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The Ultimate Trust Litigation case

Anyone who's ever been through a court battle over a trust or estate knows how important it is for everyone involved.  But some cases carry more importance than others.  The recently-resolved case of Cobell vs. Salazar has as much importance to our nation as any trust fight has ever had.Native American dancer

Elouise Cobell is the lead plaintiff in a class action suit against The United States Secretary of the Interior.  The lawsuit involves the rights of Native Americans under Individual Indian trusts that began under laws passed in 1887.  At that time, tribal lands of Native Americans were parceled out by the government and assigned to individuals, in lots between 40 and 160 acres in size. 

But the individual Native Americans weren't allowed to actually own the land.  The government did, leasing the lands for mineral and grazing rights, among other uses, and paying the proceedings into a series of informal trusts.  The United States Secretary of the Interior was charged with administering the trusts for the benefit of the individuals who were assigned to each parcel. 

Originally, the plan was for the trusts to be temporary.  In about 25 years, the land was to be turned over to the individuals so they could own the land and farm it.  But the plan failed because the Native Americans were not considered competent enough to manage the land or protect it from those who would take advantage of them.  So the trusts evolved into a permanent fixture.

And the problems only grew worse.  According to the U.S. Government Accountability Office's official report to Congress in 2006, Native Americans did not -- and do not -- regularly use wills.  In fact, the report noted that until 1910, they were not even allowed to have wills.  So when each original beneficiary died, his or her share was split between multiple descendants.  With each passing generation, the interests grew more and more fractionalized.  A 1992 study found over a million such interests, and reportedly that has increased by at least 40% since then.  The trusts cover 100,000 leases and 56 million acres of land.

Yet despite this monumental oversight responsibility, there never was a single trust document -- or even a single law -- that governed how this would work.  Congress tried for years, as far back as the 1930's, to craft a solution that would solve the growing problem, but one was never found. 

And the result was increased confusion and lost funds, made worse by records that were mishandled, lost and even destroyed. 

In 1996, Elouise Cobell and others felt they had no choice but to sue, seeking to hold the government responsible for breaching its fiduciary obligations to the Native Americans.  They sought an accounting -- a full description of what monies were received and how they were distributed.  That way, they would know what the rightful owners should have received so the government could pay restitution and make them whole.

This led to a series of court battles that continued from 1996 until this year.  Through the course of the litigation, there were several trials and almost as many appeals, even including contempt charges against some of the officials involved. 

The Native Americans won the early trials, but the courts found that it was impossible to account for the lost money.  It was simply too complicated.

So this led to even more battles over how much should be paid in restitution.  In 2008, a figure of more than 450 million dollars was awarded, but Cobell and the other plaintiffs felt it wasn't enough.  They appealed to the United States Court of Appeals in D.C.  This past July, they won and this victory finally laid the groundwork for a comprehensive settlement.

How much?  3.4 billion dollars.  More than $1.4 billion will go to repay individual owners, with $2 billion placed into a fund to buy out any individual beneficiaries who want to cash out their interests.  The settlement also includes $60 million to help improve higher education for Indians through a scholarship fund.

Cobell and others feel this amount is only a small fraction of what should be paid.  But it is simply too hard to prove how much damage was really done, and those who were supposed to benefit the most -- the elderly Native Americans who desperately need the money -- kept passing away as the litigation progressed.  Cobell said they had to settle so those who were supposed to benefit from the lawsuit actually could.

The settlement hopes to led to new trust management as well, so the problem doesn't continue to happen.  A Secretarial Commission is being formed that will implement new trust administration practices to better protect the Native American beneficiaries.

The settlement still requires approval both of the federal court judge overseeing the case and Congress.  The New York Times has urged for a quick approval process and hopes that the problem will finally be solved.  You can read more about the settlement here

While this has certainly been the most complicated trust administration battle in history, disputes over whether trustees have treated trust beneficiaries fairly happen all the time.  Beneficiaries do have rights and they can be protected, often quite simply without even having to go to court.  The first step for trustees and beneficiaries alike is to learn their legal rights so disputes don't end up in litigation.  Consulting with experienced trust administration attorneys are always a smart first step for anyone with questions of improper trust management.

Posted by:  Author and probate attorney Andrew W. Mayoras, co-author of Trial & Heirs:  Famous Fortune Fights! and co-founder and shareholder of The Center for Probate Litigation and The Center for Elder Law in metro-Detroit, Michigan, which concentrate in probate litigation, estate planning, and elder law.  You can email him at awmayoras @ brmmlaw.com.

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