Papers considered: 1. Verified Petition for Judicial Settlement of Co-Trustees First and Final Account filed May 3, 2019. 2. First and Final Account by Co-Trustees filed May 3, 2019. 3. Affidavit of Services by Pryor Cashman LLP for Judicial Settlement of Co-Trustees First and Final Account filed May 3, 2019 4. Objections by Olivia A. Farnsworth filed October 15, 2019. 5. Correspondence from Franklin A. Josef, Esq., attorney for objectant, filed May 28, 2020. 6. Correspondence from Franklin A. Josef, Esq. withdrawing his client’s objections filed June 1, 2020. 7. Affidavit on Allocation of Attorney Fees by Ruth Pugliese and Paul Shaheen filed July 14, 2020. 8. Affidavit by Olivia A. Farnsworth filed July 22, 2020. 9. Rebuttal Affidavit by Ruth Pugliese and Paul Shaheen filed July 24, 2020. DECISION/ORDER This proceeding on an inter vivos trust is before the Court for a final accounting. Abraham and Ruth Shaheen created the Shaheen Family Education Trust (the “Trust”) in 1992 with an initial investment of about $225,000. Their hope was to pay for the college tuition of their 14 grandchildren. Thanks to the considerable proficiency of the trustees, this goal was met using $1,650,000 in Trust interest alone. Having fulfilled the principal aim of the grantors, the trustees continued to manage the Trust assets with skill and acumen. As a result, the accounting reflects current Trust principal and interest exceeding $13,000,000. Remarkably, the trustees’ successful management of Trust assets for nearly 30 years through several economic downturns and stock market reversals was accomplished without the assistance of financial professionals. This decision, however, does not focus on the trustees’ investment success. Instead, the focus is on the trustees’ exercise of their “absolute discretion” in determining the best interests of the beneficiaries. The terms of the Trust called for payment of tuition for college and advanced degrees from income until termination of the Trust in 2017. After division of the Trust into 14 sub-trusts, distributions from the principal of the sub-trusts were to be made to each beneficiary at ages 30 (1/4 distribution), 35 (1/3 distribution) and 40 (balance of principal). The trustees are authorized to make or withhold any distribution of the principal if they “determine, in their absolute discretion, that it is in the beneficiary’s best interest” to do so. Distributions of principal began in 2006, when the oldest of the 14 grandchildren turned 30. Those grandchildren are now 40 years or older, and will be the first group of beneficiaries to receive the final distributions terminating their sub-trusts. The management of the Trust apparently proceeded for over 20 years without incident, until it was time to make the first distribution of principal to the newest group of 30-year old beneficiaries. One of those beneficiaries, the moving party herein, objected to the accounting because the trustees had determined it would be in her best interest to retain her initial principal distribution of $233,437.64 in a sub-trust for her benefit and not convey it to her outright, as it was to her peers. In August 2019, as distributions to her cousins or their sub-trusts were being coordinated, the objectant received a telephone call from the trustees. By all accounts, it was an acrimonious conversation. The trustees had contacted objectant because they learned she might be struggling with a substance abuse disorder. The trustees also knew that objectant had graduated from Ithaca College and was supporting herself and living independently. Based on this information, the trustees determined, in their absolute discretion, that it was in objectant’s best interest to continue to hold her interest in a sub-trust, rather than making an outright distribution to her. The objectant argued that because the trustees did not make further inquiry after their initial phone call, they did not take the steps to “determine” what would be in her best interest, as required under the terms of the Trust. She also objected to attorneys’ fees as excessive. Two conferences (one virtual) were conducted, at which trial counsel for the trustees appeared. The trustees, through their trial counsel, encouraged the objectant to identify her needs so that the trustees could provide for them. The Court encouraged objectant to communicate with the trustees in this manner, setting out her current needs, her plans for further education and her career aspirations. It was also suggested that she document her sobriety through a medical evaluation. Ultimately, after a period in which she was not communicating with her attorney, the objectant authorized her attorney to submit a short list of her immediate needs and withdrew her objections. All together, about seven (7) months (including an extended period which the Court shifted to virtual operations as a result of the COVID-19 health crisis) transpired between the filing of objections in October 2019 and their resolution in May 2020. After the