Matter of Flyer, 23 N.Y.2d 579 (1969)

When a trustee has sole discretion to invade a trust’s principal for the support of a beneficiary, the trustee may consider the beneficiary’s independent resources before deciding to invade the principal, unless the will indicates an absolute gift of principal or an intent that the beneficiary’s needs are irrelevant.

Summary

This case addresses whether a trustee with absolute discretion to invade the principal of a trust for the life beneficiary’s support must consider the beneficiary’s private resources before invading the principal. The New York Court of Appeals held that the trustee could consider the beneficiary’s independent resources, because the testator’s will did not create an absolute gift of principal and indicated that invasion of the principal depended on the beneficiary’s needs. The court emphasized that the testator’s intent, gleaned from the entire will and surrounding circumstances, is paramount in determining the scope of the trustee’s discretion.

Facts

Jacob Flyer created a trust for his wife, Elsie, giving his daughter as trustee discretion to use income and principal for Elsie’s support and maintenance. Elsie suffered a severe stroke and was institutionalized. Besides the trust, Elsie had approximately $10,000 in assets and $1,800 annual income from Social Security. Elsie’s sister, acting as her committee, argued that the testator intended an absolute gift of both income and principal, irrespective of Elsie’s independent resources, and requested the trustee pay Elsie’s outstanding hospital bills. The trustee, one of the testator’s daughters, contended that the testator intended Elsie’s private income to be used first.

Procedural History

The Surrogate’s Court agreed with Elsie’s sister, holding that the trustee must pay for Elsie’s support from the trust without regard to her private resources. The Appellate Division affirmed this decision. The dissenting justices in the Appellate Division argued that the trustee should consider Elsie’s independent income. The New York Court of Appeals reversed the Appellate Division’s order.

Issue(s)

Whether a trustee, vested with sole and absolute discretion to invade the principal of a trust for the support of the life beneficiary, may take the latter’s private resources into account before deciding to effect an invasion.

Holding

No, because the testator’s will did not create an absolute gift of principal, made the prime gift income and the testator intended that the invasion of the principal be dependent upon the needs or requirements of the beneficiary.

Court’s Reasoning

The court emphasized that the testator’s intent controls, and this intent should be determined from the entire will and the surrounding circumstances, not merely from the specific language granting the trustee discretion. The court stated, “A trustee, particularly when given uncontrolled discretion to invade principal… may, before deciding to effect an invasion, take into account the beneficiary’s independent resources where there is no ‘absolute’ gift of principal, the prime gift being that of income, and the testator intended that the ‘invasion of the principal… [be] dependent upon the needs or requirements of the beneficiary.’” The court distinguished this case from those where the testator intended a gift of principal as broad as the gift of interest, without any condition of need. Here, the court reasoned that the testator’s primary concern was for his daughters and their children, and he intended to preserve the estate for them. The court noted that any income not needed for Elsie’s support was to be added to the principal that the daughters would inherit, and elaborate provisions were made for gifts over to grandchildren. Additionally, the testator used Elsie’s Social Security payments for her care while he was alive, indicating an expectation that those resources would continue to be used for her support. Therefore, the trustee was permitted to consider Elsie’s independent income before invading the principal.