In holding that the trustee's actions were surchargeable, the court brushed aside the trust agreement's waiver of the conflict of interest provision, noting that the trustee was more concerned with the welfare of the family-owned business, in which she had a one-sixth interest, than she was about her fiduciary obligations as a trustee. The court agreed with the beneficiary that the interest-free loans made by the trustee to the family-owned business amounted to a breach of trust and surcharged the trustee for trust income lost as result of these loans. Additionally, the court sustained the beneficiary's objection to transactions that resulted in the family-owned business receiving profits at the expense of the trust.
The court also found that the trustee's conduct warranted the denial of commissions, despite the fact that the trustee was not guilty of totally abusing her fiduciary obligations to the beneficiary:
Even though the court finds that the petitioner conscientiously undertook the portion of her fiduciary responsibilities requiring her to exercise discretion in determining whether or not to grant the objectant's request for trust funds, unfortunately, the petitioner's overall management of the trust finances was not nearly as conscientious….The court does not conclude that the petitioner intentionally acted in bad faith with regard to any financial transaction; however, as the evidence establishes that the petitioner as the trustee gave substantial, interest free loans to [the family-held business] and permitted [it] to profit [rather than the trust], it concludes that the petitioner was indifferent to the objectant's needs as the beneficiary of the trust… Such conduct constitutes sufficient misfeasance to deny the petitioner any statutory commissions.16
Thus, while the court pointed out that the trustee acted conscientiously in some respects, such beneficial behavior was completely overshadowed by her willingness to self-deal, even if such self-dealing was sanctioned by the terms of the trust agreement.
It is difficult to know when a court will exercise its discretion and deny commissions to a fiduciary who has been found to have acted imprudently. At the very least, it seems clear that a fiduciary should be concerned about such a prospect should allegations of self-dealing be sustained.
In practice, however, a court does not always deny commissions in their entirety. For instance, a court could deny commissions for the acts and omissions of a fiduciary in connection with only one aspect of his or her administration or withhold commissions for a finite period of time. In addition, a court might surcharge a fiduciary and then charge the amount of the surcharge against the commissions he or she would otherwise receive. Naturally, this would result in the fiduciary receiving less commissions or could even exhaust the entirety of the commissions if the amount of surcharge exceeds such commissions.
In sum, fiduciaries must realize that commissions are not a giftthey are payment for an important job that requires the exercise of the utmost loyalty to the beneficiaries whose interests they have undertaken to protect. A court will not hesitate to use its discretion to deny commissions when the court deems it warranted.
Sanford J. Schlesinger is a founding and managing partner, and Ross Katz is counsel, at Schlesinger Gannon & Lazetera.
1. Matter of Bozzi, NYLJ, March 31, 1999 (p. 36 col. 5) (Sur. Ct. Nassau County).
2. The issue of a trustee collecting annual commissions on the distributions of principal and income is beyond the scope of this article. But note that there are specific procedural guidelines that must be followed by a trustee in order to ensure receipt of these commissions. See S.C.P.A. 2309(2).
3. 2010 N.Y. Misc. LEXIS 6654, reargument denied, Matter of Lasdon, NYLJ 1202474997186, *1 (Sur. Ct. New York County, Nov. 1, 2010, No. 1993-703).
5. Id. (citations omitted).