Court Opinion

ID: 2809318
Source: CourtListenerOpinion
Date Created: 2015-06-17 17:07:45.434441+00
Date Added: 2024-06-11T12:45:43.966654
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE TRUST UNDER WILL OF WALLACE       )
B. FLINT FOR THE BENEFIT OF             ) C.A. No. 10593-VCL
KATHERINE F. SHADEK                     )

                                 OPINION

                       Date Submitted: March 20, 2015
                        Date Decided: June 17, 2012

Todd A. Flubacher, Kimberly Gill McKinnon, MORRIS, NICHOLS, ARSHT &
TUNNELL, LLP, Wilmington, Delaware; Attorneys for Petitioner.

LASTER, Vice Chancellor.
       The current income beneficiary of a testamentary trust petitioned for an order that

would modify the trust’s terms by rewriting its administrative provisions, thereby

converting the trust from the traditional, trustee-managed structure that the settlor

contemplated into a directed trust where the trustee would serve only an administrative

role. The petition also seeks an order providing that Delaware law will govern the

administration of the trust unless the application of Delaware law ―would or might‖ have

adverse tax consequences, in which case New York law—the law that originally

governed the trust under the settlor’s estate plan—would spring back into effect. The

petition is denied.

                          I.      FACTUAL BACKGROUND

       Wallace B. Flint established a detailed estate plan in his Last Will and Testament

dated December 12, 1934 (the ―Will‖). Among other things, the Will created a

testamentary trust that would receive as its corpus the residue of his estate (the ―Trust‖).

A.     The Terms Of The Trust

       The Will contains detailed provisions for the Trust, reflecting Wallace’s careful

attention to how he wanted the residue of his estate distributed after his death. The initial

purpose of the Trust was to provide income for his wife, Margaret McClenahan Flint, for

the duration of her life. Article SEVENTH of the Will stated:

       All the rest, residue and remainder of my estate, whether real, personal or
       mixed, and wheresoever situate, I give, devise and bequeath to my Trustees
       herein-after named, their successor or successors, in trust nevertheless, to
       invest and reinvest the same during the term of natural life of my said wife
       MARGARET McCLENAHAN FLINT, and during such term to pay over
       to her the net rents, income and profits thereof in monthly or quarterly
       installments as my said Trustees may determine.

                                              1
Under the plain language of this provision, Wallace expected his trustees to determine

how to invest the corpus of the Trust.

       Wallace provided that after Margaret’s death, the Trust would continue for the

benefit of his daughter, Katherine Frances Flint (now Katherine F. Shadek), and provide

income to her for the duration of her life. Article EIGHTH stated:

       Upon the death of my said wife MARGARET McCLENAHAN FLINT …,
       I give, devise and bequeath my said estate to my said Trustees, their
       successor or successors, in further trust nevertheless, to invest and reinvest
       the same during the term of the natural life of my daughter KATHERINE
       FRANCES FLINT and during such term to pay over to her the net rents,
       income and profits thereof in monthly or quarterly installments as my
       Trustees may determine, except that during the minority of my said
       daughter such payments shall be made to her testamentary guardian
       hereinbelow named.

Once again, under the plain language of this provision, Wallace expected his trustees to

determine how to invest the corpus of the Trust.

       Under Article EIGHTH, Wallace gave Katherine two opportunities to invade the

principal of the Trust. Upon attaining age thirty-five, she could direct that the trustees

divide the corpus into fourths and pay one fourth over to her. Upon attaining age forty,

she again could direct that the trustees divide the corpus into fourths and pay another

fourth over to her. By providing these opportunities, Wallace recognized that Katherine

might desire some degree of control over property being used for her benefit, and so he

created two chances for her to obtain control over what works out to approximately 44%

of the corpus (¼ + (¼ * ¾)). Notably, Wallace did not permit Katherine to access the

entire corpus, nor did he otherwise authorize her to direct how the corpus of the Trust

would be invested.

                                             2
       In Article NINTH of the Will, Wallace granted Katherine a testamentary power of

appointment over the corpus of the Trust that remained at her death. Wallace took care to

address what would happen if Katherine failed to exercise her power. He specified two

alternatives. If Katherine had lawful descendants, then the trustees would divide the Trust

corpus and pay it over to them per stirpes. If she did not, then the trustees would divide

the Trust corpus and pay it over, per stirpes, to five different individuals whom Wallace

named. Three were the children of his cousin, Henry D. Scribner, and two were the

children of his brother-in-law, Henry Molwitz.

       In Article THIRTEENTH, Wallace granted the trustees a limited power to invade

the Trust corpus for the benefit of his wife or daughter if the trustees deemed it

appropriate in their sole discretion. Notably, Wallace limited the amount to a maximum

of $10,000 in any calendar year. By imposing this limit, Wallace ensured that the bulk of

Trust corpus would remain intact and under the direction of his trustees so that his estate

plan could be carried out.

       Evidencing his desire to have trustworthy persons exercise judgment over the

Trust corpus, Wallace provided in his Will that the initial trustees would be Henry

Scribner, Henry Molwitz, Margaret, and the Chemical Bank and Trust Company, a New

York corporate trustee. Wallace did not make Margaret, initially the only income

beneficiary, the sole trustee.

B.     The Trust Migrates To Delaware.

       After Wallace died, the Surrogate’s Court of the State of New York, Queen’s

County (the ―New York Court‖), issued letters of trusteeship dated February 16, 1938, to

                                            3
the initial trustees. By instrument dated June 10, 1949, Katherine restricted her

testamentary power of appointment to an exercise in favor of her spouse, descendants,

and donees.

       After Henry Scribner and Margaret died, the New York Court appointed Katherine

as a successor co-trustee. After Henry Molwitz died, Katherine and Chemical Bank

continued as the sole remaining co-trustees.

       As noted, Katherine had the power to obtain (i) a distribution of one-fourth of the

Trust corpus when she turned thirty-five and (ii) a distribution of one-fourth of the

remaining corpus when she turned forty. She did not exercise either power. Today,

Katherine has four adult children who are the presumptive remainder beneficiaries under

the Trust. She has grandchildren who are contingent remainder beneficiaries. She has

potential additional descendants, as yet unborn and perhaps not even contemplated. They

are also contingent remainder beneficiaries.

