WEBVTT

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(pages rustling)
<v ->SJC-13579,</v>

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in the matter of trust of Helen Klein

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for Denise Joe Levy.

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(phone faintly dinging)

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<v ->Okay, Attorney Taylor, whenever you're ready.</v>

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<v ->Good morning, Your Honors.</v>

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May it please the court,

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Attorney Tracy Taylor for Peter Judson,

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the appellant in this matter.

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I wanna start out by addressing two key points,

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which I feel may not be explicitly clear from my brief.

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The first is that

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the Massachusetts Principal and Income Act,

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which I will refer to as the MPIA,

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is by definition,

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and this is set forth in Section 3A of the act,

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a default act.

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By its terms, it only applies,

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well, strike that.

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By its terms, it only applies

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when there is no contrary provision in the trust itself

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or when the trust itself does not grant the trustee

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a discretionary power to administer the trust.

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<v ->I take it that what you're pointing to</v>

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for this proposition is Section 3A?

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<v ->Yes, Your Honor.</v>
<v ->Okay,</v>

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so I was going to ask you about that.

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Which of the four subsections of 3A

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do you contend this situation falls under?

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<v ->I believe it's Section B, Your Honor.</v>

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<v ->No, no, I'm asking about 3A,</v>

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which has four subsections.

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Not B, we don't get to B yet,

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so--
<v ->I believe</v>

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it's Section 3, Your Honor.

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<v ->3A what?</v>

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There's four...

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I don't mean to quiz you off your memory

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'cause I'm holding it in front of me,

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which gives me an advantage.

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So if you need to--
<v ->I believe it's Section 3A3.</v>

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<v Gabrielle>Okay, so--</v>

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<v ->It's a little confusing the way they're all set out, but--</v>

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<v ->Okay, I wanna make sure.</v>

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So 3A3 says that, "In allocating receipts and disbursements

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to or between principal and income,

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a fiduciary shall administer a trust or estate

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in accordance with this chapter

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if the terms of the trust or the will

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do not contain a different provision

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or do not give the fiduciary

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a discretionary power of administration."

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So is that the provision that you're relying on?

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<v ->It's 3A3.</v>

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<v ->3A3.</v>

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Okay, so that is.
<v ->Yes.</v>

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<v ->So as I read that,</v>

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and correct me if I'm wrong,

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you're saying that the will,

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the testamentary trust,

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did not give the trustee discretionary power

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to allocate between principal and interest, correct?

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<v ->It gave the trustee discretionary power</v>

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to allocate between principal and interest,

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but only under the most extreme circumstances.

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The settlor's in--
<v ->So they do contain</v>

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a different provision?

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<v Tracy>That's exactly right,</v>

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Your Honor.
<v ->All right, so--</v>

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<v ->My error if in my nervousness</v>

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I quoted the wrong.
<v ->No, no, no, that's okay.</v>

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So 3A3 then says that, in those circumstances,

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they will administer it

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in accordance with the MPIA.

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<v ->Yes.</v>
<v ->That they shall.</v>

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<v ->They shall if it does not contain contrary provision.</v>

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And my position is that the will

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does contain a contrary provision.

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<v ->So really, you're going,</v>

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and this is again unfair

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because you don't have the statute in front of you,

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but it's 3A1.

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<v Tracy>3A1, thank you.</v>

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<v ->It says that--</v>
<v ->I also can't see</v>

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in my old age,

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so things are...
(Justices laughing)

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<v ->Don't we all?</v>
<v ->3A1.</v>

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And exactly, this trust is unique.

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First of all, it was created back in 1977,

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which is well before

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the Uniform Principal and Income Act was enacted.

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<v ->Is it your position that it the statute doesn't apply</v>

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because of the 1977 execution of the will?

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<v ->Nope, I believe Massachusetts Principal and Income Act,</v>

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well, if you get to the point,

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if you decide that the settlor's trust

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does not contain a contrary provision,

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such as the MPIA does apply,

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then we get to the argument

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of whether or not the trustee applied Section 3B of the act,

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which is the duty to apply the power

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to adjust impartially.

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And my argument is that it does not.

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But my reason for talking about the date

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that the trust was created

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is that the UPIA and the MPIA,

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yeah, MPIA were not in existence at that time.

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So the way the trust was written,

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the settlor was not anticipating these things to occur.

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So she says

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explicitly in Section--
<v ->Well, that's not</v>

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exactly true, right?

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Because there is still this ability

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for the trustee to do this.

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You're arguing the emergency circumstances component, right?

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Because the trust document

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still gave the trustee

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the right to change these allocations.

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<v ->The trustee does have that power through the will,</v>

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but only under a showing

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of emergency circumstances.
<v ->Sure.</v>

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I just wanna just make sure I have this right.

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Is the increase here

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that your client is objecting to,

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was it about $25,000?

