• Court enforces choice-of-law provision and exculpatory clauses in trust instruments and dismisses surcharge claims for failing to diversify AIG stock—In J. P. Morgan Chase Bank, N.A., et al. v. Loutit et al., 2013 N.Y. Misc. LEXIS 452 (N.Y. County Sup. Ct. 2013), the trust beneficiaries attempted to surcharge the corporate co-trustee of several trusts for the 2008 collapse in the value of AIG stock concentrations in the trusts, three of which were failed grantor-retained annuity trusts. Because each trust had some form of an exculpatory clause with respect to investments, the beneficiaries attempted to avoid the trust terms choosing either Massachusetts or North Carolina law—and brought their claims (in the form of a counterclaim to the trustee’s action to settle its accounts) under New York law, which more sharply limits exculpatory clauses in trusts on public policy grounds. The court upheld the choice-of-law provisions in the trusts and dismissed all of the claims against the trustee because: (1) the exculpatory clauses waived the diversification requirement and the prudent investor act, (2) the beneficiaries didn’t allege that the clauses were the result of overreaching or abuse or that the bank acted fraudulently or with reckless indifference, and (3) the bank could reasonably rely on the trust terms.


• Settlement in James Brown’s estate rejected by South Carolina Supreme Court—In In re Estate of Brown, 27227, 2013 S.C. LEXIS 31 (2013), the South Carolina Supreme Court considered the propriety of an agreement settling claims to the soul singer’s estate. Brown’s estate plan provided for certain funds to go to an education trust for his grandchildren and for the balance to go to a charitable trust called the “I Feel Good” trust. After his death, a former wife and various children filed suit against the estate, making claims of undue influence and asking that the estate pass by intestate succession. The state attorney general (AG) intervened in the case, and on Aug. 10, 2008, the family members and the AG entered into a settlement agreement. The trial court approved the agreement. The settlement agreement allocated 47.5 percent of the estate to a new charitable trust that would be largely under the control of the AG, a net of 23.75 percent to Tommie Rae Hynie (the former wife) and for a minor child and 4.79 percent to each of Brown’s adult children. The court-appointed fiduciaries of Brown’s estate, who didn’t participate in the settlement in any way, appealed the approval of the settlement. The South Carolina Supreme Court invalidated the settlement agreement, questioned whether the disputes were bona fide and held that the:


. . . compromise orchestrated by the AG in this case destroys the estate plan Brown had established in favor of an arrangement overseen virtually exclusively by the AG. The result is to take a large portion of Brown’s estate that Brown had designated for charity and to turn over these amounts to the family members and purported family members who were, under the plain terms of Brown’s will, given either limited devises or excluded.


The court was highly critical of several aspects of the AG’s involvement in the case, including its exclusion of the court-appointed fiduciaries from the settlement process.


• Trustees surcharged and ordered to account for failing to distribute trust assets for the needs of disabled trust beneficiary—In Matter of Mark C. H. Discretionary Trust of 1995, 38 Misc.3d 363 (N.Y. Surr. 2012), the court scrutinized the administration of a $3 million trust for the benefit of a severely disabled and institutionalized beneficiary, which paid significant fees to the attorney and bank co-trustees but, in the 5-year period in question, didn’t distribute anything for the beneficiary’s care. The court, sua sponte, ordered the trustees to account for the trust and retain a care manager who had extensive experience with intellectual disabilities. The care manager became actively involved in the beneficiary’s life and care, and the beneficiary made extraordinary progress once trust funds were used for his care at the care manager’s recommendations. The surrogate stated that the trustees should be surcharged for their commissions during the period of their inactivity, on the grounds that: (1) the “absolute discretion” of the trustees won’t protect them from liability if the trustees arbitrarily and without knowledge or inquiry into the circumstances fail to exercise their discretion, and (2) the trustees have a duty to inquire into the beneficiary’s condition and apply trust income to improve it.


• Trust not subject to state income taxation—In Kassner v. Division of Taxation, 2013 N.J. Tax LEXIS 1 (Jan. 3, 2013), the New Jersey Taxation Director attempted to levy state income tax on the out-of-state income of a New Jersey testamentary trust. The New Jersey Tax Court granted summary judgment to the trustee and rejected the tax on the grounds that: (1) the creation of the trust in New Jersey and the jurisdiction of the New Jersey courts don’t create sufficient contacts for taxation; (2) the trust wasn’t administered in New Jersey and the trustee is out of state; therefore, New Jersey can only tax undistributed trust income if the trust owned New Jersey assets; and (3) owning stock in an S corporation doesn’t mean the trust owns the assets of the S corporation.


