Trustee surcharged for excessive and arbitrary discretionary distributions to surviving spouse from marital trust.
Upon her death, Claire Candler created a marital trust for the benefit of her husband, Buddy, during his lifetime that allowed discretionary principal distributions if net income distributions were deemed insufficient. Buddy also held a limited power of appointment over the remainder of the trust assets. Buddy served as co-trustee of the trust. At the time Reliance Trust Company was appointed as co-trustee the trust assets were valued at $2.1 million. Reliance authorized over $1 million in distribution requests made by Buddy prior to his death in December 2005. Buddy exercised his power of appointment over the remaining trust assets, valued at his death at only $838,762, in favor of his eight grandchildren.
The grandchildren sued Reliance alleging improper distributions. Reliance moved unsuccessfully for summary judgment and, following a jury trial, judgment was entered in favor of the grandchildren. Reliance’s motion for a new trial was denied and Reliance appealed.
On appeal, the Georgia Court of Appeals affirmed the trial court on the grounds that: (1) a new trial was not warranted because there was evidence to support the jury’s verdict and the damages award; (2) Reliance owed a fiduciary duty to the grandchildren as remainder beneficiaries; (3) Reliance breached its fiduciary duties to the grandchildren by failing to administer the trust as to preserve a fair balance between Buddy and the grandchildren; (4) Reliance abused its discretion because its decisions were infected with arbitrariness – budgets to support Buddy’s requests were sometimes required and sometimes not, some encroachment requests for attorneys fees were paid and some were not, and there were no consistent explanations for the disparities; (5) the reduction in trust corpus of $1,140,924.41 as a result of the encroachments was evidence of damages; (6) the exclusion of testimony about prior litigation between the parties over Buddy’s competence was not error because Buddy’s competence was irrelevant to the trustee’s exercise of discretion; and (7) the interest should have been awarded to the grandchildren from the date of encroachment forward.