Opinion
C.A. No. 18139-NC
Date Submitted: January 2, 2002
Date Decided: May 24, 2002
Stephen E. Herrmann and Steven J. Fineman, Esquires of RICHARDS LAYTON FINGER, Wilmington, Delaware; Attorneys for Petitioner.
John A Herdeg, Esquire of HERDEG DU PONT AND DALLE PAZZE, LLP, Wilmington, Delaware; Attorney for Respondent, Christopher A. Sailer.
James S. Green and R. Karl Hill, Esquires of SEITZ VAN OGTROP GREEN, P.A., Wilmington, Delaware; Attorneys for Respondent, John Sailer, Jr.
MEMORANDUM OPINION
Delaware Trust Capital Management ("DTCM"), as the successor corporate trustee under a trust (the "Trust") established in July 1952 by Marion C. McKinley (the "Settlor" or "Ms. McKinley"), has brought this action for instructions. DTCM, as the petitioner, seeks an order: (i) permitting DTCM to resign as corporate trustee; (ii) declaring that DTCM acted properly in seeking to continue rather than terminate the Trust; (iii) removing John J. Sailer, Jr. as a trustee; and (iv) determining whether John and Christopher Sailer (the "Sailers"), in their capacity as trustees, may act in their own personal interest by voting to terminate the Trust and distribute the principal to themselves.
The respondents, John and Christopher Sailer, counterclaimed for an order (i) terminating the Trust, (ii) determining that DTCM must reimburse the Trust for certain legal fees, and (iii) ordering DTCM to pay the Sailers' expenses in litigating this action.
This is the Opinion of the Court, after trial, on the merits of these claims. For the reasons next discussed, I conclude that (i) the Sailers' counterclaim for an order terminating the Trust will be granted, (ii) in all other respects their counterclaim will be denied, and that (iii) DTCM's petition and claims will be denied in their entirety.
I. FACTS
What follows is a recitation of the facts as found by the Court. Additional facts, where relevant, are included in the Analysis section of this Opinion.
A. The Parties And The Formation Of The Trust
The Settlor, Marion C. McKinley, executed an Irrevocable Trust Agreement on July 15, 1952 (the "Trust Agreement"). The Trust was funded with assets that she inherited from her grandfather, Samuel A. Crozer. The original individual trustees were Allaire C. DuPont (Ms. McKinley's sister), and Norman H. Baumm, and the corporate trustee was Wilmington Trust Company. DTCM later replaced Wilmington Trust as the corporate trustee. In 1982, the individual trustees, Mr. Baumm and Ms. DuPont, resigned and were replaced by the two respondents, John and Christopher Sailer, who are Ms. McKinley's sons. The Sailers have served as the individual trustees of the Trust since 1982.
Delaware Trust Company was substituted as trustee, and then transferred the Trust assets to DTCM, a Delaware Trust subsidiary.
B. The Key Provisions Of The Trust Agreement
The Trust Agreement provides that the Settlor (Ms. McKinley) would receive the Trust's net income for her life. During the Settlor's life the trustees were authorized to distribute to the Settlor's children, with the Settlor's consent, any portion or amount of the principal. No such distribution of principal has ever been made.
Trust Agreement, Art. 1, § 2.
The Trust Agreement further provides that if the Settlor died with issue surviving her, the Trust principal would be divided into equal parts for the Settlor's children and for the issue of any children of the Settlor who were deceased at that time. The net income from each separate part would be paid "to each such child or the issue of any deceased child in equal shares per stirpes, whether such deceased child dies before or after the Settlor's death."
Id. at Art. 1, § 3(a).
The Trust Agreement directs that when each of the Settlor's children reaches the age of 28, that child becomes eligible to receive all or any part of the Trust principal held for the benefit of that child, in the trustees' "sole and absolute discretion." If, however, the entire Trust principal set aside for that child is not distributed to the child before he or she reaches the age of 42, then there can be no distribution of the remaining ( i.e., undistributed) principal until 21 years after the death of the last survivor of the Settlor living at the time the Trust was executed. But, if the Settlor dies after any of her children reach 41, "the time within which the Trustees may make distributions of principal [shall be] extended for one full year after the Settlor's death." In other words, if any of the Settlor's children are over 41 when the Settlor dies, the trustees have a one-year window in which to distribute the principal to the children who are over 41.
Id. at Art 1, § 3(d).