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<v ->Over the course of the past five years,</v>

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it's more in the neighborhood of $276,000,

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Your Honor.
<v ->Mm-hmm, okay.</v>

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<v ->And the trustee has been, since at least 2018,</v>

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liquidating the principal of this trust,

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which I suggest to you

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is not invested in gross stocks,

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rather it's invested solely

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in dividend-bearing stocks

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and interest-free municipal bonds.

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So my argument--

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<v Gabrielle>Is that in the record?</v>

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<v ->I'm sorry?</v>
<v ->I didn't see that</v>

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in the record.

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<v ->That may not be in the record,</v>

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Your Honor, that's--
<v ->Right, so we can't</v>

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consider it if it's not in the record.

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<v ->Understood, Your Honor.</v>

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The argument is that--

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<v ->Although the record does show</v>

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that the value has gone way up, right?

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<v ->Considerably.</v>

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<v ->It does not say that, Your Honor.</v>

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It gives you a value of the trust as of 2021.

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What is missing in this case,

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and my argument is,

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if the MPI is going to apply,

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if you get past the words of the settlor in the trust

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that say, "Only under emergency circumstances

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upon examination of the income beneficiaries,

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assets and income, and the."

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<v ->Wasn't that in the summary judgment record though?</v>

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Because wasn't there some kind of evidence

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from the trustee that he had run this math?

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<v Tracy>No, there was not,</v>

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but--
<v ->There was an affidavit.</v>

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<v ->There was an affidavit.</v>

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<v ->Affidavit that talks to the amount,</v>

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the value of the trust,

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but what I'm suggesting to you

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is missing and I would refer--

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<v ->No, no, no, not the value of the trust.</v>

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That he looked at the income beneficiaries,

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liabilities, bills, whatever it is,

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but that there was some analysis

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of the amount that the trust had grown

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versus the fixed amount

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that she was getting in income over the years,

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and that it was disproportionate

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and it needed some kind of recalibration

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based on her changed circumstances.

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<v ->There is a very self-serving blanket statement</v>

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to that effect by the trustee, Your Honor.

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But I'm suggesting to you that what is missing--

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<v Dalila>Is it under oath?</v>

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<v ->It was, it was an affidavit.</v>
<v ->Okay,</v>

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so it's evidence on summary judgment.

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What's the contrary evidence?

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<v Tracy>The contrary evidence is the--</v>

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<v ->You can't just say he's lying, right?</v>

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You have to come up with something.

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<v ->Exactly, the contrary evidence</v>

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is the affidavit of the appellant, Peter Judson,

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who says his mother told him

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that she was doing very well.

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She had realized $1 million

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from the liquidation of one of the other family trusts,

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and that she had earned considerable money

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and was making considerable income on it

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and was not running debt, so--

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<v ->We have an affidavit of the mother?</v>

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<v ->There was no affidavit of the mother.</v>

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<v ->Okay.</v>
<v ->She did not file</v>

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an affidavit of objection.

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She objected, but she never filed

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an affidavit of objections in this case.

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<v ->Right, but how are his hearsay statements</v>

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of what his mother said admissible?

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<v ->I don't think I even need-</v>
<v ->Is there a deposition</v>

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testimony, anything?
<v ->to this argument</v>

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because what I'm really contesting here is,

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if you get past the settlor's intent

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that says, "Only under an emergency,"

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and you get to the application of the MPIA,

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the MPIA was enacted in response

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to the adoption of the Prudent Investor Act,

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which gave, for the first time,

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trustees the ability to maximize

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the overall growth of a trust,

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potentially sacrificing the income beneficiary's race.

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<v ->I have a couple of questions</v>

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that are driven by the specific language in the will.

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So you may wanna look at them, if you want.

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The first is the will uses the term

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distribution or distribute,

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and it also uses the word adjustment,

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allocate or apportion.

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And those are not synonyms, correct?

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<v Tracy>They are not, Your Honor.</v>

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<v ->Right, so can you please tell me</v>

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your view of what is the meaning

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of distribute or distribution?

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And then separately,

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what is your view of the meaning of adjustment?

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<v ->And this goes to the appellee's argument</v>

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where they argue that the prohibition against distribution

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does not equate to a prohibition against adjustment.

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<v ->It's not really about an argument.</v>

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And I'm trying to get,

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because those terms' definitions must mean something

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because those terms appear in the portions of the will

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that you're relying on.

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<v ->Okay, so then adjustment would mean</v>

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reallocating capital assets to principal

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of two income.
<v ->Okay,</v>

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and distribution means?

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<v ->Distribution would be paying out those.</v>

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<v ->Okay, so--</v>
<v ->And that's what</v>

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has happened in this case, the--

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<v ->Well, hold on,</v>

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because those are two separate acts.

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I agree, you can have an allocation,

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a reallocation or an adjustment,

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and then the distribution gets made, right?

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The distribution is actually when the race

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is transferred out of the trust

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to a beneficiary.

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Am I correct on that?

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<v ->Correct, on the trust--</v>
<v ->Okay, so let's look</v>

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at page 47 of the record appendix.

