Court of Appeals: Fiduciary's Legal Fees to be Equitably Allocated among Beneficiaries
In Matter of Hyde, 2010 NY Slip Op 05676, decided June 29, 2010, the Court of Appeals held that SCPA 2110 gives Surrogate’s Courts discretion to determine the allocation of attorneys fees paid from the trust or estate to the fiduciary in defending against objections, assuming the fiduciary’s conduct was not deemed so egregious as to require him to be individually responsible for payment.
The facts in Hyde are summarized in detail in a prior post that addressed the Appellate Division’s decision, which has now been modified by the high court. In short, the beneficiaries who decided not to interpose objections to the trustees’ accountings sought an order directing that the trustees’ legal fees in defending against the objections be deducted solely from the objecting beneficiaries’ shares – not from the trust estates generally. That way, the beneficiaries who did not object would not have their inheritance diminished by litigation in which they decided not to participate, and from which they would not benefit.
Although the Surrogate’s Court dismissed all objections to the accountings, it relied on the Court of Appeals’ earlier holding in Matter of Dillon, 28 NY2d 597 (1971), and held that the trustees’ legal fees were to be paid from the trusts generally, and not simply from the objecting beneficiaries’ shares. The Appellate Division affirmed.
Surprisingly, the Court of Appeals did not simply distinguish Dillon from the case before it; the Court reconsidered Dillon. It opined that its decision in Dillon, where it held that SCPA 2110 mandated that the entire estate or trust be charged with the fiduciary’s legal fees, apparently ignored the plain meaning of the statute.
SCPA 2110[2] provides that “ . . . [t]he court may direct payment for [a fiduciary’s legal fees] from the estate generally or from the funds in the hands of the fiduciary belonging to any legatee, devisee, distributee, or person interested.” Noting that legislative intent should be ascertained from the plain meaning of the statute, the Court explained that there exists a presumption against legislative intent for an unjust or unreasonable result. It further stated that its decision in Matter of Ungrich, 201 NY 415 [1911], rather than Dillon, should be used as a guide. Matter of Ungrich, like the Court’s holding in Hyde, focused on fairness. There, it was held that courts should have the discretion to direct whether a fiduciary’s legal fees should be paid by him individually, from the estate generally, or from individual beneficiaries’ shares.
In deferring to the plain meaning of the statute, the Hyde Court directed that Surrogates should assess the sources from which fees are to be paid, considering various factors such as:
(1) whether the objecting beneficiary acted solely in his or her interest or in the common interest of the estate; (2) the possible benefits to individual beneficiaries from the outcome of the underlying proceeding; (3) the extent of an individual beneficiary’s participation in the proceeding; (4) the good or bad faith of the objecting beneficiary; (5) whether there was justifiable doubt regarding the fiduciary’s conduct; (6) the portions of interest in the estate held by the non-objecting beneficiaries relative to the objecting beneficiaries; and (7) the future interests that could be affected by reallocation of fees to individual beneficiaries instead of to the corpus of the estate generally.
According to the Court, none of the above factors are determinative.
In view of the foregoing, the Court of Appeals remanded Hyde to the trial court for an analysis in accordance with its newly established guidelines, and an ultimate determination as to who would bear the cost of the trustees’ legal fees in defending their accountings.
This decision has clearly implemented a process that should result in more equitable allocations of a fiduciary’s legal expenses where applicable. But it may also have the effect of causing potential objectants to weigh the pros and cons of litigation even more carefully, especially when all beneficiaries are not on board with the decision.
A Sop For Cerberus
My post dated December 31, 2008, concerned the trust created by Leona Helmsley, specifically, the two page “mission statement” in which she expressed her desire that the trust funds be used for the care and welfare of dogs and “such other charitable activities as the Trustees shall determine.” My previous post discussed the possibility that the mission statement would not be viewed as a legally binding directive.
While Leona may have been steadfast in her commitment to helping man’s best friend, an article in the New York Times dated February 25, 2009, reports that it is now official -- the mission statement is “all bark, no bite.” In an Order dated February 18, 2009, Surrogate Troy K. Webber (of Surrogate’s Court, New York County) confirmed that the trustees can distribute the money as they deem appropriate. Her determination was grounded in the fact that in addition to expressing Ms. Helmsley’s preference for canine causes, the mission statement also gave the trustees discretion in spending the money.