Id.
The Settlor died in December 1999. Because during the Settlor's lifetime both of her children had reached the age of 41, under the Trust Agreement any distribution of principal to those children had to occur within one year of her death, i.e., by December 2000. As the Trust Agreement directed, at Ms. McKinley's death the Trust was divided into equal parts for the benefit of each of her children, John and Christopher Sailer. Solely for ease of reference, John and Christopher's separate portions of the Trust are treated and referred to in this Opinion as if they were a single trust.
Because this action would not be resolved before December 2000 ( i.e., before the time when no further principal could be distributed to the Sailers), the Court ordered that the Trust principal be distributed to, and held in, custodial accounts until the resolution of this litigation. Order dated November 20, 2000.
Trust Agreement, Art. 1, § 3.
C. DTCM's Attempted Removal Of John Sailer As A Trustee
By way of background, during the 1990s John Sailer became the trustee of an unrelated trust created for Agnes Rick. An action was brought in this Court, grounded in claims of fraud and other wrongdoing, to remove John as trustee of the Rick trust. In 1995, this Court found that John had breached his duty of loyalty to Ms. Rick, directed him to make restitution, and ordered that he be removed as trustee of the Rick trust. John was later successfully prosecuted by the State of Delaware for his activities relating to the Rick trust.
In re Rick, 1994 WL 148268 (Del.Ch.), aff'd, 659 A.2d 228 (Del. 1995).
PX 4 (Superior Court Sentencing Order for John Sailer, February 29, 1996); see also State v. Sailer, 1996 WL 111122 (Del.Super.) (upholding John Sailer's conviction).
After John's criminal conviction, DTCM lost faith in John's ability to administer his mother's Trust honestly and competently, and asked John to resign as a trustee. So strongly did DTCM feel about this that in 1996 it informed Christopher Sailer, Ms. McKinley (who was still alive), and John Sailer that unless John resigned, DTCM would ask this Court to remove John as a trustee, and if that John was not removed, DTCM would resign.
Under 12 Del. C. § 3407, this Court may remove a trustee "on its own initiative or on petition of a trustor, co-trustee, or beneficiary if: . . . The Court, having due regard for the expressed intention of the trustor and the best interests of the beneficiaries determines that notwithstanding the absence of a breach of trust, there exists: . . . Unfitness, unwillingness or inability of the trustee to administer the trust properly."
Initially Christopher Sailer agreed that his brother should resign. In fact, Christopher Sailer wrote a letter to his brother outlining Christopher's separate reasons why (in Christopher's view) John should do so. At one point even Ms. McKinley, the Settlor, expressed to DTCM her view that John should resign.
PX 8, 12. Christopher Sailer eventually changed his position respecting John's resignation after consulting with counsel.
Giacoletto Testimony, Trial Tr. at 46-47. John had not spoken to his mother since the early 1980s, and she had lost confidence in him because of the fraud he had committed upon Ms. Rick.
John, too, initially agreed that he should resign, and asked that his daughter be made the successor trustee. But, John conditioned his resignation upon the prior resolution of certain related tax issues. As a result, at DTCM's request, (and with John and Christopher Sailer's consent), Richards, Layton Finger was retained by the Trust to resolve any resignation-related issues. Later, however, John balked at resigning, and began erecting roadblocks to his resignation. At that point DTCM restated to Christopher Sailer and Ms. McKinley its position that it would have no choice except to resign unless John was removed as a trustee.
Id. at 38-40.
PX 18, 19 (written consent of John and Christopher Sailer to retain Richards).
DTCM Op. Br. at 19; Giacoletto Testimony, Trial Tr. at 41; PX 25 (letter from John Sailer listing "additional concerns about the structure of [the Settlor's] trust" that needed to be addressed before he would resign).
John Sailer never did resign, and when he began throwing up roadblocks, DTCM retained the Richards firm to advise it in connection with effecting John's removal. For its services the Richards firm charged $30,000 which was paid from the Trust (the "Richards legal fee"). That was done at a time when both Christopher Sailer and Ms. McKinley were in agreement that John should resign. When Ms. McKinley died in December 1999, the trustees began discussing the possibility of terminating the Trust. Those discussions temporarily mooted the issue of John's removal, until DTCM once again raised that issue in this proceeding.
Giacoletto Testimony, Trial Tr. at 48-49.
