Trust of Frederick Brockway Gleason, Jr., 1999/4582 A
Cite as: Trust of Frederick Brockway Gleason, Jr., 1999/4582 A, NYLJ 1202629074611, at *1 (Surr., NY, Decided November 12, 2013)
Surrogate Nora Anderson
Decided: November 12, 2013
Before the court are competing motions for summary judgment. Decedent's granddaughter ("Ann"), objected to the accounting by Bank of America ("the Bank"), successor in interest to US Trust, as co-trustee of the testamentary trust created by decedent Frederick Brockway Gleason, Jr., on the ground that the Bank breached its fiduciary duty to her by allowing invasion of the trust principal for the benefit of her father, the trust's initial income beneficiary.
Ann has filed a motion for partial summary judgment on her objections, seeking a determination only on the Bank's liability, with the opportunity to prove damages at a later date.
The Bank filed opposition to Ann's motion, denying that its actions constituted a breach of duty, and contending Ann's request for partial summary judgment on liability alone is premature and a waste of the court's time and resources. The Bank also filed a cross-motion for summary judgment dismissing Ann's objections.
Decedent, Frederick Brockway Gleason, Jr., died on November 2, 1999. Ann's father, Frederick Brockway Gleason III ("Frederick"), was the initial income beneficiary of the testamentary trust created under decedent's November 1, 1990 last will and testament. The trust provided that upon Frederick's death, the remaining assets were to be divided into shares for each child of his then living. Frederick died on November 28, 2005. Ann is the only child of Frederick and her mother, Ann Gleason. Accordingly, she is the sole successor income beneficiary.
Subdivision C of Paragraph SIXTH of the trust provided, in relevant part,
My Trustees may apply for or to the use of…my children or any grandchild of mine for whom a share…is held in trust, so much of the principal thereof, and at such time or times and in such amounts, even to the full amount thereof, as in their discretion my Trustees may deem advisable for each such person's proper education, care, comfort or support.
The provisions of this subdivision C are intended primarily as a means of affording financial assistance to…my children or grandchildren in the event of serious illness, misfortune or other emergency or unusual condition affecting them, and also to assist my grandchildren during the period of their education including college and post-graduate education, but this enumeration is to serve only as a guide and shall not be construed to restrict the discretionary powers conferred upon my Trustees by this paragraph.
The testator directed that
[I]n making any payment hereunder to either of my children or grandchildren, my Trustees may inquire and take into consideration any other income or property of such child or grandchild to whom such payment is made.
Significantly, the testator provided further that
Any decision of said Trustees with respect to the exercise or non-exercise of said discretionary powers made in good faith shall fully protect my Trustees and shall be conclusively binding upon all persons interested in my estate. Emphasis supplied.
Under Paragraph NINTH, Frederick is identified by name as a principal beneficiary and is given the power, on behalf of all persons interested in the trusts, to settle the trustee's account with the same finality as if a court had issued a decree. The testator made clear his intent to primarily benefit his son; he singled out Frederick, named him specifically, identified him as a principal beneficiary, and gave him the power to bind all of the other interested parties, including Ann, to his acceptance of the trustee's account.
Decedent appointed George Watson and Laura Edgar as trustees of the trust. Watson and Edgar renounced their appointments in November 2000; Watson nominated Frederick in his place and Edgar nominated U.S. Trust ("the Bank") to replace her.
On July 18, 2007, two years after her father's death, Ann petitioned to compel the Bank to file an accounting. The parties conducted some discovery but were unable to reach resolution on matters raised by Ann. On or about May 18, 2009, the court issued
an order compelling the Bank to account. On or about May 29, 2009, the Bank filed its accounting in two parts, one for the period April 18, 2001 to November 18, 2005, the period during which her father was alive and served as co-trustee, and another for the period November 29, 2005 to February 29, 2009, when the Bank was the sole trustee. In July 2011, Ann filed objections to both accounts. She subsequently filed the instant motion for partial summary judgment on issues of liability for only the first accounting period. The Bank timely filed its opposition and cross-moved for summary judgment dismissing Ann's objections on both accounts.
