Majority
OPINION OF THE COURT
In this proceeding seeking judicial settlement of accounts of a cotrustee, we conclude that an issue of fact exists concerning whether the cotrustee breached his fiduciary duty to the trust beneficiary. Accordingly, we direct Surrogate’s Court to conduct an evidentiary hearing on this matter.
In April 1992, testator Burton Wallens executed his last will and testament that, among other things, provided for the establishment of a $200,000 testamentary trust for the benefit of his granddaughter, petitioner Maggie Wallens (Maggie), then age 10. The will designated Maggie’s father, respondent Charles Wallens (father), and the testator’s cousin, attorney Richard D. Yellen, as cotrustees. In relevant part, the trust stated that
“the Trustees may distribute to [Maggie] or apply for her sole benefit so much of the income at any time and from time to time such amount of the principal thereof per year of her Trust Estate as the Trustee shall deem advisable for her proper support, education, maintenance and general welfare or may, in the Trustee’s discretion, accumulate so much of the income not so distributed or applied. Any income so accumulated may be invested or reinvested or may thereafter be distributed to aid [Maggie] or applied for her benefit.”
The trust further provided that it would terminate when Mag
In March 1995, after the execution of the testator’s will, but prior to his death, Maggie’s mother and father divorced. At that time, Maggie was 13V2 years old and attending a private school. A year earlier, the parents had entered into a separation agreement in which father agreed to pay mother child support and certain education and health care costs for Maggie, including the cost of the private school education. The 1995 judgment of divorce, which incorporated, but did not merge, the provisions of the separation agreement, required father to pay, among other things, (1) “all educational expenses for [Maggie] at Elm-wood Franklin School, Nichols and/or any other private day school the child shall attend, and at college and/or university” and (2) “any and all uninsured medical and dental expenses for the child.”
In March 1997, the testator died. The will was admitted to probate and father was appointed cotrustee of the testamentary trust, together with Richard Yellen (who later resigned,-in 2002). At this time, father, as cotrustee, began distributing payments out of the trust for Maggie’s private school education expenses. These payments were authorized by cotrustee Yellen. After Maggie began living with her father, he petitioned for a reduction/ elimination of his child support obligations. In August 2000, Supreme Court issued an order relieving father of his child support obligations and directing that “the trust established by the [testator] for the benefit of the child shall be used to pay for normal and customary college costs and expenses.”
In April 2003, pursuant to a petition for an accounting filed by Maggie, Surrogate’s Court directed father to judicially settle his account as cotrustee. Father filed his account and Maggie objected, as pertinent to this appeal, to father’s payment of her secondary school education and certain health care expenses from the trust. In her objections, Maggie alleged that the 1995 judgment of divorce required father to personally pay for certain educational and medical expenses, rather than use trust funds that would be distributed to her on her 30th birthday.
In March 2005, Surrogate’s Court directed an evidentiary hearing, but a review of the record reveals that no such hearing was held. The court nevertheless sustained Maggie’s objections to the use of trust funds for her private secondary school education, health care expenses and reimbursements for her personal allowance and ordered repayment to the trust. It rejected,
On appeal, the Appellate Division modified the order, dismissed the objections in their entirety, and remitted the matter to Surrogate’s Court for further proceedings consistent with its decision. The Appellate Division concluded that “[father] did not engage in self-dealing, in breach of his fiduciary obligations to [Maggie] by his use of trust funds in precisely the manner authorized by the testator in the will provision establishing the trust” (Matter of Wallens, 30 AD3d 962 , 965 [4th Dept 2006]). Upon remittal, Surrogate’s Court approved the account. For the reasons that follow, we conclude that a remittal is, once again, necessary for Surrogate’s Court to conduct a hearing as to whether father carried out his fiduciary duty as a cotrustee to act, in good faith, in his daughter’s interests.
To determine whether a trustee’s distribution of trust assets was proper, the settlor’s intent controls (see Matter of Chase Manhattan Bank, 6 NY3d 456 , 460 [2006]). “[T]he trust instrument is to be construed as written and the settlor’s intention determined solely from the unambiguous language of the instrument itself’ (id., quoting Mercury Bay Boating Club v San Diego Yacht Club, 76 NY2d 256 , 267 [1990]).
It is also well settled that “a fiduciary owes a duty of undivided and undiluted loyalty to those whose interests the fiduciary is to protect” (Birnbaum v Birnbaum, 73 NY2d 461 , 466 [1989], citing Meinhard v Salmon, 249 NY 458 , 463-464 [1928] [other citation omitted]). As Chief Judge Cardozo famously stated, “[a] trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior” (Meinhard, 249 NY at 464 ). “This is a sensitive and ‘inflexible’ rule of fidelity, barring not only blatant self-dealing, but also requiring avoidance of situations in which a fiduciary’s personal interest possibly conflicts with the interest of those owed a fiduciary duty” (Birnbaum, 73 NY2d at 466 [citation omitted]). We have recognized that a “trustee is under a duty to the beneficiary to administer the trust solely in the interest of the beneficiary” (Matter of Heller, 6 NY3d 649 , 655 [2006], quoting Restatement [Second] of Trusts § 170 [1]; see also Mercury Bay Boating Club, 76 NY2d at 270 [“(T)he trustee must administer the trust for the benefit of the beneficiaries and cannot compete with the beneficiaries for the benefits of the trust corpus”]).
