Doherty v. JP Morgan Chase Bank, N.A. – Texas Court of Appeals removes corporate trustee for refusing to make a mandatory trust distribution while the beneficiary’s request that the trustee resign was outstanding.
Salmon v. Old National Bank – Kentucky federal district court denies motion for preliminary injuction to prevent corporate trustee from using the trust assets to defend against a surcharge action related to trust investments.
Goddard v. Bank of America, N.A. – Rhode Island court refuses beneficiaries’ request to dramatically restructure the fiduciary powers of several trusts due to lack of evidentiary support and refuses to approve the 40-year accountings of corporate trustee without trust agreeing to pay the costs of the court hiring assistants to review the accountings.
Matter of HSBC Bank U.S.A. – New York Appellate Division affirms surrogate’s decision upholding releases of claims against corporate trustee signed by the trust beneficiaries.
Wilson v. Wilson – North Carolina Court of Appeals requires trustee to respond to discovery requests from beneficiaries in a surcharge action notwithstanding trust terms that provided that the trustee had no duty to account to the beneficiaries.
Spry v. Gooner – Maryland Special Court of Appeals allows beneficiaries of revocable trust to file exceptions to accounting of personal representative.
National City Bank of the Midwest v. Pharmacia & Upjohn Company, L.L.C. – Michigan Court of Appeals rejects claims by state attorney general and private foundation that a trust created by Dr. Upjohn for the benefit of employees of The Upjohn Company should terminate as a result of multiple corporate mergers.
Smith v. Hallum – Georgia Supreme Court refuses to modify an irrevocable life insurance trust to remove a beneficiary who was charged with a brutal assault on the insured while criminal proceedings were still pending and there were unresolved questions about the beneficiary’s competence.
Idoux v. Helou – Virginia Supreme Court refuses to allow amending of a complaint incorrectly filed against an estate, rather than against a personal representative, after the expiration of the limitations period on the action.
Lane v. Starke – Virginia Supreme Court upholds gift of real property to decedent’s children after the death of a life tenant conditioned on cash payment to estate, which was not yet paid at the death of the life tenant, because unless a monetary legacy required to be made by a devisee coupled with a devise of land must expressly precede vesting, the requirement will be treated as a condition subsequent and the real property is chargeable with a lien for the payment of the legacy enforceable in equity.
Johnson v. Hart – Virginia Supreme Court refuses to allow an estate beneficiary to sue the attorney for the personal representative due to lack of privity.
Doherty v. JP Morgan Chase Bank, N.A., 2010 Tex. App. LEXIS 2185 (March 11, 2010)
Lois Doherty was the sole current beneficiary of a trust created in 1972 under her late husband’s will with JP Morgan Chase Bank (or its corporate predecessor) as trustee. The trust provided for mandatory income distributions to Lois, and also stated that the trustee “shall” distribute principal as Lois requested for her comfort, health, support, maintenance, or to maintain her standard of living. The trust further provided that Lois’s “right to withdraw principal” was to be liberally construed. Lois had a general testamentary power of appointment over the trust, and, in default of the exercise of her power, the trust assets were to be distributed at her death to her husband’s descendants, or, if none, to Texas A&M University. The trust allowed Lois to appoint a successor trustee if the trustee failed or refused to act.
In 2005, Lois suffered a stroke and moved in with her daughter. In order to provide funds to renovate her daughter’s home to accommodate her disability and to provide for her living expenses, Lois asked the trustee to distribute all of the remaining trust assets to her outright and free of trust. The trustee asked for at least two written estimates for the costs of the home renovations. The trustee refused to distribute the balance of the principal without a court approved release out of concern for the potential remaindermen (notwithstanding Lois’s general power of appointment). The trustee observed that Lois’s other agency account had available cash to cover Lois’s needs.
Thereafter, Lois’s attorney requested that the trustee resign, which the trustee refused to do without full judicial releases. Lois then sent two estimates for the home renovations, but the trustee refused to distribute assets for the renovations because of the request that the trustee resign, and preferred that the successor trustee decide whether to pay for the renovations. In its internal files, the trustee marked Lois’s request as “denied”. In 2006, Regions Bank informed the trustee that Lois had appointed the bank as successor trustee, and asked the trustee to immediately transfer the trust assets. Nine months later, Lois sued to approve the appointment of Regions Bank as successor trustee on the grounds that the trustee refused to act, and also sought her attorneys’ fees and costs. The trial court granted summary judgment in favor of the trustee.