       In 2001, Katherine and Chemical Bank took steps to move the Trust to Delaware.

They obtained an order from this court dated October 5, 2001, that provisionally

approved the change of the Trust’s situs. It stated:

       (A) Chase Manhattan Bank USA, N.A. shall be appointed successor co-
       trustee of the Trust and this Court shall accept jurisdiction over the Trust at
       such time as the Surrogate’s Court of New York, Queens County, enters an
       Order authorizing (i) The Chase Manhattan Bank to resign as trustee, and
       (ii) the change of the situs of the Trust to Delaware; and

       (B) following the revocation of her Letters of Trusteeship by the
       Surrogate’s Court of New York, Queen’s County, this Court affirms the
       continuation of Katherine F. Shadek as trustee of the Trust.

                                               4
      Obtaining the New York order took some time. Nearly one year later, on

September 25, 2002, the New York Court entered an order that provided as follows:

      (1)    Katherine F. Shadek and JPMorgan Chase Bank are hereby given
             leave to transfer the situs of the Trust to the State of Delaware for
             administration thereof under the jurisdiction of the Court of
             Chancery of the State of Delaware, County of New Castle and the
             assets comprising the corpus of the Trust shall be transferred to
             Katherine F. Shadek and J.P. Morgan Trust Company of Delaware,
             as Trustees.

      (2)    JPMorgan Chase Bank, successor in interest to The Chase
             Manhattan Bank, is hereby authorized to resign as co-Trustee.

      (3)    J.P. Morgan Trust Company of Delaware shall be appointed
             successor co-Trustee upon the transfer of the Trust pursuant to the
             terms of the order of the Court of Chancery of the State of Delaware,
             County of New Castle.

      (4)    The Letters of Trusteeship issued to Katherine F. Shadek and The
             Chase Manhattan Bank (now known as JPMorgan Chase Bank),
             shall be revoked upon the appointment as co-Trustees of Katherine
             F. Shadek and J.P. Morgan Trust Company of Delaware by order of
             the Court of Chancery of the State of Delaware, County of New
             Castle.

      Approximately one month later, Katherine and Chemical Bank obtained an

additional order from this court dated October 29, 2002 (the ―2002 Order‖). It declared

that effective as September 25, 2002, the date of the New York Court’s order, the

following items were true:

       (A)   J.P. Morgan Trust Company of Delaware and Katherine F. Shadek
             are appointed as successor co-trustees of the Trust;

      (B)    this Court has accepted jurisdiction over the Trust; and

      (C)    Sections 3302, 3312, 3313 and 3402 of Title 12 of the Delaware
             Code shall govern all matters concerning the administration of the
             Trust that are addressed thereunder, and New York law shall
             continue to govern all other matters concerning the administration of

                                            5
                 the Trust; provided, however, that the co-trustees shall not be
                 required to account in any court other than one of the courts of the
                 State of Delaware.

Although the entry of the 2002 Order reflected this court’s practice at the time when

evaluating trust consent petitions, Delaware decisions have held subsequently that a

petition seeking consensual declarations that do not require judicial implementation does

not give rise to an actual controversy supporting declaratory relief.1

C.     The Trust’s Concentrated Corpus

       Approximately 81% of the fair market value of the Trust corpus is invested in the

stock of International Business Machines Corporation (―IBM‖). Wallace’s brother,

Charles Flint, founded Computing Tabulating Recording Company in 1911, which was

renamed IBM in 1924. When Wallace died, shares of IBM stock formed a preponderance

of the corpus.

       JP Morgan has recommended diversifying the Trust. Katherine and her children do

not want to diversify the Trust. Although the Trust is not a directed trust, JP Morgan has

acceded to their wishes. To hedge against a decline in the value of the stock, JP Morgan

has been entering annually into principal installment stock monetization transactions,

which the petition labels ―PrISM‖ transactions. The PrISM transactions have not been

described in detail.

       1
         See In re In re Peierls Family Inter Vivos Trusts, 77 A.3d 249, 266-67 (Del. 2013). See
generally 10 Del. C. § 6504; Rollins Int'l Inc. v. Int'l Hydronics Corp., 303 A.2d 660, 662–63
(Del. 1973).

                                               6
       The plain language of the Trust appears to contemplate that the trustees can retain

the IBM stock. Article SIXTEENTH of Wallace’s Will provides that his trustees can

continue to hold investments that he held. It states:

       [M]y Trustees as well and [their] successors . . . shall have full power and
       authority in their absolute and uncontrolled discretion to hold and retain
       any property coming into their hands hereunder in the same form of
       investment as that in which it may exist at the time of my death although it
       may not be of the character of investment permitted by law to Trustees . . . .

Article SIXTEENTH does not say that the trustees can retain an investment that Wallace

held even if they believe that it would be in the best interests of the Trust to sell it.

       In recent years, JP Morgan has insisted that additional steps be taken in light of

Katherine and her children’s desire to maintain the Trust’s concentrated investment in

IBM stock. First, the trustees distanced themselves from the actual investment decisions.

In 2012, they delegated to Laurence A. Shadek and James M. Shadek, two of Katherine’s

adult children, ―all duties and powers in connection with the investment of the assets of

the Trust,‖ including but not limited to a list of specific types of investments (the

―Investment Managers‖). Katherine’s adult children, including Laurence and James,

signed the delegations to Laurence and James on behalf of themselves and their

descendants.

       Second, in each of the last four years, Katherine and her adult children have

entered into consent, release, and indemnification agreements with JP Morgan and with

Laurence and James in their capacities as Investment Managers. Through these

agreements, Katherine and her adult children approved and consented to the

concentration of the Trust corpus, released JP Morgan and the Investment Managers from

                                                7
any liability, and agreed to indemnify JP Morgan and the Investment Managers against

any claims arising out of (i) the decision not to diversify the Trust’s investments other

than through the PrISM transactions, (ii) the PrISM transactions themselves, and (iii) the

delegation of investment authority to the Investment Managers. Katherine’s children

signed the delegations on behalf of themselves and their descendants.

