New York Law Review

Tag: Trust Agreement

  • Rosner v. United States Trustee, 41 N.Y.2d 965 (1977): Choice of Law in Trust Agreements

    41 N.Y.2d 965 (1977)

    When a trust agreement specifies that the laws of a particular state govern the agreement, that choice of law will be upheld unless there are overriding policy considerations or a lack of significant contacts with the chosen state.

    Summary

    This case concerns a dispute over a trust agreement where the plaintiff argued that New York law should apply due to the trust’s significant contacts with New York. The Court of Appeals affirmed the dismissal of the complaint, holding that Massachusetts law, as explicitly chosen in the trust agreement, should govern. The court reasoned that the plaintiff failed to demonstrate any overriding policy considerations under New York law or a lack of contacts with Massachusetts that would justify disregarding the parties’ express agreement. The court also noted the plaintiff’s failure to establish personal jurisdiction over one of the defendants.

    Facts

    In 1968, a trust acquired its original core of shareholders through a reorganization agreement with a New York-based corporation. The trust continued to have a significant number of shareholders and conducted a considerable amount of business in New York. The trust agreement contained an express provision stating that the laws of Massachusetts, where the trust was created, should govern the agreement.

    Procedural History

    The plaintiff brought suit, presumably in New York, arguing that New York law should apply to the trust agreement. The Appellate Division held that the complaint should be dismissed because the plaintiff failed to give the shareholders notice of the suit as required by Massachusetts law. The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether the express choice of law provision in a trust agreement, specifying that Massachusetts law governs, should be disregarded in favor of New York law due to the trust’s significant contacts with New York.

    Holding

    No, because the plaintiff failed to demonstrate any overriding policy considerations under New York law or a lack of contacts with Massachusetts that would justify disregarding the parties’ express agreement.

    Court’s Reasoning

    The Court of Appeals relied on the principle of honoring parties’ express agreements in contract law, particularly choice-of-law provisions. The court distinguished the case from situations where the chosen state lacked any significant connection to the agreement. The court emphasized that the trust was created in Massachusetts, and the plaintiff did not argue that Massachusetts lacked contacts with the trust. While acknowledging the trust’s contacts with New York, the court found that these contacts did not create any overriding policy considerations that would necessitate disregarding the parties’ chosen law. The court stated, “In our view the factors alleged do not invoke any overriding policy consideration under the laws of New York and do not provide a compelling reason or justification for disregarding the express agreement of the parties that their rights under the trust should be governed by the laws of Massachusetts, the State where the trust was founded.” The court also briefly noted the plaintiff’s failure to establish personal jurisdiction over the defendant Prickett, further supporting the dismissal of the complaint.

  • In the Matter of the Final Accounting of Irving Trust Co., 48 N.Y.2d 97 (1979): Trustee Compensation Limited by Trust Agreement

    In the Matter of the Final Accounting of Irving Trust Co., 48 N.Y.2d 97 (1979)

    When a trust agreement specifies the compensation a trustee shall receive for its services, the trustee is generally limited to that compensation, even if statutes enacted after the trust’s creation provide for additional fees.

    Summary

    This case concerns whether a trustee is entitled to annual principal commissions authorized by statute after the execution of a trust agreement that specified a different compensation structure. Alfred G. Vanderbilt established a trust in 1941, directing the trustee, Irving Trust Company, to pay income and principal to his wife, Manuela. The trust agreement outlined specific commissions for the trustee. After Manuela’s death, the trustee sought additional annual principal commissions based on a 1943 statute. The court held that the trust agreement’s compensation provision was exclusive, precluding the trustee from receiving additional statutory commissions. The court reasoned that the agreement constituted a “specific compensation” for the trustee’s services, barring any further allowance.

    Facts

    In 1941, Alfred G. Vanderbilt created an irrevocable trust with Irving Trust Company as trustee, benefiting his wife, Manuela. The trust directed the trustee to pay net income and up to $100,000 of the corpus to Manuela during her lifetime, with the remainder to their daughter, Wendy, upon Manuela’s death. The trust agreement contained a clause, Article Ninth, specifying how the trustee would be compensated. Specifically, it outlined a commission on the initial principal and commissions on income and principal disbursed, calculated at the rates for testamentary trustees at the time of the trust’s creation.

    Procedural History

    The matter was submitted to the Appellate Division as a court of first instance on an agreed statement of facts. The Appellate Division held that the trustee was entitled not only to the commissions in the trust agreement but also to annual principal commissions permitted by statute as of 1943. The New York Court of Appeals reversed the Appellate Division’s order.

    Issue(s)

    Whether an inter vivos trust specifying trustee compensation precludes the trustee from receiving annual principal commissions permitted by a statute enacted after the trust’s creation.

    Holding

    No, because Article Ninth of the trust agreement provides a “specific compensation” for the trustee’s services, which precludes the trustee from receiving any additional allowance for those services.

    Court’s Reasoning

    The court emphasized that where a settlor provides “specific compensation” for a trustee’s services, the trustee is not entitled to additional compensation under CPLR 8005 and SCPA 2308(11). The court interpreted Article Ninth of the trust agreement, stating, “As compensation for its services in the administration of the trust,” as an intent to make the article the exclusive source of compensation. The court rejected the argument that this introductory phrase modified only the sentence about principal receipt commissions, deeming that interpretation incorrect because it would render the rest of the article meaningless. The court referenced Matter of Schinasi, where the court held that an express preclusion of additional compensation is not required if the agreement implies such a limitation. The court stated, “That the Legislature thought it appropriate in 1943 to provide trustees with a statutory right to annual principal commissions in no way justifies the abrogation of portions of trust agreements, executed prior to that time, in which the parties have agreed to a specific compensation scheme.” The legislation’s purpose to ensure fair compensation is fulfilled when parties have already established the trustee’s remuneration in the trust agreement.