Ann's Motion for Summary Judgment
It is axiomatic that summary judgment is rarely granted, given that granting such a motion deprives a litigant of her day in court (see e.g. Alvarez v. Prospect Hosp., 68 NY2d 320, 324; Glick v. Tri-Pac Export,22 NY2d 439). The strict standards required to prevail on a motion for summary judgment are more than well-known. Nonetheless, they bear repeating here. "[T]he proponent of a motion for summary judgment ha[s] the prima facie burden of establishing its entitlement to judgment as a matter of law by tendering sufficient evidence to demonstrate the absence of any material issues of fact" (Mussara v. Mega Funworks 100 AD 3rd 185 [2nd Dept 2012], citing, Alvarez v. Prospect Hosp, 68 NY 2d 320 ; Winegrad v. New York Univ Med Ctr, 64 NY2d 851 .
Once a movant meets that burden, it is incumbent upon the respondent to rebut the prima facie showing, if summary judgment is to be averted (see, Costa v. Columbia Pres. Med Ctr, 105 AD 3rd 525 [1st Dept 2013]). The motion may be granted only if no material, triable issue of fact exists; the party opposing the motion must be accorded every favorable inference with issues of credibility awaiting determination by the trier of fact at trial (Phillips v. Kantor, 31 NY2d 307 (1972); Westhill Exports, Ltd. v. Pope, 12 NY2d 491 (1963); Esteve v. Abad, 271 AD 725 (1st Dept 1947); Russell v. A. Barton Hepburn Hospital, 154 AD2d 796 (3rd Dept 1989).
Ann asserts that she is entitled to summary judgment because documentary evidence supports her claim that the Bank breached its duty to her by impermissibly delegating authority to her father as co-trustee, blindly permitting him to cause distributions to be made for his benefit from the principal of the trust. She claims such invasions violated the Bank's own policies, the terms of the governing instrument and New York law.
The Bank, in contesting these allegations, has produced some documents reflecting its policies and procedures, however it avers that it cannot locate a Policy and Procedures Manual for the period 2001-2005. Nonetheless, Ann contends that the documents that have been produced demonstrate the Bank's failure to adhere to its own policies and that she should therefore be
granted summary judgment. However, neither the failure to produce such a document nor the failure to comply with such policies is a sufficient basis to be afforded the relief she seeks (Craig v. Anyon, 212 AD 55, aff'd 242 NY 569; AIN Leasing v. Peat, Marwick & Co., 166 Misc 2d 902; see, also Matter of Lehman, 2013 NY Misc LEXIS 2817 [Surr Nassau] "[W]hether the trustee maintained adequate records is a question of fact," thereby prohibiting summary judgment).
Ann further objects to the Bank's payment to her father for her mother's health care, prescriptions and business expenses. The trust was created by decedent to liberally benefit Frederick and decedent's grandchildren. The fact that funds were expended for Frederick's spouse is well within the parameters of decedent's intent to provide for his son's care, comfort and support. Moreover, whether the Bank sufficiently scrutinized Frederick's requests for additional funds is another question of fact, requiring a trial.
While claiming that the Bank breached a fiduciary duty to her, Ann omits certain acts by the Bank which inured to her benefit. For example, while her father was acting as co-trustee and before she acquired status as income beneficiary, Ann received payments directly from the trust. She did not, at that time, convey any dissatisfaction with the Bank concerning her receipt of funds. The Bank asserts that she received $89,045
directly from her father's account, from money that had been paid to him by the trust, plus an additional $179,070.25 from the trust, either directly or to third parties on her behalf. During that same period, the Bank made monthly payments of $2350 directly to Ann's landlord for Ann's rent, while paying only $1081.60 for her father's mortgage, almost $1200 less per month than her housing costs. Her father's lower housing costs were a direct result of his refinancing the mortgage, an expense to which Ann objected.
Ann also claims, pursuant to the standards set forth in the law, the Bank breached its fiduciary statutory duty to her (see, e.g., EPTL 1-2.7 and 10-10.1). She contends the Bank, as a co-trustee, had an undivided and undiluted duty of loyalty to her and her father (see, Matter of Jastrzebski, 97 AD 3d 819 [2nd Dept 2012]); and by accepting her father's requests for sums beyond the interest earned by the trust, the Bank breached such duty to her.
