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Trustee Brings Action to be Reimbursed for Expenses

The facts:

A mother (hereinafter The Mother) lived with her son (hereinafter The Son). The son was devoted to his mother. A New York Probate Lawyer said she was unable to handle her own affairs, thus, he supervised her medical care. He managed her financial affairs and made sure that she paid her bills timely.

On 25 August 2000, the son died. He was then 64 and his mother was almost 96. The son executed a will dated 23 May 1996. In his will, he left his residuary estate in trust for the benefit of his mother. He named two persons, the petitioners (petitioner-one and petitioner-two), as executors of his will and trustees of the residuary trust. Under the terms of the trust, the trustees were to pay the net income to the mother, quarter-annually. In addition, the trustees were authorized to invade principal for the benefit of the mother; and upon the death of the mother, the trust terminates and that from the principal then remaining, certain amounts would be given to the petitioners and to other individuals.

On 2 May 2001, the son’s will was admitted to probate (for estate administration, will contest, estate litigation) and letters testamentary and letters of trusteeship were issued to the trustees.

After the son’s death, the mother’s mental and emotional condition deteriorated and she was unable to manage her financial and personal affairs. While she had substantial personal assets, exceeding $1,000,000, she was incapable of paying the bills for her living and health care expenses. Queens Probate Lawyers said the executors of the son’s estate paid these bills. In so doing, they expended funds in excess of the net income of the trust.

On 4 January 2002, the petitioners applied for appointment as the mother’s co-guardians pursuant to article 81 of the Mental Hygiene Law. The transcript of the court proceedings shows that the court intended to appoint them as guardians of the person and property of the mother in June 2002. In the meantime, the court appointed one of the petitioners, petitioner-one, as a temporary guardian of the property so that she would have access to the mother’s financial records. However, a formal order was not issued (allegedly because a transcript was necessary).

Sometime in September 2002, the mother became ill. The court appointed petitioner-one as the temporary guardian of the mother’s person.

On 8 October 2002, the mother died, terminating the guardianship proceeding.

On 7 February 2003, the will of the mother was admitted to probate and letters testamentary issued to the respondent. Under her will, executed the same day as her son’s will, she left $20,000 to a sister and the residuary to be divided between Hadassah and charities selected by her executor.

By the time the mother died, the trustees had expended $241,120.13 from the residuary trust on the mother’s behalf. In addition, the trustees spent $2,075 of their own money for her care, for a total expenditure of $243,195.13. Bronx Probate Lawyers said the net income of the trust for this period was only $6,776.26. The trustees served the respondent with a notice of claim for the difference, $236,418.87. The notice of claim alleged that such amount was loaned to the mother and expended for her support and maintenance prior to the appointment of an article 81 guardian. The respondent rejected the claim and demanded payment of the net income of the residuary trust.

The trustees then brought the instant proceeding to determine the validity of their claim.

On the contrary, the respondent opposed claiming that the funds were paid pursuant to petitioners’ duties under the trust.

The trustees served the respondent and his attorney with notices to be deposed.

The respondent moved for a summary judgment dismissing the claim.

The trustees opposed the motion on the ground that they required additional discovery; that seek more complete responses to the interrogatories and requests for documents that they served; that they be allowed to depose the respondent and his attorney; and that the motion for summary judgment be denied or stayed pending such discovery.

The Ruling:

The rules authorize the court to deny summary judgment or grant a continuance pending discovery when facts essential to justify opposition to the motion may exist but cannot be stated. However, the party making the motion must show what essential facts exist and what steps he or she has taken to discover them.

Here, the gravamen of the claim is that the trustees’ were prohibited by the will’s language from invading principal of the trust for the mother’s benefit because she had ample private resources and so the trustees made a loan to her.

The court finds that the testator did not intend that the trust be depleted despite his mother’s substantial assets. The testator clearly intended that there be a substantial fund left at the trust’s termination. This is inconsistent with the intention to distribute principal to the point of depletion of the trust, no matter what the mother’s resources were. Neither did the testator intend that his mother’s assets be depleted before the trustees could provide for her support out of principal. This construction would give the trustees no discretion to invade the trust corpus for the mother’s support until she became impoverished. It is hard to reconcile this construction with the testator’s lifetime devotion to his mother’s needs. Rather, he intended that the trustees balance the needs of the mother, given her available resources, with the needs of the trust to preserve principal for the beneficiaries. Under this construction, the trustees may consider the beneficiary’s personal resources as one factor in exercising their discretion to invade principal of the trust for support. The trustees must balance the needs of the income beneficiary, considering her resources, with the interests of the remaindermen. The court recognizes that the prior decisions have required a construction that limits the trustee’s discretion. If the gift is one of support, there is no discretion to consider the income beneficiary’s situation. If the gift is of income, there is no discretion to invade principal for her needs until her resources are depleted to the point her support cannot be met by her own resources. Nonetheless, the court believes that there are sound policy reasons for adopting a less restrictive construction.

