Probate & Trust Law Section Conference Manual ... - Minnesota CLE

H. Trust Accounting Disputes
1. Church of the Little Flower v. U.S. Bank, 979 N.E.2d 106 (Ill. App. Ct.
2012). The fact that the trustee collected more fees than two of the
three charitable beneficiaries received in distributions was not an
unforeseen circumstance authorizing termination of the trust
pursuant to the doctrine of equitable deviation. The decedent created a
trust, designating the First National Bank of Springfield (now U.S. Bank)
as trustee. Upon the decedent’s death, if the remaining trust assets
exceeded $750,000, the excess was to be distributed free of trust to three
charities, and the balance would be held in trust for the decedent’s sistersin-law.
Upon the death of the last sister-in-law to die, if the remaining
trust assets exceeded $500,000, the trust agreement provided for quarterly
payment of trust income to the three charitable beneficiaries in 20/20/60
shares. In order to lessen the trust’s tax liability, however, the trust was
amended to comply with the private foundation rules to provide for annual
distributions of 5% of the trust assets (as opposed to its annual income).
As amended, the trustee’s fees (based on a percentage of the trust) and
administrative expenses were to be taken out of the 5% distribution before
the balance was paid to the beneficiaries. The value of the trust never fell
below the $500,000. One of the charitable beneficiaries petitioned the
court for reformation of a trust. On appeal, the court held that the doctrine
of equitable deviation did not apply, and thus reformation of the trust was
improper; rather, equitable deviation is proper only where trust is so
inefficient that its continuation would necessarily interfere with the trust’s
purpose.
2. In the Matter of the Examination of the Annual Inventory and
Account of John Martin, 957 N.Y.S.2d 608 (N.Y. Sup. Ct. 2012). The
letter-agreement between trustees and the county department of social
services that reflected a budget for the trust did not foreclose the
court from independently reviewing whether the trustees’
expenditures were proper and permissible. The supplemental needs
trust agreement provided that the trustees would be entitled to receive the
“statutory compensation” for services rendered as provided by state law.
The “letter-agreement” between the trustees and the county department of
social services provided that if 3 or more trustees were acting, “two full
commissions” must be apportioned among the trustees. Three individuals
were acting as trustees of the trust, and John and Betty Martin were to split
one full commission and Nancy Burner was to receive one full
commission. In addition, the trustees signed a “letter-agreement” as to the
trust’s budget. The issue before the court was the court’s role in
overseeing the trustees’ administration of a supplemental needs trust
established in accordance with state law. The court held that the letteragreement
does not foreclose the court from independently reviewing
whether or not the trustees’ expenditures were proper and permissible.
51