D. The Potential Estate Tax Liability Upon The Termination Of The Trust
Under the Trust Agreement, the trustees had a one-year window after the Settlor's death to elect to terminate the Trust and distribute the assets to the beneficiaries, John and Christopher Sailer. If the trustees did not make that election within that one-year window, the Trust would continue until 21 years after the death of the Settlor's last surviving child who was alive at the time the Trust Agreement was executed.
Terminating the Trust could lead to a potentially large tax liability for the trustees, however, because of the possibility that the Trust principal might be included in, and therefore taxed as part of, the Settlor's estate. Under the United States Internal Revenue Code, DTCM, as a trustee, could become personally liable for any federal estate tax attributed to the Trust, if the Trust assets were distributed without the federal estate tax being paid or otherwise provided for.
After the Settlor died, the Sailers wanted to terminate the Trust. DTCM agreed to cast its vote with John and Christopher Sailer to accomplish that, provided that certain conditions were satisfied. DTCM's two principal conditions were that: (i) 55% of the total Trust assets be retained in reserve to pay any potential tax liability, with John and Christopher Sailer agreeing to pay any unpaid taxes if the reserved amount was not sufficient, and (ii) the Sailers unconditionally release DTCM from all claims of liability arising out of DTCM's administration of the Trust. If the Sailers did not agree to those conditions (and as a consequence if the Trust was not terminated), DTCM asked that it be allowed to resign as a trustee.
Although it is now disputed, the record shows that the Sailers agreed to DTCM's first condition — to hold back 55% of the Trust assets to fund any potential tax liability. The Sailers would not agree, however, to release DTCM from liability with respect to its administration of the Trust. What the Sailers objected to specifically, was that the Trust had paid the $30,000 Richards legal fee for the Richards firm's services relating to the attempted removal of John Sailer as a trustee. Nor would the Sailers consent to allow DTCM to resign as a trustee. Because its conditions were not satisfied, DTCM contends in this proceeding that the Trust should not be terminated.
II. THE ISSUES AND CONTENTIONS
The critical question presented is whether the Court should order that the Trust be terminated, and that the principal be distributed to its beneficiaries, John and Christopher Sailer. DTCM argues that termination of the Trust requires unanimous consent of all three trustees — John, Christopher and DTCM, and that that will not occur because DTCM will not consent to terminate the Trust.
Alternatively, DTCM argues that even if the Court finds that only the vote of a majority of the trustees is required to terminate the Trust (as the Sailers contend), the Sailers' individual votes to distribute the Trust assets cannot be counted. The reason, DTCM urges, is that the vote of the Sailers as trustees would be disqualified, because the Sailers would be exercising their power as fiduciaries to distribute funds to themselves as individual Trust beneficiaries. Therefore, DTCM concludes that its (DTCM's) approving vote is still required to create the requisite majority vote to terminate the Trust.
If the Court agrees with DTCM and determines that DTCM's approving vote is needed, then the Trust will not terminate, because DTCM will not grant its approval. In that event, the Trust will continue, and DTCM asks the Court to remove John Sailer as a trustee, on the ground that John Sailer's breaches of fiduciary duty while acting as a trustee for Agnes Rick demonstrate his unfitness to serve as a trustee of his mother's Trust. Alternatively, DTCM argues that if John Sailer is not removed as a trustee, then DTCM should be permitted to resign.
The Sailers contend that the Court should order the Trust to be terminated and the principal to be distributed to them. The Sailers claim that DTCM's refusal to allow the principal to be distributed to themselves, as the Trust Agreement expressly contemplates, is arbitrary and an abuse of DTCM's powers as a trustee.
The Sailers have also interposed a counterclaim against DTCM to recover the $30,000 Richards legal fee. The Sailers claim that the Richards legal fee was not a proper Trust expense, because DTCM's sole purpose in seeking to remove John was to limit its own liability and not to benefit the Trust. The Sailers also claim that DTCM commenced this proceeding in bad faith, and must therefore be ordered to compensate the Sailers for the costs they incurred in defending this litigation.
For the reasons next discussed, I determine that DTCM's articulated reasons for opposing the termination of the Trust presently either lack merit or have become moot. As a consequence, DTCM's continued refusal to terminate the Trust is no longer reasonable, and the Trust should therefore be terminated. The Court also concludes that the Sailers' claim to recover the Richards legal fee lacks merit, as does the Sailers' claim for an award of the attorney's fees they incurred in defending this litigation. Because the Trust will be terminated, the Court does not reach the issue of whether John Sailer should be removed as a trustee.