• Beneficiaries of revocable trust allowed to sue for breaches of fiduciary duty committed while trust was revocable—In Giraldin v. Giraldin, 2011 Cal. App. LEXIS 1222 (Sept. 26, 2011) (Calif. Sup. Ct. 2012), a divided California Supreme Court reversed the appellate court and held that when the settlor of a revocable inter vivos trust appoints, during his lifetime, someone other than himself to act as trustee, once the settlor dies and the trust becomes irrevocable, the remainder beneficiaries have standing to sue the trustee for breaches of fiduciary duty committed during the period of revocability. The majority based its decision on inferences from various sections of the California Probate Code. The dissenting justice would have affirmed the Court of Appeals on the ground that only the settlor’s personal representative can sue on behalf of the settlor. 


• Termination of perpetual charitable trust under equitable deviation reversed to protect settlor’s intent—In Church of the Little Flower v. U.S. Bank, 2012 Ill. App. LEXIS 905 (2012), one of the beneficiaries of a perpetual charitable trust (with the consent of the other charities and the support of the state AG) sued to terminate the trust under equitable deviation, alleging that the corporate trustee’s fees exceeded that charity’s share of the annual trust distributions. The Illinois Court of Appeals reversed the trial court and rejected the termination on the grounds that: (1) the court’s role is to give effect to the settlor’s intent; (2) the purpose of equitable deviation is to carry out the setttlor’s intent if there are unanticipated circumstances; (3) if the trustee’s fees were unreasonable, the beneficiaries would have other causes of action rather than seeking termination; and (4) equitable deviation isn’t allowed just because it would be more advantageous to the beneficiaries.


• Technical interpretation of state statute frustrates burial instructions in decedent’s will—In In the Matter of the Estate of Mary Florence Whalen, 827 N.W.2d 184 (Iowa 2013), the decedent, Mary Florence Whalen, had been separated from her husband since 1996. She died in 2012. In her will, Mary instructed that she be buried in Billings, Mont., but her estranged husband wanted to bury her in Iowa. Iowa’s Final Disposition Act provides that a person may execute a declaration designating a person to make burial arrangements, but that declaration must be attached to or contained in a durable power of attorney for health care. A divided Iowa Supreme Court held that Mary’s will didn’t satisfy the statutory requirements because it wasn’t attached to a health care power of attorney and it contained actual burial instructions, rather than merely designating a person to have decision-making authority. Therefore, the court applied the statutory default rule and named Mary’s estranged husband to make burial decisions. The Chief Judge, joined by another, would have construed the Final Dispositions Act as a default rule, overridden by specific instructions from a decedent.


Other recent cases of interest: 


Court allows investigation into whether adult beneficiaries were responsible for challenge to will filed by minor beneficiary, and therefore, subject to no-contest clause (Norman et al. v. Gober, et al., 737 S.E.2d 309 (2013)).

Grantor of irrevocable trust with no retained interest lacks standing to sue trustee for breach of duty (Schwab, et al. v. The Huntington National Bank, 2012 WL 2906081 (N.D. Ohio 2012)).  

Trustee maintains burden of proof of propriety of disbursements (Weisberger v. Weisberger, et al., 2012 Ill. App. (1st) 111637-U (2012)).

Discovery of trustee’s itemized legal invoices denied (Bell, et al. v. Bank of America, N.A., 2012 Ark. App. 445 (2012)).

Discovery allowed for executor’s personal financial records and for itemized legal invoices that were paid out of estate without prior court approval (Blickenstaff v. Blickenstaff, 980 N.E.2d 1285 (Ill. App. Ct. 2012)).

Court rejects trustee’s request for discovery of information used by beneficiary and counsel to prepare accounting objections (In the Matter of JPMorgan Chase Bank, N.A., 37 Misc.3d 1126(a) (2012)).

Court uses rescission to redirect funds in pay-on- death account to estate (Murray v. Spiegle, 58 A.3d 1228 (N.J. Super. 2013)).

Estate settlement not binding under probate code, when all interested persons didn’t sign the agreement (Estate of Mary A. Riley, 295 P.3d 428 (Ariz. 2013)).