objections were withdrawn, the trustees moved to have the legal fees attributable to their dealings with the objectant allocated to her and payable from her sub-trust under SCPA 2110(2). They cite Matter of Hyde, 15 NY3d 179 [2010] in support of their position. Objectant filed an affidavit opposing the relief sought. The trustees filed a sur-reply. Compensable Attorneys Fees under SCPA 2110. As an initial matter, it is apparent that some of the services for which payment is sought were performed in connection with this application. These fees are not compensable in an application for fees (Matter of Marsh, 2015 NY Misc LEXIS 5260, *6 [Sur Ct Westchester Cty](“counsel is not entitled to compensation from an estate for time spent preparing their own application for an award of legal fees pursuant to SCPA 2110″); Estate of Rivera, 2019 NYLJ LEXIS 3746, *6-7 [Sur Ct Bx Cty](“services related to counsel’s fee application are not compensable”). The billing records of Pryor Cashman reflect that $1,083.15 was billed for discussions of legal fees attributable to the objectant, presumably in anticipation of this application. The legal fees of trial counsel, Ryan, Roach and Ryan, reflect $110.00 in such services. Therefore, for purposes of this proceeding, the fiduciary’s legal fees are therefore reduced by a total of $1,193.15 to $7,750 to reflect the disallowance of non-compensable legal services. Review of the Objections: SCPA 2210(2) and Matter of Hyde. Since 2010, determinations in SCPA 2210(2) cases have been guided by the Court of Appeals’ decision in Matter of Hyde, 15 NY3d 179 [2010]. In Hyde, the Court overturned 40 years of jurisprudence that had excluded a fiduciary’s legal fees from the fee-allocation provisions of SCPA 2110(2).1 Restoring a “plain-meaning” interpretation to SCPA 2110(2), the Court of Appeals affirmed that the trial court’s discretion to allocate liability for a fiduciary’s legal fees extended to individual estate beneficiaries (Matter of Hyde, 15 NY3d 182, 186, overruling Matter of Dillon, 28 NY2d 597 [1971]). The Hyde decision encouraged trial courts to engage in a multi-factored review of the competing equities in SCPA 2110(2) proceedings. Of the seven (7) factors provided by way of illustration, the following are relevant here: (a) the good or bad faith of the objecting beneficiary; (b) whether there was justifiable doubt regarding the fiduciary’s conduct; (c) whether the objecting beneficiary acted solely in his or her own interest or in the common interest of the estate; and (d) the portions of interest in the estate held by the non-objecting beneficiaries relative to the objecting. Matter of Hyde, 15 NY3d at 186-187, citations omitted. Good or Bad Faith of the Objecting Beneficiary. The objections were filed in October 2019. They were withdrawn in May 2020. After the initial appearance on the citation for the accounting, two conferences were conducted, one of them “virtual.” All told, the filing of the objections and their resolution spanned a period of seven (7) months, including a delay of about one month attributable to adapting court operations to the COVID-19 public health crisis. In assessing the good or bad faith of the objectant, it is clear these proceedings, consisting of restrained and responsive pleadings and two conferences over a period of 7 months, is not the “protracted litigation” faced in most applications for a Hyde allocation (see, eg, Matter of Cook, 177 AD3d 1214, 1217 [3d Dept 2019](5 years of litigation, including extensive discovery and a trial); and Estate of Korn, 2020 NY Misc LEXIS 82 [Sur Ct NY Cty](45 objections, followed by an 11-day trial). Even beyond the limited investment of court and attorney time and resources in the present case, the other hallmarks of SCPA 2210(2) proceedings are absent here. Objectant has not been “litigious or uncooperative” (Matter of Matrone, NYLS, April 15, 2002, at 23, col. 1 [Sur Ct, Bx Cty]). She presented facts in support of her objections, so her arguments were not “completely unsupported” (Matter of Rudin, 34 AD3d 371 [1st Dept 2006]). The legal issues raised went to the heart of trustees’ fiduciary duties: they were neither “spurious” nor “groundless” (Matter of Speyer, 2014 NY Misc. LEXIS 4870 [Sup. Ct NY Cty]), nor was their resolution “needlessly” prolonged or complicated (Matter of Antin, NYLJ, Apr. 11, 2016, at 21, col 4 [Sur Ct NY Cty]). Objectant will be required to pay $5,500 in her own legal fees, a significant obligation in her current situation. She engaged experienced counsel, who represented her with skill and tact (see also, In Matter of Celinski, 2018 NY Misc. LEXIS 6795* [Sur Ct Nassau Cty](a good faith objectant/beneficiary who withdrew her objections after “multiple conferences” not required to pay $7,500 in fiduciary legal fees in a $125,000 estate). Objectant’s swift retreat on her objections is not an indication of bad faith or fatal weakness in her legal arguments: it is a concession to her economic reality. Objectant is unemployed as a result of