D.       The Petition To Modify The Trust

         By petition dated October 24, 2014, Katherine sought to modify the terms of the

Trust. The brief in support of the petition stated that the changes are ―intended to

formalize the current investment management structure and replace the ad hoc

mechanism of delegations of investment responsibilities to the Investment Managers

which requires the annual burden of drafting and executing consent, release and

indemnification agreements between all interested parties.‖

         To achieve this result, the petition asks the court to approve a document titled the

―Modified and Restated Last Will and Testament of Wallace B. Flint.‖ The petition

shortens this to the ―Restated Will.‖ Both are newspeak. The new document would no

longer be the Last Will and Testament of Wallace B. Flint. It would be a new will and

testament, written for him by Katherine’s current lawyers, eighty-one years after his

death.

         The Restated Will would differ substantially from the original Will. Its length

more than doubles from the original Will’s nine pages to the Restated Will’s nineteen.

The additional bulk comes from four new articles that convert the Trust from a traditional

trustee-managed structure into a directed trust. The heart of the change is a new Article

                                              8
TWENTY-SEVENTH, which creates the position of Investment Advisor, appoints

Laurence as the initial Investment Advisor, and provides that Katherine and her adult

children shall have the power by majority vote to appoint a new investment advisor.

      Section C of the new Article TWENTY-SEVENTH directs the trustees to exercise

their investment powers only as directed by the Investment Advisor:

               (C) Investment Direction. My Trustees shall exercise all
               investment powers granted to it under Sections (2) through
               (5), and (7) through (14) of Section 3325 of Title 12 of the
               Delaware Code2 or any successor provision thereto, all

      2
          These sections provide as follows:

               Without limiting the authority conferred by § 3324 of this title, a
               trustee may:

               …

               (2) Acquire or sell property, for cash or on credit, at public or
               private sale;

               (3) Exchange, partition or otherwise change the character of trust
               property;

               (4) Deposit trust funds in an account in a regulated financial
               services institution, including an institution operated by or
               affiliated with the trustee;

               (5) Borrow money, with or without security, and mortgage or
               pledge trust property for a period within or extending beyond the
               duration of the trust;

               …

               (7) With respect to an interest in a proprietorship, partnership,
               limited liability company, statutory trust, business trust,
               corporation or other form of business or enterprise, continue the
               business or other enterprise and take any action that may be taken
               by shareholders, members or property owners, including merging,
               dissolving or otherwise changing the form of business organization
               or contributing additional capital;

                                               9
(8) With respect to stocks or other securities, to exercise the rights
of an absolute owner, including the right to:

        a. Vote, or give proxies to vote, with or without power of
substitution, or enter into or continue a voting trust agreement;

       b. Hold a security in the name of a nominee or in other
form without disclosure of the trust so that title may pass by
delivery;

       c. Pay calls, assessments and other sums chargeable or
accruing against the securities, and sell or exercise stock
subscription or conversion rights; and

        d. Deposit the securities with a securities depository or
other regulated financial services institution;

(9) With respect to an interest in real property, construct, make
ordinary or extraordinary repairs, alterations or improvements in
buildings or other structures, demolish improvements, raze existing
or erect new party walls or buildings, subdivide or develop land,
dedicate land to public use or grant public or private easements,
and make or vacate plats and adjust boundaries;

(10) Enter into a lease for any purpose as lessor or lessee,
including a lease or other arrangement for exploration and removal
of natural resources, with or without the option to purchase or
renew, for a period within the duration of the trust;

(11) Grant an option involving a sale, lease or other disposition of
trust property or take an option for the acquisition of property,
excluding an option exercisable beyond the duration of the trust,
and exercise an option so acquired;

(12) Insure the property of the trust against damage or loss and
insure the trustee, the trustee's agents and beneficiaries against
liability arising from the administration of the trust;

(13) Abandon or decline to administer property of no value or of
insufficient value to justify its collection or continued
administration;

(14) With respect to possible liability for environmental
conditions:

                                 10
              powers granted in Articles SIXTEENTH and TWENTIETH
              of this my will [sic], and all other powers relating to the
              acquisition, disposition, retention, exchange, change in
              character, lending, borrowing, pledging, mortgaging,
              managing, voting, leasing, granting of options with respect to,
              insuring, abandoning, or in any other way relating to the
              investment or management of the trust estate, only upon the
              written direction of the [I]nvestment [A]dvisor . . . .

(Footnote added). In his actual Will, Wallace placed the trustees in charge of investing

the Trust’s corpus. The original Will did not contemplate the position of Investment

Advisor or the concept of a directed trust, nor did it incorporate statutory language post-

dating Wallace’s death.

       Section D of the new Article TWENTY-SEVENTH relieves the trustees of any

duty to monitor the Investment Advisor:

                      a. Inspect or investigate property the trustee holds or has
              been asked to hold, or property owned or operated by an entity in
              which the trustee holds or has been asked to hold an interest, for
              the purpose of determining the application of environmental law
              with respect to the property;

                     b. Take action to prevent, abate or otherwise remedy any
              actual or potential violation of any environmental law affecting
              property held directly or indirectly by the trustee, whether taken
              before or after the initiation of a claim or governmental
              enforcement action;

                       c. Decline to accept property into trust or to disclaim any
              power with respect to property that has or may have environmental
              liability attached;

                      d. Compromise claims against the trust which may be
              asserted for an alleged violation of environmental law; and

                     e. Pay the expense of any inspection, review, abatement or
              remedial action to comply with environmental law . . . .