On appeal, the Texas Court of Appeals reversed and entered judgment in Lois’s favor on the grounds that (1) the trustee conceded that the costs of the renovations would be proper under the distribution standard in the trust agreement, (2) because of this, the distribution for the renovations was mandatory and not discretionary under the particular language of this trust agreement, and (3) because the trustee was required to make the distribution and refused, the trustee failed to act as trustee giving rise to Lois’s right to appoint a successor trustee.
Salmon v. Old National Bank, 2010 U.S. Dist. LEXIS 16313 (February 24, 2010)
The trust beneficiaries sued Old National Bank as trustee of a trust alleging improper investment of the trust assets, and seeking removal of the trustee and surcharge. The beneficiaries moved for a preliminary injunction to prevent the trustee from using the trust assets to pay its attorneys fees and costs in the course of the litigation, arguing that the trustee must wait until the end of the litigation and only reimburse its fees if the trustee successfully defended against the suit and the fees were approved by the court. The federal district court for the Western District of Kentucky denied the motion on the grounds that (1) the beneficiaries are not entitled to a preliminary injunction unless they can show irreparable harm, (2) the beneficiaries failed to introduce any evidence to show that they would be irreparably harmed by allowing the trustee to use the trust assets for its defense (subject to later return if the trustee was unsuccessful), such as actual proof that the beneficiaries’ needs for distributions would not be met as a result, and (3) the beneficiaries would be fully compensated for any harm by monetary damages. The court rejected the suggestion that the denial of the preliminary injunction would give the trustee an unfair advantage in the litigation.
Goddard v. Bank of America, N.A., 2010 R.I. Super. LEXIS 45 (February 24, 2010)
The adult beneficiaries of several Goddard family testamentary and inter vivos trusts petitioned the court for approval of extensive modifications of the trusts, including (1) creating an investment committee to make financial decisions, (2) limiting the liability of the trustee for relying on an outside investor, (3) allowing the committee to move the trust assets, change the trust’s jurisdiction, remove a trustee for any reason, and amend the trust without court approval, (4) centralize the power to appoint the committee members with the older generations of the family, and (5) remove investment responsibility from certain trustees. The beneficiaries justified the modifications on the basis that (1) all adult beneficiaries consented and the reasons for the modification outweighed any material trust purpose that would be inconsistent with the modifications or (2) in the alternative, due to unanticipated circumstances the modifications would further the trust purposes. The corporate trustee asked the court to settle its accountings for each trust for accounting periods of over 40 years for each trust.
The trial court complained about the lack of proof and documentation at trial, including the failure to submit the complete trust documents, the limited information provided in briefs, the lack of evidence about the trust purposes, the failure to provide the court with the values of the assets of the trusts, and the failure to provide evidence of changed circumstances or that the circumstances were unanticiapted.
The court denied modification based on the consent of the beneficiaries because no evidence was presented as to the material trust purposes, the court could not discern those purposes from the documents, and therefore the court could not determine that the modifications outweigh the trust purposes. Likewise, the court denied modification because the beneficiaries failed to provide evidence of changed or unanticipated circumstances.
The court refused to treat the approval of the trustee’s accountings as a perfunctory or ministerial function, and refused to review the trustee’s accountings without retaining an independent examiner or retaining assistants and charging the costs to the trust. The court deferred decision on the accountings until the trustee responded as to whether the trust would pay those costs.
Matter of HSBC Bank U.S.A., 2010 N.Y. App. Div. LEXIS 1120 (February 11, 2010)
A predecessor bank to HSBC Bank U.S.A. served as trustee of a trust holding an 80% concentration of Corning Glass Works stock. The trust terms authorized the retention of the stock without liability for loss in its value. Upon settlement of the trust, the trustee sent an informal accounting disclosing the loss in value of the Corning stock to the beneficiaries’ attorney, along with a receipt and release agreement for signature by the beneficiaries that would forever absolve the trustee from all liability for the handling of the trust assets. The beneficiaries’ attorney forwarded the release to the beneficiaries, and the beneficiaries signed the release. More than three years later, the beneficiaries sued the trustee and their own attorney to set aside the release alleging that the trustee and the attorney failed to disclose the legal effect of the accounting and the release. The Surrogate’s Court dismissed the petition, and the Appellate Division affirmed because the beneficiaries failed to allege facts supporting the claim of misrepresentation, and because the legal malpractice claim was barred by the statute of limitations. The court noted that the trustee “fulfilled its fiduciary duty by providing petitioners with a full accounting of the trust, and [the beneficiaries] failed to object to the accounting and executed releases waiving their rights against HSBC”.