The core premise of Ann's complaint is that the Bank complied with her father's requests for funds above and beyond the interest earned by the trust, that is, from an invasion of principal, not only without a careful review but with no review at all of his requests. The Bank asserts that although many of the requests were made and responded to verbally, it was aware not only of decedent's wishes as set forth in the trust
instrument, but also of the somewhat difficult life circumstances of both Ann and her father. For example, the Bank knew Frederick had no source of income other than the trust, and that both Ann, who suffered from multiple sclerosis, and her mother were financially dependent on him. The Bank contends that with this knowledge it supported both of Frederick's decisions to re-finance his mortgage as a prudent financial one and to invest in Ann's business, with the hope that she might become financially self-sufficient.
The language in decedent's will makes clear that the trustees had very broad authority, e.g., "my trustees may apply…so much of the principal…even to the full amount thereof;" very broad discretion, e.g., "this enumeration…serve[s]…only as a guide and shall not be construed to restrict the discretionary powers;" and perhaps most significantly, as set forth in Paragraph SIXTH, the standard by which the acts of the trustees was to be judged was one of good faith. Ann claims that the Bank failed to meet such standard. However, whether a trustee's conduct measures up to the appropriate standards of prudence, vigilance and care is a fact to be determined at trial (Matter of Donner, 82 NY2d 574; Andre v. Pomeroy, 35 NY2d 361; Glick v. Tri-Pac Export, 22 NY2d 439; In re Titus, 2009 NY Misc LEXIS 5917, citations omitted).
Moreover, Ann seeks a summary determination against the
trustee while conceding that she is not prepared to establish what, if any, damages she incurred as a result of the Bank's actions. The Bank argues her motion is premature and cites authority for the proposition that, even if liability were conceded, summary judgment absent a showing of damages would be premature (see, for example, Matter of Osborn 252 App Div 438, Matter of Levitt, 11 Misc 3d 371)). In Matter of Osborn (252 App Div 438, 445), a trust was established by a settlor with income to him for his life and then to his wife for life with remainder to his son. Withdrawals made by the settlor were admittedly unsupervised by a corporate co-trustee. The Appellate Division held that if the trustee did unlawfully abandon its discretion to one of the life tenants, the principle of duty and obligation may become merely an abstract one if, in fact, the proper result was reached.
The Bank correctly observes that Ann has provided no case law supporting summary relief prior to her establishment of damages.
Based on the foregoing, Ann's motion for summary judgment is denied.
The Bank's Motion For Summary Judgment
As aforementioned, the Bank cross-moves for summary judgment dismissing Ann's objections. The Bank contends that the trust instrument gave the trustee the broadest discretion possible, granting it immunity so long as it acted in good faith. The Bank
argues that not only has Ann proffered no proof of bad faith, but that the indisputable evidence shows that it diligently exercised its discretion in good faith from the inception of the trust. The Bank dismisses Ann's allegations as pure speculation, relying merely on the frequency and amounts of the distributions as proof that the Bank did not look into the reasons for the distributions.
The Bank has submitted affidavits of two trust officers with knowledge of the trust's administration, who testify to due diligence having been exercised in communicating with Ann's father regarding his requests, requiring him to provide documentation, conferring with the Bank's discretionary committee, and at times denying his requests. The Bank asserts that the documentation shows that the typical invasions of principal were for expenditures incurred towards Frederick's re-financing of his home, medical expenses for him, Ann and her mother, as well as regular payments for Ann's rent. The trust officers aver that the distributions were made with the knowledge that Ann's father, who had no other source of income, was supporting both women. The officers explain that the Bank determined that Frederick's legitimate concerns about his daughter's and wife's medical needs, as well as his spousal liability for his wife's debts, brought such items clearly within the scope of the Bank's discretion and the testator's intent.
The Bank points out further that during her father's life,
Ann neither objected to the distributions made for her benefit, nor complained about the trust monies being used for her mother.
In sum, the Bank contends that Ann's allegations that it breached its duty of undivided loyalty are conclusively disputed by the documentation and the affidavits of these officers, whom Ann failed to depose.
When a trust authorizes invasions of principal in the discretion of the trustee, the trustee's decision as to when the invasions shall be made and how much to invade principal will not be interfered with except in cases of abuse of discretion, bad faith or fraud (Hoelzer v. Blum, 93 AD2d 605); Matter of Maeder, 69 Misc2d 163). Where a testator appoints trustees with discretion to administer a trust, rather than dictating a specific sum be paid to the beneficiaries, the presumption is that the testator did so for the purpose of having the benefit of the trustee's judgment and discretion; and the court should not be burdened with the duty of administering the trust, nor is it required or permitted to substitute its judgment and discretion for that of the trustee, so long as the trustee acts within proper limits (Matter of Shea, 234 AD 176, 179). Here, the named trustees' broad discretion included the authority to name their successors, imputing to the Bank, as successor, the same deference to its judgment and devolving upon it the same duty to execute the trust in the manner directed by the testator.
