Liability of third parties

Question 1

Property Improperly Transferred to Non-Bona
Fide Purchaser

Answer 1

A beneficiary or successor trustee can set aside transactions that are breaches of trust if the property is not in the hands of a bona fide purchaser (“BFP”).

Question 2

Transfer to BFP Cuts Off Beneficiaries’ Interests

Answer 2

A BFP “cuts off” the beneficiaries’ equitable interests. A third party is a BFP if the party acquires the property for value and without notice of the trust.

Question 3

Direct Suit by Beneficiaries

Answer 3

Direct suits by beneficiaries are not permitted against third parties who damage trust property; the trustee alone can sue.