IN RE HELLER
800 N.Y.S.2d 207 (App. Div. 2005)

PROCEDURAL POSTURE: Petitioner income beneficiary appealed an order by the Westchester County Surrogate's Court (New York) that denied her motion for summary judgment to annul a purported unitrust election pursuant to N.Y. Est. Powers & Trusts Law § 11-2.4 (2002); respondent trustees cross-appealed the same order that, inter alia, annulled their retroactive application of the election.

FACTS: Jacob Heller created a testamentary trust in 1984. The trustees of the trust are Jacob's two sons, Herbert M. Heller and Alan J. Heller (hereinafter the trustees). The trustees each hold a 20% interest in the remainder of the trust. The balance of the remainder interest is held in equal shares by their sisters, Suzanne Heller and Faith Willinger. The income beneficiary of the trust is their stepmother. Bertha Heller (hereinafter Bertha), who is the mother of the petitioner, her attorney-in-fact. In February 2003 the trustees elected to treat the trust as a unitrust, retroactively to January 1, 2002. As a result of the trustees' election. Bertha will no longer receive any portion of the annual trust income in excess of four percent of the value of the trust's principal. Before the election, the trust had been paying Bertha its actual annual income, in the amount of approximately $190,000. After the election, the income she received was reduced to approximately $70,000 per year. Simple arithmetic suggests mat the trustees will likely benefit personally, in their capacity as remaindermen, from the election mat they have made in their fiduciary capacity. On mis basis, the petitioner contends mat the election should be set aside because the trustees are precluded by their concurrent status as remaindermen from making the election. The Surrogate Court denied the petitioner's motion for summary judgment annulling the election, but granted her summary judgment annulling retroactive application of the election. The trustees appealed.

ISSUE: May a trustee who is also a remainderman, declare unitrust status? (See hidden issues below).

RULE: A trustee who is also a remainderman, may declare a unitrust status

HOLDING: The trustor created a testamentary trust, appointing his two sons as trustees. The sons also held a 20 percent interest in the remainder of the trust. The balance of the remainder interest was held, inter alia, by their stepmother, the income beneficiary. After the trustees made the unitrust election, the income beneficiary received significantly less income from the trust and sued. The appellate court held that although the trustees would likely benefit as remaindermen from the election, § 11-2.4(e)(5)(A) did not preclude it. Since § 11-2.4(d)(1) unambiguously permitted the trustees to determine that the election would apply retroactively, their determination had to be honored.