Graham v. Graham

Supreme Court of the State of Delaware · 2021 · Family Law

Family LawTrustsTrust AdministrationTrustee DutiesAccountingTrustee RemovalAttorneys' Feestrust accounting

Facts

Helen Graham died in 1999 after two draft trust agreements had been prepared but not executed; David Graham later conceded that a trust existed under the terms of the later draft. Under that draft, David, as lifetime beneficiary and trustee, was entitled to all net income and had sole discretion to distribute principal as necessary for his health, education, support, or maintenance, with Sarah as a taker in default if David did not exercise a power of appointment. Sarah petitioned for an accounting and David's removal, and the Court of Chancery required a supplemental accounting concerning two $100,000 distributions made to David in 2009 and 2010. The supplemental accounting showed those funds were used for construction on David's primary residence, and the court also found that David had failed to inform Sarah of the trust from 1999 to 2017.

Issue

Did the Court of Chancery err in accepting David's accounting, limiting the remedy for his failure to inform Sarah of the trust, finding no other breach of fiduciary duty, refusing to remove him as trustee, and permitting most of his attorneys' fees to be paid by the trust? More specifically, were the challenged distributions within David's discretionary authority under the trust and were the trial court's remedial and fee decisions an abuse of discretion?

Rule

When a trust gives a trustee broad, sole discretion to distribute income and principal for the lifetime beneficiary's health, education, support, or maintenance, distributions supported by the record and falling within those purposes are proper. The Court of Chancery has broad discretion to determine the appropriate remedy for a trustee's breach of duty and to allocate attorneys' fees, and removal of a trustee is exercised sparingly and requires a clear necessity to secure the trust fund against loss or misapplication.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Wilmington, Nora Bennett serves as trustee of a trust that allows her, in her sole discretion, to distribute income and principal to herself for her health, education, support, or maintenance during life. A remainder beneficiary challenges a $150,000 distribution Nora used to repair and expand her longtime primary residence, and Nora produces contractor invoices, accounting-software ledgers, and partial account statements, but several original monthly bank statements from ten years ago cannot be located.

How should a court most likely rule on the challenge to the accounting?

Explanation. The majority approved an accounting where complete original documentation was unavailable but the combination of statements, QuickBooks records, invoices, and other information sufficiently demonstrated that the challenged distributions were used for the trustee-beneficiary's primary residence and fell within a broad health, education, support, or maintenance standard. The key is whether the record adequately supports the propriety of the distribution, not whether every original document exists. (Derived from Graham v. Graham (n.d.).)