the COVID-19 health crisis. She needs the money. One Surrogate termed as “all too familiar” the “disgruntled, vexatious estate litigants who are more (often exclusively) concerned with emotional rather than legal issues” (Matter of Hyde, 32 Misc 3d 661,668 [Sur Ct Warren Cty 2011], on remand). That characterization does not fit the objectant. The Court finds no evidence that objectant acted in bad faith in objecting to the accounting. Justifiable Doubt in Trustees’ Conduct. The grantors endowed their trustees with “absolute” discretion in determining whether distributions of principal would be released to a beneficiary outright or continue to be held and managed in the form of a sub-trust. That discretion, however, is tempered by the fiduciary duty owed to beneficiaries (Boles v. Lanham, 55 AD3d 647, 648 [2d Dept 2008], citing Matter of Heller, 6 NY3d 649, 655 [2006])(“[as] a fiduciary, a trustee bears the unwavering duty of complete loyalty to the beneficiaries of the trust no matter how [broadly] the settlor’s directions allow the trustee free rein to deal with the trust”). Thus, even trustees vested with absolute discretion to make distributions as they see fit bear an “affirmative duty to inquire with diligence” into a beneficiary’s life circumstances when they make a determination as to his or her best interests (Matter of Andrew C., 2017 NY Misc LEXIS 5202, *4-5 [Sur Ct Kings Cty 2017]). In examining whether the objectant harbored “justifiable doubt” about the trustees’ conduct, this Court is not called upon to rule directly on the merits of the objections or trustees’ conduct. The only question before the Court is whether the trustees were diligent in their efforts to ascertain the objectant’s best interests, as fiduciaries are required to do (Matter of JP Morgan Chase Bank N.A. (Marie H.), 38 Misc 3d 363, 376-377 [Sur Ct NY Cty 2012]). Insofar as can be inferred from the parties’ affidavits and the attorneys’ fee records, the trustees did not contact the objectant again after their initial acrimonious telephone conversation. Diligent inquiry on the trustees’ part might have yielded insight into objectant’s sobriety and participation, if any, in counseling or other programs, her career aspirations and plans and her engagement in activities in the community outside of work. The Court finds that “justifiable doubt” regarding the trustees’ conduct was created by their failure to engage in meaningful inquiry into objectant’s best interests. Interest of the Objectant in the Trust. Objectant holds a 1/14th income and residuary interest in the Trust, as do each of her 13 cousins. Objectant is the only one among the three 30-year olds whose access to the current distribution of principal has been curtailed, so the success of her litigation could benefit only her. Her cousins have not been prejudiced by undue delay in their distributions, nor are they being asked to shoulder significant expense. The equities here lie with the objectant. Proportion of Fiduciary Legal Fees to the Size of the Trust. Although it is not enumerated among the suggested Hyde factors, the amount of fiduciary legal fees in proportion to the total value of the Trust is worthy of consideration. The fiduciary legal fees at issue here come to $7,750. The accounting values the principal and interest on hand at $13,000,000. In contrast to the $900,000 in fees that was at issue in Matter of Hyde, the burden created on the Trust by the objections, when calculated in time and dollars, is extremely modest (Matter of Hyde, 32 Misc 3d at 666). In terms of the added cost to the objectant’s cousins, each will pay $553.57 in legal fees associated with the objections, a very small amount given the $930,000 in gross distributions allocable to each of them at this time. The amount sought to be recovered from objectant is so modest and the resulting burden on the beneficiaries so slight that they do not support a determination in the trustees’ favor. The trustees have not established the objections were unjustifiable or brought in bad faith. The $7,750 in fiduciary legal fees that the Trust and the other beneficiaries will bear as a result of this decision is a modest price for the exercise of trustees’ discretion. The motion to allocate legal fees incurred by the trustees to objectant is denied. Fiduciary legal fees in defense of the exercise of trustees’ discretion and preparations for this application are therefore allocated to and shall be paid by the Trust. It is, therefore, ORDERED, ADJUDGED and DECREED, the trustees’ motion to allocate to the objectant the legal fees associated with her lawsuit is denied; and it is FURTHER ORDERED, ADJUDGED and DECREED that all such fiduciary legal fees shall be paid by the Trust. This constitutes the decision of the Court. All papers, including this Decision, are hereby entered and filed with the Clerk of the Surrogate’s Court. Counsel is not relieved from the applicable provisions of CPLR Section 2220 relating to service and notice of entry. Dated: August 14, 2020
