Standing to Object to Revocable Trust Transactions during Settlor’s Life

Often the settlor of a lifetime revocable trust is the only person who has an interest in the income and principal of the trust during his or her lifetime. Sometimes the settlor of such a trust is the sole trustee or serves with another. In other circumstances, there are trustees other than the settlor. In any of these situations the trustees have a duty to comply with the directions of a settlor who has capacity to act even though the direction of the settlor is contrary to the terms of the trust or the trustees' normal fiduciary duties. Restatement of Trusts (3d), at §74. In such a context, the rights of the remainder beneficiaries are exercisable by and subject to the control of the settlor (Restatement of Trusts (3d), at §74(1)(b)). Thus the remainder persons have no interest in the trust until the settlor dies and the trust becomes irrevocable. This is because the settlor who holds a power of revocation generally has full authority to revoke or amend the trust, and thus can properly extinguish or modify the rights and interests of any or all of the remainder beneficiaries. This comprehensive power to modify the terms of a trust enables the settlor, without actually amending the trust, to bind all the beneficiaries to clarify a particular action by the trustee or even consent and authorize certain acts of the trustees for which they would otherwise clearly be liable for as a breach of trust. Indeed it is generally held that a trustee of a revocable trust during the life of the settlor/income beneficiary trustee has no obligation to inform the remainder beneficiaries of the trust and/or its administration. In this context, trust law conforms to most lay persons' understanding of revocable living trusts as will substitutes. They understand so long as they are living and competent, trust assets remain essentially under their control and that they may freely change their mind about the beneficiary's interest. Contrast at least one state's case that created a duty for the trustee of the revocable trust to keep the beneficiaries informed of the trust and its administration. JP Morgan Chase Bank NA v. Longmeyer, 275 S.W.3d 697 (Ky. 2009) [enhanced version available to lexis.com subscribers]. This case has been heavily criticized. See Turney P. Berry et al., Longmeyer Exposes or Creates Uncertainty About Duty to Inform Remainder Beneficiaries of a Revocable Trust, 35 ACTEC Journal 125 (2009).

In New York, as a corollary of the concept that the remainder persons have no interest in the trust until the settlor dies and the trust becomes irrevocable, it has become well-settled law that the remainder persons lack standing to object to any trust transactions that occurred during settlor's life. Matter of Malasky, 290 A.D.2d 631, 736 N.Y.S.2d 151 (3d Dep't 2002) [enhanced version available to lexis.com subscribers]; Matter of Sofi, 36 Misc. 3d 1223A, 2012 N.Y. Misc. LEXIS 3683 (Sur. Ct. Bronx County 2012) [enhanced version available to lexis.com subscribers]; Matter of Shay (Edna Block Revocable Trust), 33 Misc. 3d 1230A, 941 N.Y.S.2d 541 (Sur. Ct. Bronx County 2011) [enhanced version available to lexis.com subscribers]; Matter of Central Hanover Bank & Trust Co., 176 Misc. 183, 26 N.Y.S.2d 924 (Sup. Ct. Spec. T. New York County 1941) [enhanced version available to lexis.com subscribers], aff'd, 263 A.D. 801, 32 N.Y.S.2d 128 (1st Dep't) [enhanced version available to lexis.com subscribers], aff'd, 288 N.Y. 608, 42 N.E.2d 610 (1942) [enhanced version available to lexis.com subscribers]. The only known exception to this rule is when the remainder person establishes that a trustee, other than the settlor, did an improper act during settlor's life without the settlor's approval or ratification. See Siegel v. Novack, 920 So. 2d 89 (Fla. Dist. Ct. App. 4th Dist. 2006) (applying New York Law) [enhanced version available to lexis.com subscribers].

The Restatement of Trusts (3d) makes clear that the Malasky case is "consistent with reasonable settlor expectations and reflective of modern authority...." See Restatement of Trusts (3d), § 74, cmt. (a)(1). Thus, it is controlling law that the remainder beneficiaries of a revocable trust lack standing to object to post death accountings for the period of trust administration during the lifetime of the settlor-trustee.

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