Case Law Update: Trust Distributions
On the death of the settlor, his revocable trust divided into a marital deduction trust and a credit shelter trust. The trustee was required to pay all of the net income of the marital trust to the widow quarterly, at the least. The property of both trusts included shares of stock in a closely held corporation. After disputes arose between the widow and the surviving children (beneficiaries of the credit shelter trust and remainder beneficiaries of the marital trust), the widow and children entered into an agreement allocating to the two trusts the stock and “all income” received from the stock. The corporation then issued a check payable to the marital trust which the widow deposited in her personal account. The children objected, maintaining the distribution from the corporation should be reduced by the corporation’s business expenses. The trial court held that “all income” from the stock should be distributed to the widow, and the children appealed.
In Purcella v. Purcella, 258 P.3d 730 (Wyo. 2011), the Wyoming Supreme Court affirmed in part and reversed in part, holding that any business expenses of the corporation were not attributable to the trust but that the “net income” language in the trust provisions was not negated by the agreement and that payments to the widow must be reduced by trust administration expenses.
Special thanks to William P. LaPiana (Rita and Joseph Solomon Professor of Wills, Trusts,and Estates, New York Law School) for sending me this case law update.