12 Del. C. § 3325.

                                              11
         (D) Trustee Has No Duty to Monitor. My Trustees shall
         have no responsibility to undertake any review of, or to
         provide advice regarding, any part of the trust estate subject
         to the direction of the Investment adviser. My Trustees shall
         have no duty or obligation to (a) communicate with or warn
         any beneficiary or any third party concerning instances in
         which my Trustees would or might have exercised their
         discretion in a manner different than the manner exercised by
         the Investment Advisor, (b) to inquire into or monitor the
         directions of the Investment Adviser notwithstanding any
         appearance of or actual conflict of interest of the Investment
         Advisor, or (c) inquire into, monitor or question the prudence
         of or inform any beneficiary with respect to the investment of
         the trust estate subject to the direction of the Investment
         Advisor, and any and all review of the investments by my
         Trustees shall be presumed to be solely for statement, tax
         reporting and/or other administrative purposes. My Trustees
         shall have no duty to seek the direction of the Investment
         Advisor in the absence of any direction. My Trustees shall be
         entitled to the full protection of Section 3313(e) of Title 12 of
         the Delaware Code3 without limitation. This Article has been

3
    This section provides as follows:

                 Whenever a governing instrument provides that a fiduciary
         is to follow the direction of an adviser with respect to investment
         decisions, distribution decisions, or other decisions of the
         fiduciary, then, except to the extent that the governing instrument
         provides otherwise, the fiduciary shall have no duty to:

         (1) Monitor the conduct of the adviser;

         (2) Provide advice to the adviser or consult with the adviser; or

         (3) Communicate with or warn or apprise any beneficiary or third
         party concerning instances in which the fiduciary would or might
         have exercised the fiduciary's own discretion in a manner different
         from the manner directed by the adviser.

         Absent clear and convincing evidence to the contrary, the actions
         of the fiduciary pertaining to matters within the scope of the
         adviser's authority (such as confirming that the adviser's directions
         have been carried out and recording and reporting actions taken at
         the adviser's direction), shall be presumed to be administrative

                                          12
              included in order to effectively bifurcate the investment
              function from other functions of my Trustees in order for
              investment decisions to be made by the Investment Adviser
              without the interference of my Trustees.

(Footnote added). In his actual Will, Wallace placed the trustees in charge of the Trust.

The Restated Will not only alters this arrangement, but it justifies it by referring to the

trustees’ management and oversight of the Trust as ―interference.‖ That is a strange

choice of words.

       Section E of the new Article TWENTY-SEVENTH directs the trustees to robo-

sign documents provided to them by the Investment Advisor:

              (D) My Trustees shall execute all documents necessary or
              appropriate in connection with any matter that is the subject
              of directions from the Investment Advisor, including, without
              limitation, making any representation, warranty or covenant
              required in order to make or maintain any investment of the
              trust, and any future action with respect to any such
              representation, warranty or covenant, only as directed by the
              Investment Adviser. My Trustees shall have no duty to
              conduct any independent review of documents presented to it
              [sic] by the Investment Adviser in furtherance of the
              Investment Adviser’s written instruction to my Trustees and
              shall sign the same as presented. Further, the Investment
              Adviser shall have the authority to direct my Trustees with
              regard to amending, securing, paying, and otherwise dealing
              with any debts, promissory notes, and other obligations of the
              trust. My Trustees shall act solely at the direction of the

              actions taken by the fiduciary solely to allow the fiduciary to
              perform those duties assigned to the fiduciary under the governing
              instrument and such administrative actions shall not be deemed to
              constitute an undertaking by the fiduciary to monitor the adviser or
              otherwise participate in actions within the scope of the adviser's
              authority.

12 Del. C. § 3313(e).

                                              13
                Investment Adviser in executing and delivering any and all
                documents in connection with any matter that is the subject to
                direction from the Investment Adviser, such as purchase and
                sale agreements, necessary or convenient to, or otherwise
                prepared in connection with, the purchase, sale, exchange,
                transfer, pledge or other disposition or encumbrance of trust
                investments and in making any and all representations and
                warranties appearing in any such documents.

In his original Will, Wallace contemplated that the trustees would exercise judgment and

discretion, not act as marionettes for the Investment Advisor.

       A new Article TWENTY-EIGHTH exculpates the trustees from all liability when

acting at the direction of the Investment Advisor ―except in cases of such Trustee’s own

willful misconduct.‖ The same new article provides broad indemnification and

advancement rights to the trustees and former trustees for ―any threatened, pending or

completed action, claim, demand, suit or proceeding, whether civil, criminal,

administrative or investigative, falling within the exculpatory provisions of the preceding

paragraph or to which the Trustee is made a party, or threatened to be made a party, by

reason of serving as Trustee.‖ The original Will did not provide the trustees with such an

extensive degree of insulation from accountability to their beneficiaries.

       Finally, a new Article TWENTY-FIFTH broadens the powers of the Investment

Advisor by providing that the Investment Advisor may direct the trustees

       to acquire and retain investments not regarded as traditional for trusts,
       including investments that would be forbidden or would be regarded as
       imprudent, improper, or unlawful by the ―prudent person‖ rule, ―Prudent
       investor‖ rule, Section 3302 of Title 12 of the Delaware Code, 4 any rule or

       4
           This section provides as follows:

                                               14
(a) When investing, reinvesting, purchasing, acquiring, exchanging, retaining,
selling and managing property for the benefit of another, a fiduciary shall act with
the care, skill, prudence and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar with such matters
would use to attain the purposes of the account. In making investment decisions, a
fiduciary may consider the general economic conditions, the anticipated tax
consequences of the investment and the anticipated duration of the account and
the needs of its beneficiaries.

(b) Within the limitations of the foregoing standard and considering individual
investments as part of an overall investment strategy, a fiduciary is authorized to
acquire every kind of property, real, personal or mixed, and every kind of
investment, wherever located, whether within or without the United States,
including, but not by way of limitation, bonds, debentures and other corporate
obligations, stocks, preferred or common, shares or interests in common funds or
common trust funds, securities of any open-end or closed-end management type
investment company or investment trust registered under the Federal Investment
Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), options, futures, warrants,
limited partnership interests and life insurance. No investment made by a
fiduciary shall be deemed imprudent solely because the investment is not
specifically mentioned in this subsection.