The Sailers also argue that DTCM's legal fees for this proceeding should not be paid from the Trust assets. DTCM, however, has not requested that its litigation costs be paid from the Trust assets. Accordingly, the Court need not address that issue.
III. ANALYSIS
A. Whether The Legal Fees Incurred In Attempting To Remove John Sailer As A Trustee Were A Proper Trust ExpenseI first consider the claim to recover the Richards legal fee. As earlier noted, DTCM incurred $30,000 of legal expenses, which were paid from the Trust assets in an effort to remove John Sailer as a trustee. The Sailers claim that the Richards legal fee was an improper Trust expense, because the Trust received no benefit from DTCM's efforts to remove John as a trustee, and because DTCM's motive in attempting to remove John was solely to "eliminate a potential corporate liability that it feared it had in acting [as a co-trustee] with John." The Sailers urge that because DTCM acted solely for its own personal benefit, it must bear the cost of the Richards legal fee and must restore that fee to the Trust.
C. Sailer Ans. Br. at 18.
Under Delaware law the payment of attorney's fees out of trust corpus is generally proper in two circumstances: (i) where the attorney's services are necessary for the proper administration of the trust, or (ii) where the services otherwise result in a benefit to the trust. In either circumstance the trustee may charge the trust estate with the expenses of litigation, even if the litigation is unsuccessful, so long as the trustee is not at fault in causing the litigation. I find in this case that the attorney's fees incurred to remove John Sailer as a trustee resulted from actions intended to benefit the Trust. The Richards legal fee was, therefore, properly paid from the Trust assets.
Bankers Trust Co. v. Duffy, 295 A.2d 725, 726 (Del. 1972). The Trust Agreement provides that a trustee has the power to, among other things, "defend and maintain suits at law or in equity or before any other bodies or tribunals affecting the trust or its property; . . . to retain counsel in and about the administration of the trust, as well as for purposes of instituting or bringing actions on behalf of the trust, and to pay such counsel reasonable fees for services rendered." Trust Agreement, Art. 2, § h.
William F. Fratcher, Scott on Trusts § 188.4 (4th ed. 1987).
The history ( see pp. 5-7 supra) makes it clear that at one point all parties were in agreement that John Sailer should resign as a trustee — a fact that further supports the Court's finding that while DTCM was the driving force in advocating John's removal, DTCM's conduct was consistent with the behavior of a responsible fiduciary. It was reasonable for DTCM, a trustee, to take the position that the Trust and its assets should not be placed at unnecessary risk by having a convicted felon serve as a trustee.
Moreover, I am not persuaded by the Sailers' claim that DTCM's attempted removal of John Sailer "was motivated solely by its desire to insulate itself from association with John," to enable DTCM to limit its potential liability and embarrassment over serving as a trustee with John. To be sure, there is evidence that DTCM expressed concerns about its possibly being held liable for potential fiduciary breaches by John as a trustee. But that evidence falls far short of establishing that DTCM was acting solely in its self-interest and without any motive to benefit the Trust. To hold that any expenditure of trust funds by a trustee to limit its own potential liability can never be intended to benefit the trust, would create a rule whose sweep is far too broad. A trustee's motive to limit its individual risk of liability and a motive to benefit the trust are not mutually exclusive. In certain cases the two motives will coincide. This is one of those cases. Even if it is assumed that DTCM would benefit personally from John's removal as a trustee (by limiting DTCM's exposure to liability), the benefit of that removal — eliminating an untrustworthy fiduciary — would also inure to the Trust. Because the Richards legal fee was incurred to benefit both the Trust and DTCM, that fee was an expense properly payable from the Trust assets.
J. Sailer Ans. Br. at 35 (emphasis in original).
See, e.g., PX 9 (letter from DTCM to John Sailer stating that "[w]e feel very strongly that to allow a convicted felon to continue to serve as a trustee places us in jeopardy") (emphasis added); PX 20 (letter from DTCM stating that "[o]ur reasons [for seeking John Sailer's resignation] go not to his performance as a trustee but are a result of his conviction in 1996 on several felony counts").
