The Equitable Doctrine of Tracing

September 28, 2017 David M Smith Estate & Trust Tags: 0 Comments

Where an estate trustee acts in breach of trust, the first concern of the beneficiary is to recover the estate assets.  But what if the trust property has left the hands of the trustee?  In such a situation the beneficiary is left to trace the trust property and seek to recover it from the person or entity then in possession.

The equitable doctrine of tracing operates on the occurrence of two events:

  • the acquisition of legal title “in breach of some trust, express or constructive, or of some other fiduciary obligation”  and
  • the assumption of possession by a volunteer “provided that as a result of what has gone before some equitable proprietary interest has been created and attaches to the property in the hands of the volunteer”

These principles were considered and applied in Re Diplock, [1948] Ch.465 (C.A.), the leading modern authority on the doctrine.

In this case, an executor distributed an estate to charitable residuary beneficiaries pursuant to a Will (presumably not probated) which was subsequently challenged and found to be invalid.  The next of kin sought to recover from the executors and the charitable beneficiaries.  Applying the doctrine of equitable tracing, the executors were found to have distributed in breach of a fiduciary duty to the next of kin.  The charitable beneficiaries, although innocent volunteers, could not take good equitable title to the estate property.

The next of kin were thus entitled to recover, first from the estate trustee and then from the charitable beneficiaries.

Thanks for reading,

David M. Smith

 

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