(c) The propriety of an investment decision is to be determined by what the
fiduciary knew or should have known at the time of the decision about:

        (1) The inherent nature and expected performance of the investment
portfolio;

        (2) The limitations of the standard set forth in subsection (a) of this
section; and

        (3) The nature and extent of other investments and resources, whether
held in trust or otherwise, available to the beneficiaries as they existed at the time
of the decision; provided however, that the fiduciary shall have no duty to inquire
as to the nature and extent of any such other investments and resources not held
by the fiduciary or held by the fiduciary in a trust or trust account subject to the
direction of an adviser authorized to direct the fiduciary with respect to
investment decisions, within the meaning of § 3313(d) of this title, concerning the
assets held in the trust or trust account.

       Any determination of liability for investment performance shall consider
the performance of the entire portfolio and such other factors as the fiduciary
considered when the investment decision was made.

                                         15
(d) Notwithstanding the foregoing provisions of this section, a trustee who
discloses the application of this subsection and the limitation of the trustee's
duties thereunder either in the governing instrument or in a separate writing
delivered to each insured at the inception of a contract of life insurance or
thereafter if prior to an event giving rise to a claim thereunder, may acquire or
retain a contract of life insurance upon the life of the trustor or the trustor's
spouse, or both, without liability for a loss arising from the trustee's failure to:

       (1) Determine whether the contract is or remains a proper investment;

         (2) Investigate the financial strength or changes in the financial strength
of the life insurance company;

       (3) Make a determination of whether to exercise any policy option
available under the contract;

        (4) Make a determination of whether to diversify such contracts relative
to 1 another or to other assets, if any, administered by the trustee; or

       (5) Inquire about changes in the health or financial condition of the
insured or insureds relative to any such contract.

(e) Any fiduciary acting under a governing instrument shall not be liable to
anyone whose interests arise from that instrument for breach of fiduciary duty for
the fiduciary's good faith reliance on the express provisions of such instrument.
The standards set forth in this section may be expanded, restricted or eliminated
by express provisions in a governing instrument.

(f) Where a bank or trust company acting in a fiduciary capacity invests trust
funds in, or otherwise acquires an interest in, a common trust fund which it or 1 of
its affiliates manages, as defined in § 23A of the Federal Reserve Act (12 U.S.C.
§ 371c), the plan for such common trust fund shall be filed and recorded in the
office of the Register in Chancery of the county in which is located the main
office in Delaware of the bank or trust company which is the fiduciary for such
trust funds.

(g) Fees may be charged for making an investment through a computerized or
automated process, such as sweeping otherwise uninvested cash into a cash
management vehicle, provided that the amount of such fees is disclosed on a
continuing basis as a separate item on the regular periodic statements furnished to
the beneficiaries of the account.

(h) A fiduciary is authorized, in the absence of an express provision to the
contrary, whenever a law, regulation, governing instrument or order directs,
requires, authorizes or permits investment in United States government

                                        16
       law concerning the duty of loyalty or any other rule or law which restricts a
       fiduciary’s capacity to invest.

(Footnote added). The original Will did not contemplate this expansive degree of

investment authority. Moreover, given the broad range of investment authority

contemplated by Section 3302, it seems odd to expand it further, and particularly extreme

to encompass investments that otherwise would be ―unlawful.‖

       Ironically, the Restated Will would continue to bear Wallace’s signature and the

signatures of his three original witnesses. It also would continue to recite that it was

―SIGNED, SEALED, PUBLISHED AND DECLARED by [Wallace] . . . in his presence

and in the presence of [the witnesses] this 12th day of December, 1934.‖ That would no

longer be true.

       obligations, to invest in those obligations, either directly or in the form of
       securities of, or other interests in, any open-end or closed-end management
       investment company or investment trust registered under the Investment
       Company Act of 1940 (54 Stat. 847, 15 U.S.C. § 80a-1 et seq.), if the portfolio of
       that investment company or investment trust is limited to United States
       government obligations and to repurchase agreements fully collateralized by
       United States government obligations, which collateral shall be delivered to or
       held by the investment company or investment trust, either directly or through an
       authorized custodian.

       (i) Except in the case of United States government obligations, which are treated
       in subsection (h) of this section above, the authority to invest in specified types of
       investments includes authorization to invest in any open-end or closed-end
       management investment company or investment trust registered under the
       Investment Company Act of 1940 (54 Stat. 847, 15 U.S.C. § 80a-1 et seq.), or in
       any common or collective trust fund established and maintained by a corporate
       fiduciary, if the portfolio of the investment company or investment trust, or of the
       common or collective trust fund, consists substantially of the specified types of
       investments and is otherwise in conformity with the laws of the State.

12 Del. C. § 3302.

                                                17
E.     The Modification Of The 2002 Order

       In addition to modifying the trust through the creation of the Restated Will,

Katherine wishes to modify the 2002 Order’s declaration regarding the law governing the

Trust. Rather than choosing a single state’s law to govern the administration of the Trust,

the 2002 Order picked two. Delaware law governed the matters set forth in Sections

3302, 3312, 3313 and 3402 of Title 12 of the Delaware Code, and New York law

continued to govern all other administrative matters.

       In the petition, Katherine asks for a more amorphous, complex, and unpredictable

division in the form of language that would provide as follows:

       Delaware law shall govern all matters pertaining to the administration of
       the Trust except those matters concerning administration which, if the law
       governing administration were changed from New York to Delaware law,
       would or might change the time of the vesting of interests in the property of
       the Trust, extend the duration of the Trust, or shift a beneficial interest in
       the Trust to any beneficiary who occupies a lower generation (as defined in
       Section 261 of the Internal Revenue Code of 1986, as amended), than the
       person or persons who held the beneficial interest prior to the change in the
       law governing administration, and all matters concerning the validity and
       construction of the Trust, and all matters concerning administration
       excepted from the application of Delaware law pursuant to the foregoing
       provisions, shall continue to be governed by new York law; provided,
       however, that the co-trustees shall not be required to account to any court
       other than one of the courts of the State of Delaware.

As a practical matter, this language would create a contingent choice of law provision, in

which Delaware law would govern all issues of administration unless it ―would or might‖

create adverse tax affects, in which case the law governing that particular issue would

revert back to New York.

                                            18
                                II.   LEGAL ANALYSIS

       This case presents two issues: the modification of the Trust and the modification

of the 2002 Order. Both requests are denied.