B. Whether The Trust Should Be Terminated
The main point of contention is whether the Trust should be terminated and its principal distributed to the Sailers. DTCM argues that in order to terminate the Trust and distribute the principal the vote of all three trustees, including DTCM, is required. Because DTCM, in its "absolute discretion" as a trustee, has decided against terminating the Trust, DTCM urges that the Trust cannot be legally terminated. The Sailers counter that only a majority (as opposed to a unanimous) vote of the trustees is required to terminate the Trust, and that in these circumstances DTCM's refusal to terminate the Trust should be legally ineffective, because DTCM's refusal to consent is arbitrary.
For trusts (such as this Trust) that were executed before 1986, absent a contrary direction in the trust instrument, Delaware law required a unanimous vote of the trustees to accomplish acts that are not in the ordinary course of the trust's business. Terminating a trust and distributing the entire principal to the beneficiaries are acts that normally require a unanimous vote. In this case the only obstacle to achieving such unanimity is DTCM's opposition. Even though the Trust Agreement empowers the trustees to distribute the principal "in their sole and absolute discretion," a trustee may not arbitrarily withhold its consent when the remaining trustees wish to distribute the trust principal. DTCM, as the trustee withholding its consent, has the burden "to show that [its] refusal to cooperate with [the co-trustees] is reasonable and with good cause."
May v. duPont, 229 A.2d 784, 786 (Del. 1967); see also George T. Bogert, Trusts § 91 (6th ed. 1987) ("Where trust powers are vested in two or more trustees of a private trust, and the settlor does not indicate an intent to the contrary, the powers are ordinarily held jointly by the trustees and all must unite in their exercise."). For all trusts created after 1986 that have three or more trustees, a majority of the trustees may make a binding decision regarding the distribution of the trust principal. 12 Del. C. § 3403. The Trust was executed in 1952 when there was no governing statute. Therefore, common law will apply.
Trust Agreement, Art. 1, § 3(d).
May, 229 A.2d at 788; see also Fratcher, supra note 20, § 194 ("If there are several trustees and one of them refuses to concur in the exercise of a power, and his refusal is in violation of his duty as trustee, either because the exercise of the power is not discretionary or because although the power is discretionary the circumstances are such that it would be an abuse of discretion not to exercise it, the court can direct him to join with his co-trustees in the exercise of the power.").
May, 229 A.2d at 788. The May decision dealt with co-executors to an estate, but the same principles apply to co-trustees of a trust.
In its petition and post-trial brief, DTCM advances three reasons why its refusal to terminate the Trust satisfies that standard: (i) the potential federal estate tax for which DTCM would be personally liable; (ii) the Sailers' claim that DTCM is liable to the Trust for the Richards legal fee; and (iii) the fiduciary duties that DTCM contends it owes to the Settlor's grandchildren as Trust beneficiaries. On their face those concerns do not appear arbitrary; indeed they were not arbitrary at the time DTCM filed this action. Since the filing of the petition, however, DTCM's articulated concerns have now either become moot or have been shown to lack merit. For the reasons next discussed I conclude that at this time DTCM lacks any reasonable basis or good cause for refusing to consent to terminate the Trust. Accordingly, DTCM's negative vote will not be given legal effect.
DTCM's petition lists four "factors that weigh against termination of the Trust." DTCM Petition ¶ 20. That is, early termination (i) confers no benefit on the grandchildren, (ii) may not be consistent with the Settlor's intent, (iii) creates a risk that the Trust will not have funds to pay the estate taxes, and, in any event (iv) the Trust Agreement gives the trustees absolute discretion to continue the Trust. Id. ¶¶ 20.1-20.4. Despite DTCM's concern over the beneficial interests of the grandchildren and about the Settlor's intent, the driving force behind the breakdown of the parties' negotiations appears to be the issue of whether DTCM should reimburse the Trust for the Richards legal fee.
1. The Estate Tax Issue
As earlier noted, after the Settlor died the parties initially agreed to terminate the Trust, but DTCM's agreement to vote for termination was conditional. One of DTCM's conditions was that sufficient assets be held back to meet any potential federal tax liability of the Trust. DTCM reiterates that concern in its petition.
See DTCM Petition ¶ 20.3 ("Early termination of the Trust creates a risk that the Trust will not have funds to pay federal estate taxes resulting from the inclusion of the entire Trust in Settlor's estate. This risk would not exist if the Trust were continued.").
