Court Opinion

ID: 5096576
Source: CourtListenerOpinion
Date Created: 2021-10-01 17:26:17.796227+00
Date Added: 2024-06-11T08:20:41.101814
License: Public Domain

KNOX, Judge,
dissenting.
I respectfully dissent. I do not believe a conflict of interest, as that term is used in KRS 386.820(2), was created when the trustee in this case, PNC Bank, made the decision to invade the corpus of the Schlegel trust. The Schlegel trust authorized PNC “to use so much of the principal of said trust fund as it, in its discretion deems necessary or advisable to be used” for the “maintenance, welfare, comfort, happiness” of Verna. This Court should be hesitant to restrict PNC in the exercise of its discretion absent bad faith or arbitrary conduct:
The trustee’s authority to invade the corpus is defined by the terms “comfort, welfare and happiness.” These are very broad terms and indicate the extent of discretion given to the trustee. In O’Bryan v. England, 173 Ky. 12, 189 S.W. 1126, 1129, the trustee was authorized to invade the corpus whenever he deemed it necessary for the “‘support and maintenance’ ” of the beneficiary_ We said in that case that “It would be difficult to frame in any language a more absolute and unrestrained power and authority” in a trustee. The trustee’s authority in the instant case is much broader.
[T]he powers of the trustee are plenary, and where such broad powers exist the court will not restrict the trustee in the exercise of his discretion unless it appears that he is guilty of bad faith or is acting in an arbitrary manner.
Combs v. Carey’s Trustee, Ky., 287 S.W.2d 443, 445 (1955).
I see no bad faith or arbitrariness on the part of PNC, which was authorized to do just what it did, i.e. draw principal from the Schlegel trust to support Verna. The majority seems to say that merely because PNC had two trusts from which it could invade principal to support Verna, a “conflict of interest” was automatically created when PNC exercised its discretion as to which funds would be used for her support. I disagree. Regardless of whether the Moes-ser trust existed or not, PNC had fhe right, in its discretion, to invade the principal of the Schlegel trust, period, absent bad faith or arbitrary conduct. While I realize that PNC’s decision lessened the amount of funds ultimately available to the Schlegel remain-dermen, I do not perceive PNC’s actions to have constituted bad faith or arbitrary conduct. For many years, PNC drew solely from the Moesser trust to support Verna. Not until Verna’s nursing home expenses became inordinately high did PNC “dip into” the Schlegel trust, and even then, PNC continued to draw from the Moesser trust.
I agree with the trial court that, as trustee of two trusts involving a common income *503beneficiary but different remainder interests, PNC owed the remaindermen of both trusts the duty of impartiality. Further, PNC was charged with protecting not only the corpus of the Schlegel trust and the interests of its beneficiaries, but also the corpus of the Moesser trust and the interest of its beneficiary, Verna’s estate. As appellants point out, the principal amounts in the trusts, since the creation of the Moesser trust in 1983, had always been nearly equal. Interestingly, six years later, when all was said and done, and Verna had passed away, the principal amounts remaining in the two trusts were practically the same. How much more “impartial” could PNC have possibly been?
KRS 386.820(2) requires a trustee to obtain court approval for a “transaction” involving a” conflict of interest.” Had PNC sold trust property to itself, a customer, a board member, one of its departments, or had it made use of trust property for its own purposes or done anything else for the benefit or gain of PNC Bank, or had it entered into a transaction involving dealing between both trusts, I believe KRS 386.820(2) would have required PNC to obtain court approval. These types of transactions, while not exhaustive, trigger KRS 386.820(2). I do not believe, however, that PNC’s decision to use principal from the Schlegel trust as well as from the Moesser trust constituted a “conflict of interest.” PNC had the authority to do precisely what it did, under the trust instrument, and needed no permission from the court to act in accordance with powers it already had. I would affirm the judgment of the Jefferson Circuit Court.