Court Of Chancery Finds In Favor Of Petitioner’s Motion For Judgment On The Pleadings Regarding Interpretation Of Trust Language

In the Matter of Trusts F/B/O Marie C. Thomas Under Agreement of Charles D. Thomas Dated December17, 1986, as Amended, C.A. No. 2020-0698-MTZ (August 2, 2021)

          In the context of the petitioner’s motion for judgment on the pleadings (meaning that all well-pleaded allegations were construed in favor of the Respondents for the purposes of this ruling), Vice Chancellor Zurn issued an opinion finding that the trust at issue mandates the trustees make specific annual distributions and—at least at the pleadings stage—that the trustees did not breach their duty to manage the trust property.

          This action arose out of a disputed interpretation of a revocable trust. The Trust was created in 1986 and amended multiple times. In both the original Trust language and all amendments, a clause stipulated that the surviving spouse should receive income. The 2018 amendment was specifically at issue. This amendment stated that, “If my wife survives me, she shall receive the minimum distribution from my IRA’s [sic] that can be taken to use for her medical and living expenses.”

          Upon the Trustor’s death in 2019, the Trustor’s children became Co-Trustees of the Trust and distributed to the surviving spouse the Trust IRA’s entire required minimum distribution. However, in 2020, the Co-Trustees asserted that The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allowed them to forgo making distributions to the surviving spouse that year.

          The issue before the Court was therefore whether the surviving spouse’s distribution should be the total amount of the Trust IRA’s required minimum distribution or some smaller amount capped at the surviving spouse’s medical and living expenses. The Court found that the language should be interpreted such that the surviving spouse is entitled only to the minimum dollar amount necessary to pay her medical and living expenses. The Court explained that interpreting the language as the Court did was consistent with the Trustor’s longstanding intent to provide for the surviving spouse. Furthermore, the Court noted that its interpretation also respected the Trustor’s intent to fund the Trust principal for his children. Lastly, the Court found that its interpretation not only respected the Trustor’s intent, but also gave the remaining sections of the trust proper force and effect when the Trust is read as a whole.

          As to Count II, the Court found that the trustees did not breach their fiduciary duties when the pleadings were read in the light most favorable to the trustees, which is the standard the Court applied given that it was deciding a motion for judgment on the pleadings. Applying that standard, the Court concluded that the trustees’ alleged failure to make a 2020 distribution did not warrant judgment on the pleadings against the trustees. It appears that litigation in Chancery may continue as to Count II, with the discovery phase presumably to come next as to that count.