The estate tax issue, however, has now become moot. In November 2000 this Court entered an Order dividing the Trust into two separate "custody accounts" for the benefit of John and Christopher Sailer. Paragraph 7(b) of that Order directs that if the Court terminates the Trust, those funds will not be distributed until DTCM determines "in its sole discretion that the Estate Taxes have been finally determined by all governmental authorities, such liabilities have been fully paid, and the statute of limitations has expired on any exposure to DTCM for such liabilities." That provision effectively insulates DTCM from any future tax liability, and therefore resolves the condition that relates to DTCM's potential estate tax liability.
2. The Legal Fees Incurred In DTCM's Attempt To Remove John Sailer As A Trustee
Furthermore, by closing letters issued by both state and federal authorities, all tax liabilities associated with Ms. McKinley's death have been paid and the Estate has been closed. See Letter and Enclosures from John Herdeg, Esquire, to the Court (September 18, 2001).
A troubling aspect of this case is how close the parties came to an agreement to settle their dispute before this proceeding was filed. DTCM had agreed to terminate the Trust, subject to two conditions: (i) a guarantee that the estate taxes would be paid, and (ii) a release of DTCM from all claims of liability arising out of DTCM's administration of the Trust. The first of those Trust-termination conditions — the estate tax issue — appeared to have been all but resolved. What led to the breakdown in the parties' negotiations was DTCM's second condition — its release from any liability respecting its administration of the Trust.
The Sailers objected to that condition specifically because the Trust had paid the Richards legal fee associated with DTCM's attempted removal of John Sailer as a trustee. The Sailers contend that that fee was not a proper Trust expense and that it should be borne by DTCM. After it learned of that objection to granting a release, DTCM informed the Sailers that it was "not willing to spend months negotiating with [the Sailers] the contents of the Receipt, Release and Indemnification Agreement." The end result was that the negotiations between the parties collapsed. DTCM filed this petition shortly thereafter. Because the Court has determined that the Richards legal fee was properly paid from the Trust, this issue has now become moot as well.
PX 61 (letter dated May 26, 2000 from Richards to Christopher Sailer's counsel).
3. The Beneficial Interest Of The Grandchildren
DTCM's third reason for opposing the termination of the Trust is that "[t]ermination confers no benefit upon the ultimate remainder beneficiaries of the Trust; indeed, termination will completely eliminate their beneficial interest." In other words, DTCM claims that it has a fiduciary obligation to the Settlor's grandchildren, who are potential Trust beneficiaries. DTCM also claims that "[e]arly termination may not be consistent with the Settlor's intent," because the Settlor, in her will, intended to disinherit John Sailer "while leaving the residue of her estate to grandchildren." I find these claims lacking in merit, because the Trust was, in fact, established primarily for the benefit of the Settlor's children — John and Christopher. Indeed, during the entire time that DTCM was negotiating with the Sailers over the Trust-termination conditions, DTCM never raised the issue of the grandchildren's beneficial interests. Only after DTCM commenced this proceeding was that issue raised.
DTCM Petition ¶ 20.1.
Id. ¶ 20.2.
DTCM's argument is not only belated, but also it is wrong. The entire thrust of the Trust Agreement is the eventual distribution of the Trust principal to the Settlor's children — John and Christopher. Only if there is any undistributed principal ( i.e., only if the Trust is not terminated) by the one-year anniversary date of the Settlor's death, would the principal remainder become available to future lineal descendants.
During the Settlor's lifetime, the trustees, with her consent, were empowered to distribute principal "to [the] children of Settlor (including children born after the execution of this instrument)." Those children were John and Christopher. Article 1, Section 3 of the Trust Agreement provides that upon the Settlor's death, the principal is to be divided into as many equal parts as there were children then living. The principal of those trusts could be used for the "support, maintenance and education of the issue of the Settlor for whose benefit such trust is held." The trustees were authorized to distribute any and all of the principal of each trust "held for the benefit of such child" between the ages of 28 and 42. If a child was 41 at the time of the Settlor's death, the entire principal could be distributed to the children (John or Christopher) during the one-year period after her death. Thus, the Settlor, Ms. McKinley, consented to the appointment of her children, John and Christopher Sailer, as individual trustees, knowing that in that capacity they would have full discretion to distribute all of the Trust property to themselves as the beneficiaries.
Trust Agreement, Art. 1, § 2.
Id. at Art. 1, § 3(b).
