiction to give instructions on matters arising out of the internal affairs of a trust. N.C.G.S. § 36C-2-203(a). Other examples of actions relating to trusts which may be brought before the clerk include:
- An action to remove trustee. N.C.G.S. § 36C-7-706.
- An action to compel the trustee to provide an accounting. C.G.S. § 36C-8-803.
- An action to determine an appropriate trustee’s fee.
- An action by a beneficiary to compel a trustee to provide a bond. N.C.G.S. § 36C-7702(a)(3).
- An action by a trustee or beneficiary to reduce the amount of a bond, excuse the requirement for a bond, release a surety, or permit the substitution of another bond with the same or different surety. N.C.G.S. § 36C-7-702(c).
- An action to appoint an additional trustee or special fiduciary. N.C.G.S. § 36C-7-704(e). An action to approve the resignation of a trustee. N.C.G.S. § 36C-7-705(a) (2). An action to order a trustee who has resigned or has been removed to execute such documents as are necessary to transfer the corpus of a trust to a new trustee. N.C.G.S. § 36C-7-707(b).
- A petition to review the reasonableness of compensation paid to the trustee. N.C.G.S. §§ 32-55(cl) and -57.
- A petition to pay trust expenses. N.C.G.S. § 32-58.
- A petition to review compensation and/or payment of expenses by fiduciaries other than the trustee of an express trust. N.C.G.S. § 32-59.
- A petition to allow counsel fees to an attorney who is serving as the trustee of a trust. N.C.G.S. § 32-61.
- A petition to approve the resignation of a power holder. N.C.G.S. § 36C-8A-10(a)(2).
- A petition to remove a power holder. N.C.G.S. § 36C-8A-11.
- A petition to provide a remedy for breach of trust by the trustee under N.C.G.S. § 36C-10-1001. N.C.G.S. § 36C-10-1001(b).
- A petition to wholly or partially relieve a trustee from liability for breach of trust. N.C.G.S. § 36C-10-1001(c).
- A petition to allow the trustee to deviate from the terms of the trust instrument with respect to the acquisition, investment, reinvestment, exchange, retention, sale, or management of fiduciary property. N.C.G.S. § 32-73.
- An action to (i) convert an income trust to a total return unitrust, (ii) reconvert a total return unitrust to an income trust, or (iii) change the percentage used to calculate the unitrust amount or the method used to determine the fair market value of the trust. N.C.G.S. § 37A-1-104.3.
- A petition to transfer a trust’s principal place of administration. N.C.G.S. § 36C-2203(a)(5).
- To make orders with respect to a trust for the care of animals. N.C.G.S. § 36C-4-408.
- A petition to make orders with respect to a noncharitable trust without an ascertainable beneficiary. N.C.G.S. § 36C-4-409.
Trust proceedings before the clerk are commenced as prescribed for civil actions by filing either a petition or a complaint. The clerk shall docket the cause as an estate matter. All parties not joined as petitioners will be joined as respondents, and summons for the respondents will be issued by the clerk of superior court. N.C.G.S. § 36C-2-205(a). The parties in trust proceedings may be represented by other parties as provided in Article 3 of Chapter 36C. N.C.G.S. § 36C-2-206(a). In the case of a party represented by another, service of process must be made by serving such representative. N.C.G.S. § 36C-2-206(b).
The summons must comply with N.C.G.S. § 1-394 for special proceedings, except that it must state that the summons is issued in an estate matter and not in a special proceeding. See Form I-1 of this Manual, “Estate Proceedings Summons (Form AOC-E-102).” Respondents must be notified by the summons to appear and answer the petition within 10 days. N.C.G.S. § 36C-2205(a).
The petition or complaint should contain a short and plain statement of the claim that is sufficiently particular to give the court and the parties notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved showing that the pleader is entitled to relief, and a demand for judgment for the relief to which the pleader is entitled. N.C.G.S. § 36C-2205(c). Each averment shall be simple, concise and direct. Id. No technical forms of pleadings or motions are required. Id. A party may set forth two or more statements of a claim or defense alternatively or hypothetically. Id. The signature of an attorney or party constitutes a certificate by that attorney or party that (i) the attorney or party has read the pleading, motions, or other paper; (ii) to the best of the attorney or party’s knowledge, information, and belief formed after reasonable inquiry, it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and (iii) is not interposed for any improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation. Id.
Rule 55 of the Rules of Civil Procedure, which addresses default, does not apply to trust proceedings before the clerk, unless the clerk directs otherwise. N.C.G.S. § 36C-2-205(e). The Clerk’s Manual states, “if the respondents (or any of them) did not respond, the clerk may hear and decide the matter summarily, but there is no default judgment against the respondents. The petitioner(s) must still carry its burden of proof, and the clerk should still indicate findings of fact and conclusions of law where appropriate.” North Carolina Clerk of Superior Court Procedures Manual (2012). After the time for responding to the petition or complaint has expired, any party or the clerk may give notice to all parties of a hearing. N.C.G.S. § 36C-2-205(a).
Unless the clerk directs otherwise, only the following Rules of Civil Procedure apply to trust proceedings:
- Rule 4 — Service of process
- Rule 5 — Service of subsequent pleadings and other papers
- Rules 6(a), (b), (d), and (e) — Time
- Rule 18 — Joinder of claims
- Rule 19 — Necessary joinder of parties
- Rule 20 — Permissive joinder of parties
- Rule 21 — Procedure upon misjoinder/non-joinder
- Rule 24 — Intervention
- Rule 45 — Subpoenas
- Rule 56 — Summary judgment
- Rule 65 — Injunctions
In applying these rules to proceedings before the clerk, the term “judge” shall be construed as “clerk of superior court.”
N.C.G.S. § 36C-2-205(e).
There are a few obvious omissions from the above list of Rules. All of the discovery rules, Rule 26-37, are omitted. Thus, unless the clerk directs otherwise, the only discovery rule included in trust proceedings is the power to issue subpoenas under Rule 45. Id. Rule 11 is not on the list. Neither is Rule 58, which governs when judgments are entered and when the time for filing post-trial motions and appeals begins to run. N.C.R.C.P. 58. Rule 59 governing new trials and amendment of judgments and Rule 60 governing relief from ajudment or order are also not in the list. As a result of these omissions, it will be common place for parties to include a motion to add Rules of Civil Procedure in their initial pleading in trust cases before the clerk. Extensions of time may only be granted for more than 10 days based upon the express finding by the clerk that justice so requires. N.C.G.S. § 36C-2-205(d). The parties may agree, without the approval of the clerk, to extensions of time not to exceed 30 days. Id.
Hearings before the clerk in trust matters are formal hearings at which the North Carolina Rules of Evidence apply. N.C.G.S. § 8C-1, Rule 1101(a). However, because trust proceedings are appealed under the rules governing appeals of estate proceedings, “it is not necessary for a party to object to the admission or exclusion of evidence before the clerk in order to preserve the right to assign error on appeal to its admission or exclusion.” N.C.G.S. § 1-301.3(d). In the discretion of the clerk or at the request of a party, all hearings of estate matters shall be recorded by electronic device. N.C.G.S. § 1-301.3(f). Appeals of trust matters are on the record. N.C.G.S. § 1-301.3(d). Therefore, the better practice is to always record hearings of trust matters. At the conclusion of the hearing, the clerk is required to enter an order or judgment, as appropriate, containing findings of fact and conclusions of law supporting the judgment. N.C.G.S. § 1-301.3(b).