Here, the court is construing a will. In such an endeavor, particularly where the discretion to invade principal is involved, the courts have recognized citations to prior cases as rarely determinative. Under ordinary circumstances, particular precedents are substantially valueless. As a result the issue continues to plague the courts and probably will do so as long as variations in language occur.

While this construction might be considered a departure from previous cases, the modern trend is to recognize that the testator may have had a number of objectives; to provide for the care of the income beneficiary and to preserve sufficient trust corpus for the remaindermen. The court does not believe that the testator intended to deplete the funds of either beneficiary, the income beneficiary or the remaindermen, at the expense of the other.

Such recognition finds support in the recent revision of the Restatement of Trusts. In the recent revision, the commentators provide that if the trust provisions do not address whether to consider the beneficiary’s personal resources, the general rule of construction is that the trustee is to consider the resources but to retain some discretion in the matter. This is a revision from the Restatement’s previous position that there was a presumption that the trustees could not use principal for the beneficiary’s support if the beneficiary’s resources were sufficient. Such a construction allows the trustees, in exercising their discretion, to take into account if the beneficiary is or may be able to receive public benefits. To the extent consistent with the terms and purposes of the trust, the presumption is that the discretion is to be exercised so as to avoid disqualifying benefits for beneficiaries or to pay for benefits otherwise payable from public assistance.

Based on the record, the court construes the will as requiring the trustees to consider the mother’s resources as one of the factors in determining whether to exercise their discretion and pay the expenses of her health, support and maintenance from the trust. The mother’s personal resources could be a consideration, but not a controlling one, if a modest invasion request was presented. The trustees failed to exercise this discretion, in the mistaken belief that they had no authority to invade principal given the mother’s means. Therefore, the court may order payment.

Here, the mother’s resources were unavailable to her after her son died because no one had authority to act on her behalf and she herself was incapable of managing her affairs. This was the reason they paid her expenses out of trust income, and then principal, until shortly before they expected a guardian to be appointed who could utilize her assets to pay her bills. Then they stopped paying her expenses. It could be argued that there were no personal assets available to the mother to pay for the expenses of her health and support, mandating invasion of the trust. Even if the trustees could consider the lack of assets a temporary phenomenon, their paying the mother’s expenses out of principal until such time as a guardian was appointed was in furtherance of the testator’s intent. The purpose of the trust was to provide for the needs of the parent, while preserving the corpus of the estate for distribution to the beneficiaries of the testator’s choice after the parent’s death. The trust was in no danger of being depleted by the expenditures. The trustees ceased paying the mother’s expenses when it appeared that a guardian would be appointed, shortly before the mother’s death. Even after such expenditures, there are substantial funds to distribute to the remaindermen. The expenditure of over $240,000 from trust principal still leaves substantial assets of over $1,000,000 to distribute to the remaindermen. Invasion of the trust corpus under these circumstances would be a proper exercise of their discretion. When this is combined with the fact that there is no evidence of a loan, and that one of the trustees even denied the existence of such a loan in her petition to be appointed the mother’s guardian, the court is constrained to treat the payments as a distribution of principal, not a loan.

The trustees paid $243,195.13 for the mother’s support. Of this amount $6,776.26 came from trust income, $234,343.87 came from trust principal and $2,075 came from the trustee’s personal funds.

Accordingly, the motion for summary judgment is granted to the extent that the claim for the reimbursement of $234,343.87 is denied. This sum is deemed a distribution of principal according to the provisions of the will.

However, the trustee’s claim for $2,075 is granted. This claim is for monies which the trustees spent from their own funds. This is a valid claim against the estate of the mother.

The respondent’s application for an order determining that the estate of the mother is entitled to the trust income of $6,776.26 is denied. The law is clear that the trustees may pay for the mother’s health, support and care from income and, to the extent income was insufficient, from principal.

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