A.     The Modification Of The Trust

       The petition seeks to modify the Trust by having the court adopt the Restated Will.

The supporting brief stresses that the petition seeks modification, not reformation, and

candidly defines a modification as any change to a trust that departs from its original

terms. Katherine thus admits that she wants to rewrite Wallace’s estate plan so that it says

what she wants it to say, and she claims she should be able to do so simply because she

and her adult children agree.

       The problem with this approach is that it conflicts with Wallace’s intent. When he

drafted his Will, he did not create a directed trust in which the beneficiaries picked an

Investment Advisor—here, one of themselves—and the trustees simply did whatever the

Investment Advisor said. Wallace’s Trust contemplates that the trustees will use their

judgment when investing and re-investing the Trust corpus. The beneficiaries are not

supposed to exercise the degree of control over the Trust that the Restated Will would

give them. Wallace’s actual Will evidences his intent by placing limitations on

Katherine’s ability to access the corpus and limiting the trustees’ power to invade

principal on Katherine’s behalf. The most direct control Katherine could have was over

44% of the Trust corpus, and to get it she had to elect to receive one-fourth at age thirty-

five and one-fourth of the remainder at age forty. The most the trustees can do to invade

principal on Katherine’s behalf is a maximum of $10,000 per calendar year.

                                            19
      Wallace plainly intended for the Trust to benefit from the expertise and judgment

of individuals whom he trusted and who were not beneficiaries, like Henry Scribner and

Henry Molwitz. He also plainly intended for the Trust to benefit from the involvement of

a corporate trustee that actually would fulfill a trustee’s traditional role. The use of

independent trustees and the involvement of a corporate trustee have been thought to

provide meaningful protection against mismanagement and self-dealing.

      Doubtless Katherine and her adult children have good reasons for wanting to

change Wallace’s estate plan. Under the quite different administrative structure that the

petition advocates, a corporate trustee likely would charge far lower fees, because its

responsibilities would be reduced from those of a real trustee to those of an

administrative agent. Although short-term savings can have long-term costs, the costs of

re-writing Wallace’s estate plan are currently distant and contingent. The savings are

immediate and tangible.

      Whether the wishes of living beneficiaries should prevail over the wishes of a

dead settlor is a contestable issue where reasonable minds can disagree. Different

jurisdictions have reached different results. English law has long made the wishes of the

beneficiaries paramount. See Saunders v. Vautier, 49 Eng. Rep. 282 (Ch. 1841). By

contrast, under the Claflin doctrine, the majority rule in the United States has long

prioritized the settlor’s intent. See Claflin v. Claflin, 20 N.E. 454 (Mass. 1889). Recent

statutory initiatives, including the Uniform Trust Code, have eroded the Claflin doctrine

and moved towards prioritizing the wishes of beneficiaries. See generally Richard C.

                                           20
Ausness, Sherlock Holmes and the Problem of the Dead Hand: The Modification and

Termination of “Irrevocable Trusts,” 28 Quinnipiac Prob. L.J. 327 (2015).

       In Delaware, the settlor’s intent controls. Our Supreme Court has stated repeatedly

that ―[t]he cardinal rule of law in a trust case is that the intent of the settlor.‖ 5 Our Trust

Code makes it the policy of the State of Delaware ―to give maximum effect to the

principle of freedom of disposition and to the enforceability of governing instruments.‖

12 Del. C. § 3303(a). It would undercut this policy, and might well be described as

duplicitous, for our State to represent to a settlor that our law will respect his dispositions

and enforce his governing instrument, only to enable his beneficiaries to rewrite that

instrument after his death.

       Delaware obviously permits a settlor to create a new trust containing all of the

features that the petition seeks to implement. Re-writing an existing trust to incorporate

those features, contrary to the settlor’s intent as manifested by the instrument that the

settlor executed, is a different matter.

       1.     Prior Consent Decrees

       In an effort to persuade the court to grant the relief sought, the petition cites a

laundry list of orders and suggests that court previously granted the type of relief that the

petition requests. A rote listing of orders is not persuasive. Many date from a period when

this court routinely granted relief to which all parties consented, without independently

       5
        Chavin v. PNC Bank, 816 A.2d 781, 783 (Del. 2003) (internal quotation marks
omitted); accord Annan v. Wilm. Trust Co., 559 A.2d 1289, 1292 (Del. 1989); Dutra de
Amorim v. Norment, 460 A.2d 511, 514 (Del. 1983).

                                              21
testing whether there was a live dispute or similar basis for jurisdiction and without

examining carefully whether there were adequate grounds for the relief requested. All

pre-dated the Pierels decisions6 and the adoption of a statutory mechanism for

nonjudicial settlement.7 They are not precedential.

       2.       Other Doctrines

       Next, the petition cites a number of other doctrines and contends that they support

relief in this case. Recognizing that none apply, the petition does not actually rely on any

of them. Rather, the petition contends that when taken together, they imply the existence

of a judicial power to rewrite a trust when all current beneficiaries consent. Put

differently, the petitioner perceives within the penumbra of these doctrines the ability to

modify a trust by consent. To my mind, the doctrines’ limited reach supports the opposite

inference, namely that Delaware law does not countenance wholesale consensual

modification and only departs from the settlor’s intent in narrow circumstances.

                       a)     Reformation

       ―Trust reformation is an equitable remedy and is an ordinary remedy for mistake

in the terms of a trust instrument.‖ 90 C.J.S. Trusts § 92 (footnotes omitted). ―A trust may

be rescinded or reformed upon the same grounds as those upon which a transfer of

       6
        See In re Peierls Family Inter Vivos Trusts, 59 A.3d 471 (Del. Ch. 2012), aff’d in
part & rev’d in part, 77 A.3d 249 (Del. 2013); In re Ethel F. Peierls Charitable Lead
Unitrust, 59 A.3d 464 (Del. Ch. 2012), aff’d sub nom. In re Peierls Charitable Lead
Unitrust, 77 A.3d 232 (Del. 2013); In re Peierls Family Testamentary Trusts, 58 A.3d
985 (Del. Ch. 2012), aff’d in part & rev’d in part, 77 A.3d 223 Del. 2013).
       7
           See 79 Del. Laws, c. 172, § 2 (2013).