Wilson v. Wilson, 2010 N.C. App. LEXIS 501 (March 16, 2010)
In 1992, Lawrence Wilson Jr. created two irrevocable trusts with Lawrence Wilson Sr. as trustee. The terms of both trusts provided that the trustee would not be required to file accountings with any court or any beneficiary. In 2007, the beneficiaries of the trusts sued the trustee and the settlor alleging breach of fiduciary duty with respect to the trustee allowing the settlor to take control of the trust and invest the trust assets in the settlor’s speculative personal business ventures resulting in considerable losses, and for the failure to distribute trust income as required. The beneficiaries also asked the court to compel the trustee to account.
In response to the beneficiaries’ discovery requests seeking information about the trusts, the trustee moved for a protective order asserting that the terms of the trust provided that the trustee was not required to account to the beneficiaries. The trial court issued the protective order on the basis that (1) under North Carolina’s version of the Uniform Trust Code, there are no mandatory disclosure obligations, meaning that the settlor of a trust may override the requirement that a trustee disclose information to the beneficiaries, (2) the settlor of these trusts did precisely this, and (3) therefore, the beneficiaries were not entitled to discovery concerning the trusts. Because the beneficiaries admitted they could not support their surcharge claims without the requested discovery, the trial court granted summary judgment in favor of the settlor and trustee.
On appeal, the North Carolina Court of Appeals reversed, noting that North Carolina’s Uniform Trust Code imposed a mandatory duty on the trustee to act in good faith, and that the trust terms cannot prevail over the power of the court to act in the interests of justice. The court stated that the powers of the court clearly include the power to compel discovery where necessary to enforce the beneficiary’s rights under the trust or to prevent or redress a breach of trust, regardless of the terms of the trust. The court held that the trial erred by relying on the non-binding commentary to the North Carolina Uniform Trust Code , and applied the rule in Taylor v. NationsBank, 125 N.C. App. 515 (1997) that a trustee may not withhold from a beneficiary information that is reasonably necessary to allow a beneficiary to enforce his rights notwithstanding the trust terms, even though the rule in Taylor was derived from the Restatement (Second) of Trusts and not the Uniform Trust Code, and Taylor was decided prior to the enactment of the North Carolina Uniform Trust Code. One judge issued a dissenting opinion.
Spry v. Gooner, 2010 Md. App. LEXIS 5 (January 5, 2010)
William Spry died in 2006, survived by his wife; two sons from a prior marriage, William and Robert Spry; and a stepson from the prior marriage, Ralph Gooner. Mr. Spry left a pour over will and a revocable trust, which Mr. Spry funded during his life with most of his assets. Ralph and two other persons were named as personal representatives and successor trustees. Mr. Spry’s sons, William and Robert, sued to challenge the validity of the will and the trust, but later withdrew their challenges. William and Robert filed exceptions to the first account of the personal representatives. The orphan’s court dismissed the exceptions on the grounds that William and Robert lacked standing because the will distributed all of the probate assets to the revocable trust and they were not the trustees of that trust, only beneficiaries.
On appeal, the Maryland Court of Special Appeals reversed. Notwithstanding a state statute that excludes trust beneficiaries from being “interested persons” entitled to receive notice of an accounting, the court reaffirmed its prior ruling in Carrier v. Crestar Bank, N.A., 316 Md. 700 (1989) that standing to file exceptions to an accounting (as opposed to being entitled to notice as an interested person under the statute) is governed by the common law. The court held that, under the common law, the beneficiaries of a trust (whether under will or under a trust agreement) receiving estate assets have standing to file exceptions to the accounting of the personal representative.
National City Bank of the Midwest v. Pharmacia & Upjohn Company, L.L.C., 2010 Mich. App. LEXIS 352 (February 23, 2010)
Dr. William E. Upjohn created the Upjohn Company in Kalamazoo, Michigan in 1886, and the company was privately held for 50 years. Under his will, Dr. Upjohn gave 2,000 shares of company stock to establish the Upjohn Prizes Trust to pay the net income to reward the special accomplishments of company employees, with any unused income to be distributed to National City Bank (successor to the Bank of Kalamazoo) as trustee for the benefit of the Kalamazoo Foundation. The trust terms provided that if The Upjohn Company ceased to exist or function, the trust assets would be distributed to the Kalamazoo Foundation. After Dr. Upjohn’s death in 1932, the probate court ordered the funding of the trust and the trust was operated from 1938 until 2003. National City Bank (or its predecessor) served as trustee of the prizes trust.
