A common defense that is typically asserted in litigation is the defense of unclean hands. In a recent decision, In the Matter of the Nikki and Darren Irrevocable Trust and the N and D Delaware Irrevocable Trust, C. A. No. 2019-0302-SG (Del. Ch. Feb. 4, 2021), Vice Chancellor Sam Glasscock sua sponte raised the issue of unclean hands and offered a concise and straightforward explanation for when it applies and what is its purpose. The question posed by the vice chancellor was whether a petitioner could invoke equity to benefit from her own illegal act as a trustee. He answered no—that to apply equity in favor of the trustee, allowing her to benefit from her own unlawful act, would sully equity itself.
The facts of the case were not complicated. The settlor created a trust governed by the laws of California with herself as trustee and sole life beneficiary of the income. However, she was not authorized to distribute any portion of the principal to herself. Upon her death, the trust corpus was to continue in trust in two shares: one for her daughter and one for her daughter’s husband, the settlor’s son-in-law. The daughter would receive 55% of the corpus in trust and the son-in-law would receive the remaining 45% of the corpus.
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