                                              22
property not in trust may be rescinded or reformed.‖ Restatement (Third) of Trusts § 62.

―Where no consideration is involved in the creation of a trust, it can be rescinded or

reformed upon the same grounds, such as fraud, duress, undue influence, or mistake, as

those upon which a gratuitous transfer of property not in trust can be rescinded or

reformed.‖ Id. cmt. a.

       Delaware adheres to these principles and, with one exception, applies the

traditional law of reformation to an application to reform a trust. See Roos v. Roos, 203
A.2d 140, 142 (Del. Ch. 1964). ―It is a basic principle of equity that the Court of

Chancery has jurisdiction to reform a document to make it conform to the original intent

of the parties.‖ Waggoner v. Laster, 581 A.2d 1127, 1135 (Del. 1990). Outside of the

trust context, ―reformation is appropriate only when the contract does not represent the

parties' intent because of fraud, mutual mistake or, in exceptional cases, a unilateral

mistake coupled with the other parties' knowing silence.‖ Emmert v. Prade, 711 A.2d
1217, 1219 (Del.Ch.1997) (internal quotation marks omitted).

       The doctrine of reformation for mistake with regard to trusts differs from
       instruments such as contracts in one important respect; in contract law,
       reformation will not be granted unless the parties' mistake is mutual, but
       mutuality of mistake is not always required where trusts are concerned, in
       that, because a settlor usually receives no consideration for the creation of a
       trust, a unilateral mistake on the part of the settlor is ordinarily sufficient to
       warrant reformation.

90 C.J.S. Trusts § 92 (footnote omitted); accord Roos, 203 A.2d at 142.

       The Court of Chancery has the power to reform a voluntary trust instrument even

after the death of the settlor, as long as the record ―clearly and affirmatively establishes‖

the grounds for reformation. Roos, 203 A.2d at 143. Notwithstanding that all parties to a

                                              23
case seek relief via consent petition, the petitioners still must introduce ―clear and

convincing evidence of the decedent's intent‖ in order to obtain reformation. In re Estate

of Tuthill, 754 A.2d 272, 273 (D.C.Ct.App.2000). ―Even though a unilateral mistake by

the settlor is a sufficient ground for reforming a trust that was created without any

consideration, the burden is nonetheless on the party seeking reformation to establish by

clear and convincing evidence the mistake.‖ 90 C.J.S. Trusts § 92 (footnote omitted).

       The petition concedes that grounds for reformation do not exist here, because the

Will accurately reflects Wallace’s plan for his estate, including the terms he wished to

establish for the Trust. But the petition argues that because the court has the power to

reform a trust instrument under limited circumstances, it should assert and exercise the

more expansive power to modify a trust instrument whenever all current beneficiaries

consent. In my view, the limited circumstances under which a Delaware court will order

reformation indicate the opposite and suggest that that modification is not freely available

as a matter of convenience.

                     b)       Common Law Cy Pres

       Cy pres is a French phrase meaning ―as near.‖ The Delaware courts first applied

common law cy pres in 1948.8 Under that doctrine,

       8
         See Del. Trust Co. v. Graham, 61 A.2d 110, 113–14 (Del. Ch. 1948); see also
E.L. Fisch, Cy Pres Comes to Delaware, 9 Md. L. Rev. 359, 359 (1948). In 1979, the
Delaware General Assembly established a statutory version of cy pres under the rubric of
judicial modification. See 12 Del. C. § 3541. This decision discusses judicial
modification separately. When adopting Section 3541, the General Assembly did not
indicate to what degree the statute displaced common law cy pres, leading this Court to
observe that ―[i]t is unclear to what extent [the statute] is meant to abrogate the Delaware

                                            24
       where the general charitable purpose of a trust would fail due to a
       circumstance, unanticipated by the settlor, that renders the literal fulfillment
       of the trust impossible or impractical, the court may designate an alternative
       beneficiary ―cy pres ‖ (as near as may be) to the named beneficiary, to
       facilitate the settlor's general intent.

PNC Bank, Del. v. N.J. State Soc. for Prevention of Cruelty to Animals, 2008 WL
2891150, at *6 (Del. Ch. July 14, 2008). If, however, the settlor’s ―particular intent

remain[s] possible, the bequest will be so applied. The general intention is of the last

resort.‖ S.A. Anderson, The Cy Pres Doctrine as Affecting the Construction of Deeds and

Wills, 1 Colum. L.T. 8, 12 (1887) (citation omitted).

       Because cy pres is a last resort, a court will not invoke the doctrine ―merely

because some imaginary benefit is anticipated from giving latitude to the language of the

written instrument, or on any bare suggestion of expediency.‖ Id. Only when it becomes

―absolutely impossible to accomplish the particular purpose‖ of the trust will cy pres

empower a court to craft an imperfect solution to make the trust functional. Id.

       As with reformation, the petition does not rely on common law cy pres. That

doctrine only can be invoked for charitable trust, which the Trust is not. Ronald Chester,

George Gleason Bogert & George Taylor Bogert, The Law of Trusts and Trustees, § 431,

at 118 (3rd ed. 2005) (―Cy pres has no application to private trusts....‖). Once again, the

common law doctrine.‖ See PNC Bank, Del. v. N.J. State Soc. for Prevention of Cruelty
to Animals, 2008 WL 2891150, at *7 n. 18 (Del. Ch. July 14, 2008) (citing In re Estate of
du Pont, 663 A.2d 470, 478 n. 14 (Del. Ch. 1994)). This decision need not address the
continuing vitality of common law cy pres because the petitioner has referenced it only
by way of illustration to indicate the type of reformative powers that the petitioner
believes this court should wield. No one contends that common law cy pres applies on the
facts of the case.