When a trustee acts faithfully and diligently, the courts will view its acts with indulgence and will not hold it responsible for mere mistakes or errors of judgment (id., see, also, Roosevelt v. Roosevelt, 6 Hun, 31; affd., 64 N. Y. 651; Holden v. Strong, 116 NY 47). Where a trustee did not require an advanced itemized statement of the requirements of the household of the beneficiary or pre-audit each expenditure, it was sufficient that the trustee required general itemization of expenditures which the trustee judged would give it sufficient knowledge of the facts to enable it to exercise its own judgment as to the proper expenditures to be made (Matter of Clark, 280 NY 155).
Furthermore, where the trustee's decision is conclusive, the court will not interfere with the exercise or non-exercise of that discretion, even if unreasonable, unless the discretion is exercised in bad faith or is in derogation of the testator's intent (Matter of Glick, 2005 NY Misc LEXIS 7336, [*9]; see, also Matter of Osborn, 252 AD 438; Matter of Kaminester, 16 Misc 2d 1071). Ann has failed to offer any evidence that the Bank exercised bad faith or acted in derogation of the testator's intent.
Even the broadest discretion, however, is not unbounded, and the court has the responsibility to ensure that trustees do not abuse their discretion and to correct abuses that are arbitrary
or the result of bad faith (see Matter of Wallens, 9 NY 3d 117; Matter of Osborn, 252 App Div 438; Matter of Gilbert, 156 Misc 2d 379; Leigh v. Estate of Leigh, 55 Misc 2d 294; Matter of Kaminester, 16 Misc 2d 1071). The Bank's submissions show that in 2003 Donald Spelman, who had recently been assigned as trust officer for this trust, became concerned with the impact the distributions were having on the trust principal. Mr. Spelman raised the issue with the Bank's discretionary committee, which requested a budget from Frederick to establish a fixed monthly distribution schedule.
Ann concedes that the establishment of a budget was an improvement over what she characterizes as a prior wholesale absence of the exercise of discretion. She does not concede that the budget thus established was reasonable in light of the size of the trust, the age of the beneficiaries, and their likely future needs. She also raises the question of whether the Bank should have established a fixed budget earlier. Questions of whether a trustee has acted in bad faith, beyond the bounds of reasonable judgment, failed to use its judgment, or was improperly motivated are normally questions of fact, requiring a hearing (Matter of Bruches, 67 AD2d 456).
Finally, although Ann's opposition to the Bank's cross-motion centers on the Bank's invasions of principal and the exercise of discretion, her underlying objections to the accounts
include the Bank's legal fees, commissions, and generation skipping taxes paid by the Bank. The Bank requests, even in the event the court finds questions of fact with the issue of the Bank's exercise of its discretion, that the court dismiss Ann's objections to its legal fees, commissions, and the payment of generation skipping taxes on the ground that Ann has not affirmatively disputed these items.
The Bank's burden to establish its entitlement to summary judgment is not dependent on the adequacy of Ann's opposition to its motion, as the Bank must first make a prima facie case for its entitlement of such relief. In light of the outstanding questions of fact regarding the Bank's discretion and invasions of trust principal, a determination on the reasonableness of legal fees and commissions is premature (Matter of Storecky, 85 NY2d 518; Matter of Lehman, 64753/C, NYLJ 1202613016374, at*1; Matter of Stafford, 06-CV-2150, NYLJ 1202598132205, at *1).
In contrast, with respect to the Bank's payment of the generation skipping tax set forth in its second account, the Bank has submitted the tax return and schedules showing the Bank's calculations. Such documentation is prima facie evidence that the payment was a legitimate expenditure. In the absence of Ann's coming forward with any evidence that would raise a question of fact regarding the accuracy of that tax return, the Bank's request for summary judgment dismissing objection 7(a) to the
second account is granted.
In all other respects, viewing the record in the light most favorable to Ann, the Bank's cross-motion for summary judgment is denied.
This constitutes the decision and order of the court.
Dated: Nov 12, 2013