Accordingly, the judgment of Surrogate’s Court appealed from and order of the Appellate Division brought up for review should be reversed, without costs, and the matter remitted to Surrogate’s Court for further proceedings in accordance with the opinion herein.
Chief Judge Kaye and Judges Ciparick, Graffeo, Read, Smith, Pigott and Jones concur in per curiam opinion.
Judgment of Surrogate’s Court appealed from and order of the Appellate Division brought up for review reversed, etc.
Cases cited
- In re the Accounting of Bankers Trust Co. of Rochester 62 NY2d 821 p. 118
- In re the Accounting of Central Hanover Bank & Trust Co. 203 Misc 749 p. 118
- In re the Accounting of the Manufacturers National Bank of Troy 269 NY 305 p. 118, p. 119
- In re the Construction of the Will of Flyer 23 NY2d 579 p. 118
- Suesens v. Daiker 117 App Div 668 p. 118
- In re the Estate of De Planche 65 Misc 2d 501 p. 118, p. 119
- Meinhard v. Salmon 249 NY 458 at 463-464 p. 118, p. 119, p. 122
- Parker v. Rogerson 33 AD2d 284 p. 118, p. 119, p. 120
- City Bank Farmers Trust Co. v. Cannon 291 NY 125 p. 118
- In re the People 303 NY 423 p. 118
- In re the Estate of Rothko 71 Misc 2d 320 p. 118, p. 120
- Rogers v. Rogers 111 NY 228 p. 118, p. 120
- In re the Estate of Seidman 58 AD2d 72 p. 118, p. 120
- In re Eberhart 171 Misc 2d 939 p. 118, p. 119, p. 120
- O 'Hayer v. Honore de St. Aubin 30 AD2d 419 p. 119
- Dutton v. Willner 52 NY 312 p. 119
- Munson v. Syracuse, Geneva & Corning Railroad 103 NY 58 p. 119
- In re the Accounting of Hammer 16 AD2d 111 p. 119
- In re the Accounting of Hammer 12 NY2d 893 p. 119
- Industrial & General Trust, Ltd. v. Tod 180 NY 215 p. 119
- In re the Estate of Rothko 84 Misc 2d 830 p. 119
- Brill v. Wright 112 NY 129 p. 119
- In re the Estate of Revson 86 AD2d 872 p. 119
- In re the Estate of Kummer 93 AD2d 135 p. 119
- George W. Collins, Inc. v. Olsker-McLain Industries, Inc. 22 AD2d 485 p. 119
- Martin v. City of Cohoes 37 NY2d 162 p. 119
- McGrath v. Gold 36 NY2d 406 p. 119
- O'Brien v. Lehigh Valley Railroad 177 Misc 25 p. 119
- Board of Managers of the Parkchester North Condominium v. Quiles 234 AD2d 130 p. 119
- Kamp v. Kamp 59 NY 212 p. 119
- Roe v. Roe 49 Misc 2d 1070 p. 119
- Schilling v. Malark 13 AD3d 1153 p. 119
- Delgado v. Sunderland 290 AD2d 440 p. 119
- Stackpole v. Scott 9 Misc 2d 922 p. 119
- Alice C. v. Bernard G. C. 193 AD2d 97 p. 119
- People v. Roche 45 NY2d 78 p. 119
- Rumsey v. New York & New England Railroad 133 NY 79 p. 119
- Lewis v. Upton 90 App Div 453 p. 119
- Estate of Herz v. American Parkinsons Disease Ass'n 85 NY2d 715 p. 119
- In re the Estate of Walker 64 NY2d 354 p. 119
- In re the Estate Cord 58 NY2d 539 p. 119
- In re the Accounting of Read 60 AD2d 32 p. 119
- In re the Accounting of Read 46 NY2d 947 p. 119
- In re the Estate of Pepper 307 NY 242 p. 119
- In re the Estate of Jones 38 NY2d 189 p. 119
- In re the Accounting of Buechner 226 NY 440 p. 119
- In re the Will of Pelton 190 Misc 624 p. 119
- In re the Estate of Schnare 191 AD2d 859 p. 119
- In re the Estate of Howe 4 Misc 2d 960 p. 120
- In re the Estate of Warfield 90 Misc 2d 899 p. 120
- Kagen v. Kagen 21 NY2d 532 p. 120
- Messinger v. Messinger 16 AD3d 562 p. 120
- Buffalo Downtown Garage, Inc. v. Winfield Associates, Inc. 42 AD2d 820 p. 120
- In re the Estate of Haas 33 AD2d 1 p. 120
- In re the Estate of McCoy 100 Misc 2d 301 p. 120
- In re the Judicial Settlement of the Estate of Joost 50 Misc 78 at 126 p. 120
- Bown v. Ramsdell 139 Misc 360 p. 120
- In re the Estate of Wallens 30 AD3d 962 at 965 p. 122
- In re the Judicial Settlement of the Account of the Chase Manhattan Bank 6 NY3d 456 at 460 p. 122
- Mercury Bay Boating Club Inc. v. San Diego Yacht Club 76 NY2d 256 at 267 p. 122
- Birnbaum v. Birnbaum 73 NY2d 461 at 466 p. 122
- In re Heller 6 NY3d 649 at 655 p. 122
- In re the Estate of Bruches 67 AD2d 456 p. 123