Take-Away: 2019 did not produce many decisions from Michigan appellate courts with regard to trusts and their administration. However, a handful of cases from around the country, in particular Massachusetts, and surprisingly Nebraska, provide some interesting commentary with regard to Wills, Trusts, their interpretation or construction, and their administration.

‘My Issue by Representation’: The Will’s residuary clause left the testator’s estate “to my issue by representation in substantially equal shares.” In his Will, the testator had referred to his stepchildren as ‘my beloved children.’ A nephew and niece challenged the interpretation of the residuary clause to determine whether the testator intended to include his stepchildren in the distribution of his residuary estate. The court applied a liberal interpretation to the use of the word ‘issue’ to include the stepchildren in the class of beneficiaries entitled to share in the residue of the estate. In re Estate of Bialas, No. A-18-023, 2019 Neb. App. LEXIS 39 (February 12, 2019.)  This is a reminder that it is a good idea to carefully define terms used in a Will or Trust, like ‘issue’, ‘descendants’, and ‘children.’

“Shall Means Shall’: Six siblings were named as co-trustees of their parents’ trust. [Eye-roll.] One of the six kids wanted to terminate the trust and demanded a distribution of her share; the other five kids wanted to keep the all of the assets together in the trust and they said ‘no.’ The co-trustees could make decisions on a majority vote. The trust instrument provided that once a beneficiary (child) attained the age of 30 years, “the trustee shall distribute to such beneficiary the balance of his or her trust.” The court found that while a liquidation  of the trust was not required, it also found that the trust instrument was not ambiguous when it clearly required the distribution of assets and termination of the trust if all of the trust beneficiaries, i.e. the children, reached age 30. In short, there was no fiduciary discretion involved when the trust used the phrase ‘shall distribute upon attaining age 30.’ Trolan v Trolan, 31 Cal. App. 5th 939 (2019).

Choice of Trustee a ‘Material Purpose’: All of the qualified trust beneficiaries supported the removal of the named professional trustee. The beneficiaries wanted to remove the corporate fiduciary and replace it with an individual. The court denied the request to remove the corporate trustee and replace the bank with an individual- a beneficiary’s attorney-spouse. In doing so, the court found it significant that the settlor initially chose the bank to serve as trustee. The court relied upon the Restatement (Third) of Trusts commentary that suggests that the replacement of a selected trustee with another individual or entity ‘that lacks the desired qualities of the initial trustee would be inconsistent with a material purpose of the trust.’ In re Fenske, 303 Neb. 430 (2019).

Concentrated Stock Holding in Charitable Trust: The decedent’s largest holding was General Electric stock. He had held that stock for decades. On his death a charitable trust was established. The trustee did not diversify the General Electric stock holdings ‘due to the decedent’s emotional connection with that concentrated holding of the General Electric stock.’ The Charities Bureau of the New York Attorney General’s Office filed a petition in which it claimed that the trustee was too slow to settle the estate and diversify out of the General Electric stock. The court agreed finding that the trustee did not act prudently in retaining the GE stock, which he had held for a ‘significant time after the decedent’s death.’ The court surcharged the trustee close to $3.5 million, which it felt represented the value of the lost capital to the charitable trust. Matter of Kenny, 64 Misc. 3d 1232(A) (July 19, 2019).

Joint Trust Inherently Ambiguous: A joint trust established by spouses provided that while both spouses were living, either spouse could withdraw property from the trust. On the death of one spouse, while the survivor acted as sole trustee, the trust instrument was silent whether the surviving spouse could withdraw trust property. In this case, the survivor wanted to withdraw a farm from the irrevocable trust. The court found that a trust which is subject to different, reasonable interpretations is inherently ambiguous. Because the court found this joint trust to be ambiguous (i.e. there was no mention of the continuing power to withdraw assets after the death of one spouse) the question was left to a jury to decide. Harbin v. Williams, No. 5695, 2019 S.C. App. LEXIS 190 (Ct. App., December 18, 2019).

Limits to Trustee’s Broad Discretion: Two brother were co-trustees of a trust. They were vested with broad discretion in that role. The brothers were also co-members of an LLC that was held in the trust. The trust instrument contained a provision that required equal distributions from the trust to all of its current beneficiaries, ‘absent a direction from the majority of the trust beneficiaries.’ The brothers failed to make equal distributions of income from the trust and from the LLC. Their sister sued claiming they breached their fiduciary duty. The court found no evidence that there was a direction to the contrary with respect to equal distributions from the trust, and thus the brothers’ exercise of discretion was still subject to their fiduciary duty to their sister who was a trust beneficiary. Couture v. Zagami, et. al., 95 Mass. App. Ct. 144 (2019.)

In Terrorem Clause: The decedent’s Will contained a no-contest provision. One of the beneficiaries of the decedent’s estate filed a petition for supervised administration of the estate. The question was whether that petition for  court supervision was sufficient to trigger the no-contest provision. The trial court found that such a petition caused the beneficiary to forfeit her interest in the decedent’s estate, as it amounted to a contest of the probate of the Will. That decision was reversed on appeal. The appeals court found that even if ‘the petition was successful, the Will still would have been carried out in accordance with its terms.’ Matter of Estate of Connolly, 95 Mass. App. Ct. 1113 (2019).

Equitable Deviation: Massachusetts seems to be a hotbed for challenges to trusts in the context of a beneficiary’s divorce. A few years ago there was the infamous Pfannenstiehl v. Pfannenstiehl decision that brought a beneficiary’s interest in a third-party settled trust into the marital estate for equitable distribution purposes. Now there is similar decision. These cases may be explained by Massachusetts’ common law and statutes which include all property interests in the divisible marital estate, regardless of source or timing of acquisition, i.e. no separate property principles prevail. Here, a discretionary trust was established for a daughter. The trust conferred on the daughter-beneficiary the right to withdraw up to 5% of the trust principal each year. The trust instrument also contained a standard spendthrift limitation. The court found that even though the daughter’s withdrawal right was governed by the trust’s spendthrift provision, the withdrawal right was included in the marital estate ‘because such a right is not a mere expectancy.’ Levitan v. Rosen, 95 Mass. App. Ct. 248 (2019).

Admittedly there is no common theme to this summary of cases. Just some interesting issues that surround the interpretation and administration of all governing documents.