                                             25
petition cites cy pres as indicative of a broad power to modify trusts that this court should

wield freely. In my view, the doctrine is informative because it only permits modification

in the limited circumstances where the literal fulfillment of the trust’s purpose becomes

impossible or impractical. Applied by analogy, this court should modify the Trust only if

it is no longer possible to achieve Wallace’s intent. No one claims that is the case.

                     c)     Deviation

       The common law doctrine of deviation permits a departure from the literal terms

of a trust ―where compliance is impossible or illegal, or where owing to circumstances

not known to the settlor and not anticipated by him compliance would defeat or

substantially impair the accomplishment of the purposes of the trust.‖ 9 As with

reformation and common law cy pres, the petition does not rely on deviation directly but

rather as suggesting unbridled equitable authority over trusts. To my mind, once again,

the limitations of the doctrine suggest the opposite. A court could deviate from Wallace’s

estate plan only if his scheme became impossible or illegal. Neither has occurred.

                     d)     Statutory Modification

       By statute, Delaware authorizes a court to modify a trust, including a

noncharitable trust. The Trust Code provides as follows:

       (a) Subject to subsection (b) of this section, if a particular charitable
       purpose or noncharitable purpose becomes unlawful under the Constitution
       of this State or the United States or the trust would otherwise no longer

       9
        Bank of Del. v. Buckson, 255 A.2d 710, 716 (Del. Ch.1969) (quoting William F.
Fratcher, Scott on Trusts, § 383 (4th ed. 1989); see 12 Del. C. § 3306 (preserving
common law doctrine of deviation).

                                             26
serve any religious, charitable, scientific, literary, educational, or
noncharitable purpose:

         (1) The trust does not fail in whole or in part;

      (2) The trust property does not revert to the trustor or the trustor's
successors in interest; and

        (3) The Court of Chancery shall modify or terminate the trust and
direct that the trust property be applied or distributed, in whole or in part, in
a manner consistent with the trustor's charitable or noncharitable purposes,
whether or not such purposes be specific or general.

(b) The power of the Court of Chancery to modify or terminate a charitable
or noncharitable purpose trust, as provided in subsection (a) of this section,
is in all cases subject to a contrary provision in the terms of the trust
instrument, whether such contrary provision directs that the trust property
be distributed to a charitable or noncharitable beneficiary.

(c) For purposes of this section, a ―noncharitable purpose‖ is a purpose
within the meaning of § 355510 or § 355611 of this title.

10
     Section 3555 authorizes trusts for the care of an animal. See 12 Del. C. § 3555.
11
     Section 3556 authorizes trusts for ―Other Noncharitable Purposes.‖ It states:

(a) In addition to the provisions of § 3555 of this title, a trust for a declared
purpose that is not impossible of attainment is valid notwithstanding that
the trust might not be deemed to be for charitable purposes.

(b) A trust authorized by subsection (a) of this section shall not be invalid
because it lacks an identifiable person as beneficiary.

(c) A trust authorized by subsection (a) of this section may be enforced by a
person appointed in the terms of the trust or, if there is no such person or if
the last such person no longer is willing and able to serve, by a person
appointed by the Court of Chancery. A person who has an interest in the
declared purpose of the trust other than a general public interest may
petition the Court of Chancery for an order that appoints a person to
enforce the terms of the trust or to remove that person.

(d) Property of a trust authorized by this section may be applied only to its
intended use. Upon the termination of the trust, any property of the trust

                                        27
12 Del. C. § 3541 (emphasis added; footnotes supplied).

        Section 3541 identifies the limited circumstances in which the General Assembly

has granted the court the power to modify a trust. The statute prescribes a two step

inquiry before judicial modification can take place. Initially, the court must determine

that (i) the trust's purpose has become unlawful or (ii) the trust does not otherwise serve

―any ... noncharitable purpose.‖ 12 Del. C. § 3541(a). If so, then the court must evaluate

whether the settlor contemplated the particular contingency and provided for it. See 12
Del. C. § 3541(b). The court only may modify or terminate a trust if the first inquiry is

met and the trust instrument does not address the contingency. Id.; see PNC Bank, Del.,

2008 WL 2891150, at *7.

        As with the other doctrines, the petition does not rely on judicial modification per

se, but rather cites it as illustrative. As with the other doctrines, I see a different picture.

By analogy to Section 3541, a court should not modify the Trust unless its purpose has

become unlawful or it no longer serves ―any ... noncharitable purpose.‖ Neither is the

case.

        3.     The Request For Modification Is Denied.

        The petition seeks to modify the Will in a manner that conflicts with Wallace’s

intent. Under Delaware law, the settlor’s intent controls, and it is the public policy of this

        remaining shall be distributed in accordance with the terms of the trust or,
        in the absence of such terms, as provided in § 3592 of this title.

12 Del. C. § 3556.

                                              28
state ―to give maximum effect to the principle of freedom of disposition and to the

enforceability of governing instruments.‖ 12 Del. C. § 3303(a). The petitioners are not

permitted to rewrite Wallace’s Will to suit their current convenience.12

B.     The Modification Of The Order

       The petition also seeks to modify the 2002 Order to impose a contingent choice-

of-law scheme. Under the proposed provision, the law governing administration would

flip back and forth between Delaware and New York depending on whether the

application of Delaware law ―will or might‖ have adverse consequences for the trust. In

my view, the proposed language is too vague and uncertain to be implemented.

                               III.     CONCLUSION

       The relief sought in the petition is denied. Wallace’s intent controls. The language

of the 2002 Order continues to establish the law governing the Trust.

       12
          The petition also confronts the obstacle that the terms of the Trust are set forth
in the Will. This court has held that it lacks the equitable power to reform or modify a
will. See In re Last Will and Testament of Daland, 2010 WL 716160 (Del. Ch. Feb. 15,
2010). Under Daland, the court cannot modify a testamentary trust, like the current Trust,
where the provisions appear in a will. See Bogert, supra, § 991 at 133-34 (―[T]he
traditional presumption against reforming mistakes in wills may present an additional
challenge for a petitioner who seeks the reformation of a testamentary trust.‖). The
petitioner argued that Daland should be limited to its facts and that the Court of Chancery
should be able to reform both wills and testamentary trusts. In light of the disposition of
the petition on the merits, this decision need not reach the issue.

                                            29