Leona's Wishes May be Thrown To The Dogs
If you don’t like dog puns, you might want to stop reading now.
Hotelier and real estate magnate Leona Helmsley loved dogs and she made no bones about it. Leona Helmsley left $12 million in her will in trust for her dog, Trouble. And, although Surrogate Renee Roth reduced the trust to $2 million, that amount should still be sufficient for Trouble to live, well, a dog’s life for her remaining years. (After all, Trouble's annual living expenses have been estimated at only $180,000.)
The amount of the Trouble Trust, however, pales in comparison to the full amount of the charitable trust Mrs. Helmsley created -- valued at between $5 billion and $8 billion. In a two page “mission statement,” Mrs. Helmsley expressed her desire that the money be used for the care and welfare of dogs. (Actually, it has been reported that she initially stated that the money should go to poor people and dogs, but she later turned tail on poor people, dropping them from the list.)
But are Mrs. Helmsley’s trustees required to honor her desire? Can they help the poor and still avoid the doghouse? Probably. It is likely that the expression of intent contained in the mission statement will be viewed as mere precatory language, not a legally binding directive. And, besides, the document reportedly gives the trustees discretion in distributing the money. So the trustees likely won’t have their tails between their legs if they decide to throw a bone to some underprivileged humans.
Precatory language contained in a will or other instrument is merely an expression of the testator’s or grantor’s wishes or desires; it is not legally binding on the person to whom the wish or desire is directed (see In re Samuelson, 110 AD2d 183, 187 [2d Dept 1985]). Whether a provision in a will or trust is mandatory or precatory depends on the language of the provision and the intent of the testator or grantor.
As explained in a leading New York treatise:
Normally words of wish or desire do not create an imperative charge nor limit a gift otherwise provided for in the will. In the absence of a clear expression that the testator intended the language to be dispositive, words indicating a wish or desire or request are ordinarily only words of entreaty that leave obedience, exercise, and performance to the sense of duty, gratitude, and discretion of the one to whom they are addressed. Such person can carry out the admonition of the testator or not as he sees fit. The court has no control over such person’s actions and may not substitute its judgment for that of the person to whom such words are addressed.
11 Warren’s Heaton on Surrogate’s Court Practice § 187.02 (2005).
Courts in New York have recognized that although words such as “request,” “wish,” and “desire” are ordinarily construed as precatory, “they will be taken to connote a hope or command depending on whether the author meant by them simply to advise or inform a discretion which is vested in somebody or to control or direct a certain disposition” (Spencer v Childs, 1 NY2d 103, 107, [1956]).
The frequency with which Mrs. Helmsley used action verbs in her will might give her trustees a “leg up” in determining which provisions are mandatory directives and which are not. Cases from jurisdictions other than New York have concluded that when certain provisions of a will use mandatory language and others use traditionally precatory language, the distinction should be given significance in interpreting the will. In other words, where a testator uses a command verb in one part of his will -- for example, “I direct” -- and a permissive verb in another part -- for example, “I request” -- the permissive clause should be considered merely precatory (see Diana v Bentsen, 677 So 2d 1374, 1378 [Fla Dist Ct App 1996]; O’Brien v McCarthy, 285 F 917, 920 [DC Cir 1922]).
It should come as no surprise to anyone that Mrs. Helmsley was not shy about using command verbs. For example, in her will, Mrs. Helmsley “directed” that her mausoleum be acid washed or steam cleaned at least annually. She also “directed” that, upon Trouble’s death, her remains were to be buried next to Mrs. Helmsley’s remains, in her (presumably freshly acid washed or steam cleaned) mausoleum. And, she conditioned bequests to two of her grandchildren upon their visiting their father’s grave at least once a year -- preferably on the anniversary of his death (hint, hint -- “preferably” = precatory language) -- and directed her trustees to install a guest book inside the family mausoleum in order to enforce the visitation requirement.
While it is sometimes difficult to determine what is and what is not a mandatory directive, in the case of Mrs. Helmsley’s trust, it should not be all that difficult for the Trustees to sniff out the precatory language.
