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ElderLaw News

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Trust Administration Issues

A recent Georgia Court of Appeals case highlights several issues with respect to administering trusts. In McPherson v. McPherson, (2011 Ga. App. LEXIS 8, January 11, 2011), the Georgia Court of Appeals considered a case in which a father established an irrevocable trust in 1990.

The father had four adult children from his first marriage. He appointed his son Scott as trustee; in 1992 Scott consented to the appointment of his three siblings as co-trustees. The trust states that the trustee has the discretion to pay income or principal or both to any of Howard’s children. The distributions did not have to be equal, and the trustee was directed to take "into consideration any other means of support they or any of them may have to the knowledge of the trustee." The trust also provided Howard with the authority to remove any trustee for any reasonable cause and to appoint another trustee, except that he could not appoint himself as trustee.

Howard remarried and had one son (also named Howard) by his second wife. He transferred to the trust his ownership interest in assets, including real estate companies. Eric participated as co-trustee between 1992 and 2005 and received his equal share of distributions from the trust. In June 2004, Howard told Eric that he was considering removing Eric as co-trustee because he was being difficult. Eric had placed his girlfriend on the company payroll, refused to sign legal documents after promising to sign them, and had threatened to sue his siblings. Eric subsequently sued his siblings for the first time, and Howard removed Eric as co-trustee. He replaced Eric with Howard's attorney.

In July 2005, the trustees distributed $300,000 of trust income to each McPherson child. The trustees put $50,000 of Eric’s share in sub-trusts created for the benefit of Eric’s children. The trustees directed that of the remaining $250,000 of Eric’s distribution, $157,000 was to be deducted to account for the expenses the trust incurred in defending the trust in Eric’s first lawsuit. The remaining $93,000 was sent to Eric, and Eric negotiated the check. The trustees distributed a total of $2,240,000 from the trust between August 2005 and December 2008, with Eric’s share equal to that of his siblings, less the $157,000. Eric brought the current suit in July 2006, alleging that the trustees’ withholding of the $157,000, as well as in making the rest of the 2005 through 2008 distributions, violated their fiduciary duties. He also sought an injunction against Howard for removing him as co-trustee. The trial court ruled for the defendants on all counts.

On appeal, Eric argued that “the trustees abused their discretion in making the 2005 through 2008 distributions because they were required to take into account the needs of each of Howard’s children.” The youngest child was a minor still living at home with his father. The court reviewed the provisions of the trust as well as the Georgia Revised Trust Code and common law. The court said that Eric did not provide evidence that the trustees did not consider the beneficiaries' resources in their distribution decisions. The court also said that even if he had provided such evidence, the trustees could exclude the beneficiaries’ resources from consideration for two reasons. First, the trust permitted either equal or unequal distributions to each of Howard’s children, and second, based on the trustees’ knowledge of Howard's intended treatment of the children, with the result being equal per stirpes distributions.

Eric also argued that the trustees’ withholding of the $157,000 amounted to an abuse of discretion. This amount was one-tenth of the total amount distributed to Eric and his children over four years. The court said that the unsuccessful result of the 2004 suit and the instant suit “Provide evidence of these claims’ lack of merit sufficient to justify the trustees’ decision to pass these defense costs on to Eric alone.” The court said that the trustees’ decision was on a “principled basis,” with the principles being Howard’s desire to treat his children equally and preserving the assets of the trust for the use of all of the beneficiaries. The court also held that the trial court did not err with respect to Eric’s claim regarding Howard’s removal of Eric as co-trustee. The court said Eric did not dispute the trustees’ evidence regarding Eric’s behavior as co-trustee, and this evidence gave Howard “reasonable cause” to remove Eric. The court affirmed the judgment of the trial court.

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The Estate Planning & Elder Law Firm, P.C. is an elder law firm. We represent older persons, disabled persons, their families, and their advocates. The practice of elder law includes estate planning, estate and trust administration, powers of attorney, advance medical directives, titling of assets and designations of beneficiaries, guardianships, conservatorships, and public entitlements such as Medicaid, Medicare, Social Security, and SSI, disability planning, income tax planning and preparation, care management, and fiduciary services. For more information about The Estate Planning & Elder Law Firm, P.C., please visit our website at http://www.chroniccareadvocacy.com.

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