Starting in 1958 with the public offering of the Upjohn stock, the company went through an extensive series of changes, acquisitions, and mergers such that by 2003 the remaining corporate entity was Pharmacia & Upjohn Company, a subsidiary of Pharmacia & Upjohn, Inc., which was a subsidiary of Pharmacia Corporation, which was a subsidiary of Pfizer. During this time period from 1958 to 2003, the trustee initiated two legal proceedings involving the prizes trust.
In 1963, the trustee commenced an accounting action, and the state attorney general intervened in those proceedings in which the trustee’s accounting was settled. In 1996, the trustee petitioned for instructions as to whether the trust assets could be used to pay the costs for employees receiving prizes from the trust to travel to the awards ceremony. At that hearing, the Kalamazoo Foundation raised the issue of whether the Upjohn Company ceased to exist, but counsel for the Foundation represented at the hearing that the company did still exist.
In 2003, following the merger with Pfizer, the trustee petitioned for interpretation of Dr. Upjohn’s will as to whether the company still existed for purposes of the prizes trust. While the petition was pending, Pharmacia & Upjohn Company converted to a limited liability company. Following discovery, the Foundation and the attorney general moved for summary judgment that the company no longer existed or functioned and that the trust assets should be distributed to the Foundation, and further that the prizes trust was an honorary trust subject to the rule against perpuitites, and was therefore no longer valid since 21 years had expired since its creation. Pharmacia & Upjohn Company, L.L.C. moved for summary judgment in support of continuing the prizes trust on the basis that the company continued to exist and operated in changed form as part of the Pfizer family of companies. In 2007, the probate court granted the Foundation and the attorney general’s motion for summary judgment, and held that because The Upjohn Company was not in the phone book and a person could not purchase shares in the company, the company ceased to exist and function for purposes of the will. The probate court also agreed that as an honorary trust the prizes trust was no longer valid.
On appeal by Pharmacia & Upjohn Company, L.L.C., the Michigan Court of Appeals reversed on the following grounds: (1) the Foundation and the attorney general were barred by res judicata from challenging the existence of the company as a result of the accounting proceedings in 1963 (with respect to corporate changes prior to that time), because they could have raised the issue at that time and failed to do so; (2) similarly, they were barred by res judicata by the probate proceedings in 1996 for corporate changes between 1963 and 1996, and because counsel for the Foundation conceded in those proceedings that the company still existed; (3) the company continued to exist and function through mergers in 2000 and 2003, and a name change in 2000, because the company was still an operating company that made products, owned assets, held patents, had a board, officers, and employees, and was not a mere instrumentality of the parent company; (4) the conversion to an LLC in 1994 was for tax purposes only and there was no change to the operations of the company from the change; and (5) the argument that the trust was void for violating the rule against perpetuities was barred by res judicata from the 1937 probate court order providing for the funding of the trust.
Smith v. Hallum, 2010 Ga. LEXIS 188 (March 1, 2010)
John Smith created an irrevocable life insurance trust in 1990 to hold a policy on the lives of him and his wife. The purpose of the trust was to provide for his descendants after the deaths of him and his wife. John died in 2003 survived by his wife Inez and grandson Alden (his only child predeceased him). Inez was brutally attacked, shot, and stabbed 20 times, but survived the attack. Alden was charged with the crime, but was not yet convicted due to unresolved issues about his competence to stand trial. While criminal charges were still pending and unresolved, the trustee petitioned to amend the trust to exclude Alden as a beneficiary on the grounds that John would not want to incentivize his grandson to try and kill his wife to speed his receipt of the trust benefits. The trial court concluded that the trustee carried her burden of proving by clear and convincing evidence that the modification was warranted.
On appeal, the Georgia Supreme Court reversed on the basis that (1) the criminal proceedings had not advanced due to unresolved issues about Alden’s competence, (2) because of this, there was no proof that Alden’s attack was the result of greed for the trust assets as opposed to paranoid delusions, (3) the modification would defeat a trust purpose by excluding a beneficiary named in the trust, and (4) the trustee failed to produce evidence at trial to support a finding by clear and convincing evidence that the modification was warranted.
