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In re Trust Created by Hyde

June 29, 2010

IN THE MATTER OF A TRUST CREATED BY CHARLOTTE P. HYDE, DECEASED.
GLENS FALLS NATIONAL BANK AND TRUST COMPANY ET AL., &C., RESPONDENTS;
CAROL J. WHITNEY, AS EXECUTOR OF THE ESTATE OF LOUIS H. WHITNEY, DECEASED, ET AL., RESPONDENTS;
MARY W. RENZ, ET AL., APPELLANTS. (AND ANOTHER PROCEEDING.)



The opinion of the court was delivered by: Lippman, Chief Judge

This opinion is uncorrected and subject to revision before publication in the New York Reports.

We hold that Surrogate's Court Procedure Act (SCPA) § 2110 grants the trial court discretion to allocate responsibility for payment of a fiduciary's attorney's fees for which the estate is obligated to pay -- either from the estate as a whole or from shares of individual estate beneficiaries. In so doing, we overrule our holding in Matter of Dillon (28 NY2d 597 [1971]).

We consequently modify the order of the Appellate Division affirming the order of the Surrogate and remit to the Surrogate's Court for de novo consideration of allocation of the trustees' counsel fees.

I.

This dispute developed out of a joint trial concerning intermediate accountings of two trusts. The first proceeding involved a testamentary trust created by Charlotte P. Hyde (Hyde Trust). At the outset of the trust accountings in 2001, Hyde's grandchildren, Mary Renz and her brother Louis H. Whitney, were the two life income beneficiaries of two equal shares of the Hyde Trust. Mary Renz's three children (Renz Children) and Louis H. Whitney's two children (Whitney Children) each possessed a presumptive one-fifth remainder interest in both the Mary Renz Share and the Louis H. Whitney Share that would vest upon the death of Mary Renz and Louis H. Whitney, respectively. Upon Louis H. Whitney's death in January 2008,*fn1 the Renz Children and the Whitney Children each received a one-fifth interest in the principal of the Hyde Trust.

The second proceeding concerned an inter vivos trust created by Nell Pruyn Cunningham (Cunningham Trust). The Cunningham trust term is measured by the lives of two of Cunningham's grandnephews. In 2003, when the Cunningham accounting commenced, Mary Renz and Louis H. Whitney were each income beneficiaries and presumptive remaindermen of undivided one-sixth shares of the Cunningham Trust. The Mary Renz Share and the Louis H. Whitney Share were to pass to their living issue per stirpes upon the death of Mary Renz or Louis H. Whitney.

Thus, upon Louis H. Whitney's death, the two Whitney children became the income beneficiaries and presumptive remaindermen of their father's undivided one-sixth share of the Cunningham Trust.

The two proceedings arose out of objections made to the Hyde Trustees' accountings by Louis H. Whitney and the Whitney Children (the Whitneys) and objections made to the Cunningham Trustees' accountings by Louis H. Whitney (and carried on by the Whitney Children and Louis H. Whitney's executor after his death). The Whitneys sought to deny the Hyde Trustees and the Cunningham Trustees their commissions and surcharge them on the basis of their alleged failure to diversify the Trusts' assets, among other objections.

Mary Renz and the Renz Children (the Renzes) did not participate in the Whitneys' objections to trustee conduct in either the Hyde or the Cunningham Trust accounting proceedings. Neither did any of the other income beneficiaries or remaindermen of the Cunningham Trust, aside from Louis H. Whitney (and later his executor and the Whitney Children), interpose objections to the accounting of that Trust.

In advance of the joint trial on the Whitneys' objections, the Renzes filed an Acknowledgment, attesting that they were non-objectors; and thus, under the Pro Tanto Rule,*fn2 they would not be entitled to share in any surcharges that might be imposed on the Hyde or Cunningham Trustees. The Renzes simultaneously filed a cross motion seeking to require that all future trustees' counsel fees be deducted exclusively from the objecting beneficiaries' shares of the Hyde and Cunningham Trust assets. The Renzes' cross motion also sought to reserve the right to seek reallocation of and reimbursement of the Hyde Trust for all counsel fees that had already been advanced from the Renzes' interests in the Hyde Trust.

Surrogate's Court dismissed all of the Whitneys' objections. As to the question of attorney's fees, the court acknowledged that the Pro Tanto Rule had applied, which meant that the non-objecting beneficiaries had not stood to gain from the success the Whitneys' objections might have had. Yet, the court stated it was constrained by Dillon to treat the trusts as single entities for purposes of trustee indemnification. Thus, regardless of potential unfairness to the Renz beneficiaries who abstained from the costly litigation, the Surrogate's Court ordered that the trustees' counsel fees be disbursed from the corpus of each trust generally. As a result, the Renzes' shares of the Hyde and Cunningham Trusts were held responsible for more than $700,000 in attorney's fees incurred by the trustees.

The Appellate Division affirmed, citing the construction of SCPA 2110 articulated in Dillon and finding no basis to distinguish this case (61 AD3d 1018 [3d Dept 2009]).

II.

SCPA 2110 (2) provides: "The court may direct payment [for legal counsel rendered a fiduciary in connection with the performance of his or her fiduciary duties] from the estate generally or from the funds in the hands of the fiduciary belonging ...


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