'A commission is neither a gratuity nor a sinecure."1 At first blush, New York statutory law appears firm: A fiduciary is entitled to an award of statutory commissions on the settlement of his or her account. However, despite this seemingly straight forward mandate, a fiduciary cannot simply breathe a sigh of relief and expect compensation for his or her service to be a foregone conclusion, regardless of his or her conduct in managing the affairs of an estate or trust.
Case law makes it clear that regardless of a fiduciary's right to commissions, a court may exercise its discretion to deny commissions, in whole or in part, if the fiduciary acted in an egregious manner. Simply stated, a gross breach of fiduciary duty could result not only in the surcharge of a fiduciary but also in the denial of commissions.
Calculations of commissions are guided by Article 23 of the Surrogate's Court Procedure Act (SCPA). Specifically, SCPA §§2307(1), 2308(1) and 2309(1) grant fiduciaries the right to collect commissions for services rendered to an estate or trust.2 For example, SCPA §2309(1) provides, in part:
On the settlement of an account of any trustee…the court must allow to him his reasonable and necessary expenses…and in addition thereto it must allow to the trustee for his services as trustee a commission from principal for paying out all sums of money constituting principal at the rate of 1 percent.
Advice of Counsel Defense
Court decisions over the years have been careful to point out that while a fiduciary may have acted improperly in the administration of an estate or trust, such conduct does not necessarily result in the denial of commissions. Consider, for example, the contested accounting proceeding of Matter of Lasdon,3 which focused on a co-trustee of two testamentary trusts established for the benefit of the co-trustee's two nephews who were the grandchildren of the decedent. Each trust provided that half of the remainder of the trust principal was distributable to the beneficiary when he reached the age of 30, with the balance distributable upon his 35th birthday. Upon each of the beneficiaries achieving the age of 35, issues arose over payment of the remainder of his trust.
Specifically, the co-trustee, Jeffrey Lasdon (Lasdon), believed that all decision-making authority regarding both trusts had long ago been ceded to his co-trustee, who also happened to be his sister and the mother of the beneficiaries. Lasdon argued that since he had been provided with no information about his nephews' trusts for almost a decade, he was in no position to grant the bank maintaining the custodial accounts permission to release the remaining assets of each respective trust. In fact, according to the decision, Lasdon's attorney advised him that he should not sign any forms authorizing the release of funds without first receiving accountings by his sister and releases from his nephews. Considerable legal wrangling ensued, but to no avail. Ultimately, the beneficiaries compelled Lasdon to account and sought to both surcharge him and deny him commissions based upon his "misfeasance and malfeasance"4 in failing to distribute the remaining assets of their respective trusts prior to filing the court proceedings.
The Surrogate's Court quickly dispensed with the notion that Lasdon was not liable for his inactions. The court reasoned that regardless of the legal advice imparted to Lasdon,
the duty of a trustee to distribute the assets in his charge at termination of the trust…is akin to the duty of the trustee upon his assumption of office. Because the marshaling of assets by a fiduciary essentially calls only for her or his good faith and common sense (rather than legal acumen), the fiduciary cannot invoke the advice-of-counsel defense against surcharge for a dereliction in such task.5
In so ruling, the court concluded that Lasdon was liable for a failure to timely distribute the remaining assets of the trusts and, therefore, was liable for the loss in value of such assets.
However, the court stopped short of denying Lasdon his statutory commissions. In discussing commissions, the court stated:
Simply put, a trustee is entitled to full commissions unless the record establishes that the trustee's action or inaction bespeaks not merely of misfeasance but also, bad faith, dishonesty and fraud (see Matter of Drier, 245 A.D.2d 787, 788 [3d Dept. 1997], lv denied 91 N.Y.2d 812 ). The record in this case contains no evidence of malevolence or dishonesty or other malfeasance….6