DTCM also argues that because John and Christopher Sailer are fiduciaries of the Trust, each brother, as a Trust fiduciary, is barred from voting to terminate the Trust as to himself. That is, a fiduciary of a trust is disqualified from acting where he is "`interested' in the decision presented." DTCM Op. Br. at 15-16 (citing Wilmington Trust Co. v. Stuart, 1983 WL 18030 (Del.Ch.), aff'd, 474 A.2d 121 (Del. 1984)). That disqualification does not necessarily apply when a Trustee holds the Trust for his own benefit, however, because a Trustee may not be acting in a fiduciary capacity with respect to the portion of the Trust that he controls for his own benefit. Fratcher, supra note 20, § 185; see also Stuart, 1983 WL 18030, at *10-11 (discussing how a trustee who controls a portion of a trust for his own benefit might not be a fiduciary). Whether the Trustee is acting in a fiduciary capacity "`is a question of interpretation of the trust instrument'" to determine whether the power conferred upon a trustee is for his or her sole benefit or for the benefit of other beneficiaries of the trust. Stuart, 1983 WL 18030, at *10 (quoting Scott on Trusts § 185 (3rd ed.)). The "interests of the other trust beneficiaries as well as the overall purpose of the trust should be taken into consideration" when making that determination. Id. at * 11. Because the Court has determined that John and Christopher Sailer are the ultimate and intended beneficiaries of the Trust, they may vote to distribute the Trust principal to themselves.
Those provisions, when taken together, show that Ms. McKinley intended that John and Christopher Sailer be the primary beneficiaries of the Trust. Wherever the Trust Agreement speaks of a distribution of principal, the distribution being referred to is to the Settlor's children, John and Christopher. Ms. McKinley's "issue" ( i.e., her lineal descendents) would become remaindermen only if the trustees decided not to distribute the principal to the Settlor's children ( i.e., to themselves), or if the principal was distributed and one or more of the Settlor's children was deceased. Most tellingly, none of the grandchildren take the position that they have any beneficial interest in the Trust. Although the grandchildren were afforded an opportunity to join and assert a claim in this action, none have done so.
See, e.g., Letter from John Sailer III (Ms. McKinley's grandchild and John Sailer Jr.'s son), to the Court (June 27, 2001) (stating that he believes that he has no beneficial interest in the Trust, and that he would like to see, "as soon as possible, . . . a distribution of the trust assets made to the individual co-trustees").
I find that, in light of the changed circumstances surrounding the Trust after DTCM filed its petition, DTCM's objections to distributing the Trust principal no longer have good cause, and DTCM's continuing opposition to John and Christopher Sailer's desire to terminate the Trust is no longer reasonable. Accordingly, the Trust will be terminated.
Because the Trust will be terminated, the Court does not need to address the issue of whether John Sailer should be removed as a trustee. DTCM also argues that Ms. McKinley intended to disinherit John Sailer because she did not include him in her will. John's later exclusion from the will does not bear on Ms. McKinley's intentions in establishing the Trust, however.
C. Whether DTCM Should Reimburse The Sailers For The Costs They Incurred In Defending This Action
Christopher Sailer argues that DTCM has "exhibited a continuing pattern of intentional conduct that is fundamentally contrary to the basic rules of fiduciary conduct. DTCM unreasonably and in bad faith brought this litigation and forced Christopher to defend." John makes a similar claim. To be awarded counsel fees the Sailers must surmount a high hurdle. They must show that DTCM's conduct was "so incompatible with fiduciary standards that it properly falls within the category of exceptions which call for the imposition of the charge against the [trustee] individually." The Sailers have not met that burden, because they have not demonstrated that DTCM acted in bad faith or acted in a self-dealing manner. Accordingly, the Court will not award the Sailers their costs incurred in defending this proceeding.
C. Sailer Reply Br. at 13.
J. Sailer Counterclaim ¶ 4 (requesting the Court to award to John Sailer the cost of this litigation).
Wilmington Trust Co. v. Coulter, 208 A.2d 677, 682 (Del.Ch. 1965).
IV. CONCLUSION
For the reasons set forth, a judgment will be entered terminating the Trust and directing that the assets presently subject to this Court's November 20, 2000 Order be distributed to the Sailers. All other claims and counterclaims asserted by the parties are rejected and shall be dismissed. Counsel shall confer and submit an appropriate form of implementing order.