Idoux v. Helou, 2010 Va. LEXIS 56 (April 15, 2010)
Thomas Idoux sued in the general district court alleging negligence against Raja Helou resulting from an automobile accident on September 19, 2006. Before Idoux filed his warrant in debt, Helou had died and his wife qualified as personal representative of his estate. The general district court dismissed Idoux’s lawsuit without prejudice for improperly naming a deceased defendant. On September 2, 2008, Idoux filed a negligence action in the circuit court against Helou’s estate (rather than against his personal representative). On November 17, 2008 (after the statute of limitations on his claims had expired), Idoux served the personal representative with the complaint. The circuit court sustained the estate’s plea in bar and dismissed the suit on the basis that the estate was not a proper party, and the complaint could not be amended to substitute the personal representative because the statute of limitations had expired. The Virginia Supreme Court affirmed on the basis of its prior ruling in Swann v. Marks, 252 Va. 181 (1996) that a complaint against an “estate” is a nullity in Virginia and cannot toll the statute of limitations, and because there was no proof that the personal representative was not legally able to receive service of process.
Lane v. Starke, 2010 Va. LEXIS 41 (April 15, 2010)
Willard Lane died in 1991. Under his will, he gave his wife a life estate in the residue of his estate. The will also provided that, upon his wife’s death or remarriage certain real property would pass to his son and daughters on the “express condition” that they pay into the estate one-half of the assessed value of the real property. Mr. Lane’s wife, the life tenant, died in 2002 without having remarried. Mr. Lane’s son and daughters had not made any payment of one-half of the assessed value of the real property at that time, and no one had yet qualified as executor under Mr. Lane’s will.
In 2006, Mr. Lane’s son qualified as executor and sought aid and direction on the date for determining the assessed value of the real estate for purposes of the required payments. The executor gave notice of the suit to his sisters, as well as to Bryan Lane and Ricky Lane who were not mentioned in the will but were heirs at law of Mr. Lane. Bryan and Ricky asserted that the son and daughters forfeited their interests in the real property by failing to make the payments to the estate prior to the death of the life tenant, in violation of a condition precedent to the gift. The trial court agreed, and held that the will created vested remainders subject to conditions precedent, the condition was not satisfied, and therefore the real property passed by intestacy to Mr. Lane’s heirs at law due to a failure in the residue of Mr. Lane’s will.
On appeal, the Virginia Supreme Court reversed on the following grounds: (1) the will is ambiguous and, applying rules of construction, the gifts vested at Mr. Lane’s death due to the early vesting rule even though enjoyment was postponed until the death of the life tenant; (2) if the will does not necessarily provide that the monetary legacy required to be made by a devisee coupled with a devise of land must precede vesting, the requirement will be treated as a condition subsequent and the real property is chargeable with a lien for the payment of the legacy enforceable in equity; (3) constructions of wills that result in intestacy are disfavored; and (4) accordingly, the duty to make the monetary payment did not arise until the death of the life tenant and is to be ascertained with respect to assessments on that date.
Johnson v. Hart, 2010 Va. LEXIS 55 (April 15, 2010)
Nancy Johnson retained attorney John Hart to advise her as executor of her mother’s estate. Nancy was later removed and replaced, and the successor personal representative completed the administration of the estate and distributed the assets to Nancy as sole beneficiary of the estate. Thereafter, Nancy, in her individual capacity as beneficiary, sued Hart for legal malpractice in connection with his work for the estate. Hart moved to dismiss the suit and for summary judgment on the basis that any proper claim must be brought by the estate, and that no attorney-client relationship existed between Hart and Nancy in her individual capacity with respect to the subject of the suit. Nancy argued that certain Virginia statutes allowed her to bring the suit as the “beneficial owner” of the estate. The trial court ruled in Hart’s favor, holding that Nancy as the sole beneficiary of the estate had ownership of the estate’s legal malpractice claim, but could not bring the claim because she would be an assignee and assignments of legal malpractice claims are not allowed. Hart endorsed the order ruling in his favor “seen and consented to”. Nancy appealed and Hart cross-appealed.
On appeal, the Virginia Supreme Court rejected Nancy’s argument that Hart could not raise issues on cross-appeal because he endorsed the order as “seen and consented to”, noting that under Virginia Code section 8.01-384 a party does not waive objections raised at trial unless expressly set forth in the endorsement of the order. The court rejected the trial court’s argument that Nancy became the beneficial owner of the estate’s claims, and held that the Virginia statute relied on by Nancy (Virginia Code section 8.01-13, which allows the beneficial owner of a chose in action to bring a claim) did not change Virginia’s strict privity doctrine in legal malpractice cases, or its rule that legal malpractice cases cannot be assigned. Applying these principles, the court held that a testamentary beneficiary may not maintain in her own name a legal malpractice action against an attorney with whom no attorney-client relationship existed, such as here where the attorney represented the estate and not the beneficiaries. Despite the trial court’s error in its reasoning, the court affirmed the decision of the trial court in favor of Hart because the trial court reached the right result.
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