By Joseph Ax
NEW YORK, Jan 8 (Reuters) - On her final day as Manhattan
Surrogate, Kristen Booth Glen issued a "clarion call" for
trustees who oversee funds for beneficiaries with mental and
physical disabilities, saying they must use trust money to
improve the beneficiaries' lives.
In ordering two trustees to account for a
multimillion-dollar trust for a severely disabled man referred
to in the ruling as Mark, Glen criticized them for failing to
take affirmative steps to assess Mark's needs and failing to
spend money to improve his life.
"This history, and the legal consequences that flow from it
... should provide a clarion call for all fiduciaries of trusts
whose beneficiaries are known to have disabilities," she said in
a Dec. 31 decision. "It is not sufficient for the trustees to
simply safeguard the Mark Trust's assets; instead, the trustees
have a duty to Mark to inquire into his condition and to apply
trust income to improving it."
Mark, who has spent most of his adult life in institutional
care, was isolated and wholly dependent until a few years ago,
when Glen ordered the trustees to hire a care manager to
evaluate him, she wrote. Since then, he has gone from a
non-communicative, aggressive patient to someone who can manage
daily tasks like rinsing dishes and walking for exercise,
progress both "extraordinary" and "heartwarming," she wrote.
An experienced estate lawyer, who is identified only by his
initials, H.J.P., in the ruling, served as one trustee; Chase
Manhattan Bank served as the other.
Even though the trustees had "absolute discretion" to decide
how to spend the money, Glen said they abused that discretion by
failing to act. As a result, she said, their commissions should
be denied or reduced for the period of time during which they
took no action.
Bernard Krooks, who was not involved in the case and whose
firm Littman Krooks specializes in estate planning, said it was
the first case he could recall in which a judge took it upon
herself to investigate whether a fiduciary was taking sufficient
action. Trustees are now "on notice," he said.
"What's interesting about this case is it imposes an
affirmative obligation. If you're appointed a trustee, you can't
just sit back and pay the bills -- you have an affirmative
obligation to find out where the beneficiary is living, what his
or her needs are, and make payments to improve their life,"
ABUSE OF DISCRETION
Mark's mother died of cancer in 2005, leaving behind
approximately $10 million to be divided into two trusts, one for
Mark and one for his brother, Charles. Before her death, she
placed Mark in a residential care facility.
In 2006, H.J.P. applied to become Mark's guardian under
Article 17-A of the Surrogate's Court Procedure Act.
H.J.P. submitted assessments from healthcare providers that
Mark suffered from autism and severe retardation, engaged in
frequent aggressive behaviors and required assistance in daily
tasks, according to the decision.
An attorney for Mental Hygiene Legal Services, which
represented Mark for the purposes of the application, reported
that effective communication with Mark was impossible and that
he was non-verbal.
At a hearing on the application in 2007, Glen chastised
H.J.P. and Chase for not visiting Mark to ascertain his needs
for themselves or spending any money from his trust in the years
since his mother's death, according to the ruling.
She told them to hire a certified care manager, who
eventually suggested that various items such as electronics and
a playground that would help Mark's behavior be purchased with
In the years since, Glen wrote, Mark has made significant
progress. The case, she said, demonstrates that trustees who
have discretion to decide whether to spend funds must also take
steps to exercise their discretion.
"Courts will intervene not only when the trustee behaves
recklessly, but also when the trustee fails to exercise judgment
altogether," she wrote. "The trustees abused their discretion by
failing to exercise it."
Glen said there was little case law on inactive fiduciaries
but cited a 1931 Appellate Division, Fourth Department,
decision, In re Van Zandt's Will, in which the court ruled that
executors had to approve payments to a needy beneficiary despite
having discretion over spending.
"As in Van Zandt, it was not sufficient for the trustees
merely to prudently invest the trust corpus and to safeguard its
assets," Glen wrote. "Both case law and basic principles of
trust administration and fiduciary obligation require the
trustees to take appropriate steps to keep abreast of Mark's
condition, needs, and quality of life, and to utilize trust
assets for his actual benefit."
Roy Carlin, a lawyer for H.J.P., declined to comment. A
lawyer representing Chase could not be reached. A Chase
spokesman did not have an immediate comment.
The decision ordered the trustees to provide an updated
accounting of Mark's trust fund, as well as the other trust
Glen stepped down on Dec. 31 after reaching the mandatory
retirement age of 70.
The case is Matter of JP Morgan Chase Bank N.A. (Marie H.),
Surrogate Court, New York County, No. 2006-1307.
For H.J.P.: Roy Carlin.
For Chase: Jennifer McCarthy of Davidson, Dawson & Clark.
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