JANUARY 20, 2003 VOLUME 10, NUMBER 29
The Montana Supreme court has words to the wise for drafting and following a trust’s terms in upholding a lower court denial of a request to remove a corporate trustee. In the Matter of the Estate of Mildred I. Berthot, December 5, 2002. The Berthot case demonstrates the importance of including details about the settlor’s intentions in a trust document.
Ellen Collins and JoAnn Barrett, current beneficiaries of the Mildred Berthot trust, claimed that trustee Norwest Trust breached its fiduciary duty when it refused to increase their trust distributions beyond the annual net income payments it had made for years. Ms. Collins and Ms. Barrett sought to name a family friend as successor trustee.
The Montana high court reiterated the basic principle of trust law—that a trust should be managed to carry out the testator’s intent. It relied on Mrs. Berthot’s own words giving the trustee authority to act in the "best interest of the trust estate." There was no provision for any distribution beyond the net income until the end of the trust. The Justices underscored the importance of the testator’s words: "While both the majority and the dissent can speculate all day as to Mildred’s reasons for setting up the trust in the way she did, the simple fact is that no one knows why. We can only go by the wording of the document itself…"
Mrs. Berthot’s testamentary trust went into effect on her death in 1962. Ms. Collins and Ms. Barrett, Berthot’s granddaughters, became the last income beneficiaries of the Berthot trust when their mother died in 1994. The Berthot trust will end after the death of both Ms. Collins and Ms. Barrett. At that point all proceeds are to be distributed equally among Ms. Collins’ and Ms. Barretts’ children, the "remainder beneficiaries" in trust parlance. Interestingly, all but one of the remainder beneficiaries supported the income beneficiaries in seeking more income. The remaining beneficiary sought to "stay neutral" by taking no position.
Ms. Collins and Ms. Barrett argued that Norwest’s breach of fiduciary duty was illustrated by the fact that it took $8,000 per year in fees when trust income was $13,000 for each beneficiary on trust capital of $1.4 million. They took issue with the trust’s overall performance, even though the court calculated that the principal assets of the trust increased 835% and the income increased by 605% under Norwest’s management.
One dissenting Justice would have allowed the change of trustee, based largely on the consent of essentially all the beneficiaries. Without help from the trust language, however, that argument failed.