Trusts and Estates law is often seen as a dry subject, even among attorneys. I find it fascinating, however. The stories and psychologies of the clients and litigants are at the center of every case, and some of the most contentious lawsuits are brought (or not) because of family dynamics. Matter of Wallens (9 N.Y.3d 117, 2007) is a great example of this, and is one of those stories that makes me think Surrogate’s Court should be able to order family counseling.
Maggie’s parents were divorced in 1995 when Maggie was 13, and Maggie went to live with Mom. The divorce decree required Dad to pay for Maggie’s expensive private high school.
In 1997, Grandpa died and left $200,000 to Maggie in Trust, to be used for her “support, education, maintenance and general welfare.” Grandpa had named Dad the Trustee. As Trustee, Dad used Trust money to pay for Maggie’s “education” – the tuition at her expensive private high school.
Maggie went to live with Dad in 2000, and the Court relieved Dad of his obligation to pay child support. When Maggie went to college, Surrogate’s Court approved the use of Grandpa’s Trust money to pay for her college tuition.
In 2003, when Maggie turned 21, she asked Dad for a formal accounting of her Trust funds. Maggie refused to approve the use of her Trust money to pay for her high school tuition, claiming Dad was already required to pay that expense out of his personal funds. The case has been in litigation ever since, and has now reached the Court of Appeals.
Initially, Surrogate’s Court agreed with Maggie and ordered Dad to repay the high school tuition money to the Trust, saying that Dad’s independent obligation to pay for Maggie’s education trumped the language of the Trust. When Dad appealed, the Appellate Division reversed, saying the Trust had been set up to pay for Maggie’s education, which was exactly what it had done. Maggie then appealed the decision of the Appellate Division, and the Court of Appeals again reversed.
The expenditure of Trust money on Maggie’s high school tuition was explicitly authorized by the Trust language. “But”, says the Court of Appeals, “even when the trust instrument vests the trustee with broad discretion to make decisions regarding the distribution of trust funds, a trustee is still required to act reasonably and in good faith in attempting to carry out the terms of the trust.” In other words, just because Dad could use Trust money to pay Maggie’s educational expenses, it didn’t mean he should have.
The Court of Appeals goes on to say that Dad should have obtained Surrogate’s Court approval of this expenditure, just like he did for the college expenses, and remands the case to Surrogate’s Court to decide whether Dad acted in good faith.
This case reminds practitioners to be thorough in extracting pertinent information from their clients before giving advice about Trust distributions. It also shows that the parent-child relationship that is strained during a divorce can come back to bite you.