McNeil v. McNeil - 798 A.2d 503 (Del. 2002)

Rule:

The Delaware Court of Chancery possesses undoubted authority to appoint a trustee if the trust instrument fails to do so. Where the terms of the trust provide a method for filling vacancies by some method other than by appointment of the court, however, the designated method of replacement should be followed. Even when a court seeks to exercise its residual authority of appointment, it should do so only in rare circumstances, since the identity and number of the trustees is central to the structure of the trust and a key indicator of the intent of the settlor.

Facts:

Henry Slack McNeil, Sr. established five trusts, one for each child and one for his wife. The beneficiary, Henry, Jr. (“Hank”), one of the children, became estranged from his family, drew heavily on his own trust, but was never told that he was also a beneficiary, rather than a remainderman, under his mother's trust. When he discovered the truth, he and his minor children sued the trust, the trustees, and his siblings, seeking, inter alia, a make-up distribution from the trust, removal of and a surcharge against the trustees, and a restructuring of the trust operation. The court held that the trustees had breached their fiduciary duties by failing to inform Hank of his current beneficiary status in a timely fashion. By way of a remedy, the court ordered a make-up distribution to the petitioner, surcharged the trustees, and removed certain of the trustees. The court rejected Hank’s request to further divide the trust and prevent the adoption of a unitrust formula. Hank appealed from various aspects of the remedy imposed on defendant trustees by the trial court, and its denial of Hank’s request for attorneys' fees. On the other hand, the trustees challenged the removal and replacement of one of their number and the imposition of surcharges.

Issue:

Under the circumstances, did the district court impose the wrong remedies? 

Answer:

Yes, but only with respect to the removal and replacement of one of the trustees.

Conclusion:

 The high court upheld the factual findings of the trial court, and found no abuse of discretion in the remedies it imposed after it determined that the beneficiary had in fact been kept in the dark, and that the trustees, even those who were merely mistakenly following the advice of institutional and professional trustees, violated their duties when they failed to keep their fiduciary obligations to him. Both the imposition of surcharges and the denial of an award of attorneys' fees were justified on the record. The trial court abused its discretion, however, in failing to follow directions in the trust instrument regarding removal and replacement of trustees.