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<v Tracy>Okay, I'm there.</v>

257
00:12:18.390 --> 00:12:21.450
<v ->This is the last paragraph of,</v>

258
00:12:21.450 --> 00:12:24.750
paragraph or section seventh,

259
00:12:24.750 --> 00:12:29.435
so it's the first full paragraph on that page, 47.

260
00:12:29.435 --> 00:12:32.185
(pages rustling)

261
00:12:36.660 --> 00:12:38.880
Now, this paragraph, as I read it,

262
00:12:38.880 --> 00:12:42.450
doesn't have anything to do with distributions, correct?

263
00:12:42.450 --> 00:12:43.890
<v ->Paragraph seventh, Your Honor?</v>

264
00:12:43.890 --> 00:12:47.223
<v Gabrielle>No, the last paragraph of paragraph seventh.</v>

265
00:12:48.420 --> 00:12:50.520
<v ->Last paragraph.</v>
<v ->So it's on page 47.</v>

266
00:12:50.520 --> 00:12:53.250
<v ->Starts with, "My fiduciary in their absolute discretion</v>

267
00:12:53.250 --> 00:12:56.430
shall have the authority to claim items."

268
00:12:56.430 --> 00:12:57.263
Do you see that?

269
00:13:00.270 --> 00:13:01.470
<v ->Yeah, what article are we on?</v>

270
00:13:01.470 --> 00:13:03.660
<v ->Seven.</v>
<v ->Look at Article 8th.</v>

271
00:13:03.660 --> 00:13:05.340
If you look at Article 8th

272
00:13:05.340 --> 00:13:06.480
and you look at the paragraph

273
00:13:06.480 --> 00:13:07.860
immediately above--
<v ->There I am,</v>

274
00:13:07.860 --> 00:13:09.240
my page is--

275
00:13:09.240 --> 00:13:10.380
<v ->That's okay.</v>

276
00:13:10.380 --> 00:13:12.633
Immediately above paragraph eighth,

277
00:13:14.010 --> 00:13:15.240
I'm talking about the...

278
00:13:15.240 --> 00:13:16.950
47.
<v ->Sorry.</v>

279
00:13:16.950 --> 00:13:18.930
<v ->Of the record appendix.</v>
<v ->Record appendix.</v>

280
00:13:18.930 --> 00:13:20.040
<v Tracy>Article 8th.</v>

281
00:13:20.040 --> 00:13:22.020
<v ->And just look at the paragraph above</v>

282
00:13:22.020 --> 00:13:23.250
where Article 8th starts.
<v ->Okay,</v>

283
00:13:23.250 --> 00:13:24.840
so you're looking at Article 7th, okay.

284
00:13:24.840 --> 00:13:28.420
<v Gabrielle>Right, the last paragraph of Article 7th.</v>

285
00:13:28.420 --> 00:13:29.897
<v ->Well, I'm glad you actually raised that</v>

286
00:13:29.897 --> 00:13:31.530
'cause I wanted to get to that

287
00:13:31.530 --> 00:13:33.300
and that's where I was trying to head

288
00:13:33.300 --> 00:13:34.680
when I said that this trust

289
00:13:34.680 --> 00:13:37.660
was created prior to the enactment of the MPIA,

290
00:13:37.660 --> 00:13:39.150
and--
<v ->But can we agree</v>

291
00:13:39.150 --> 00:13:42.510
that this paragraph indicates

292
00:13:42.510 --> 00:13:47.490
that the fiduciaries will have discretion

293
00:13:47.490 --> 00:13:51.030
to make adjustments or apportionments

294
00:13:51.030 --> 00:13:52.590
among the beneficiaries

295
00:13:52.590 --> 00:13:55.440
or as between principal and income?

296
00:13:55.440 --> 00:13:57.330
<v ->And I would argue too, Your Honor,</v>

297
00:13:57.330 --> 00:14:00.960
that, yes, it does that solely in the context,

298
00:14:00.960 --> 00:14:02.820
you have to read that in the context

299
00:14:02.820 --> 00:14:04.560
of the entire article,

300
00:14:04.560 --> 00:14:08.400
which talks about estate, succession,

301
00:14:08.400 --> 00:14:11.010
transfer taxes and income taxes.

302
00:14:11.010 --> 00:14:12.360
And as I was saying,

303
00:14:12.360 --> 00:14:15.870
this trust was created prior to the MPIA,

304
00:14:15.870 --> 00:14:20.490
when accounting principals for trust were far different.

305
00:14:20.490 --> 00:14:23.190
Prior to the enactment of the MPIA,

306
00:14:23.190 --> 00:14:25.890
you took deductions from income

307
00:14:25.890 --> 00:14:28.290
and stayed with income,

308
00:14:28.290 --> 00:14:30.540
and principal deductions for principals

309
00:14:30.540 --> 00:14:32.310
stayed with principal.

310
00:14:32.310 --> 00:14:35.370
So that paragraph that we're just reading--

311
00:14:35.370 --> 00:14:38.340
<v ->So if it does give them discretion in that regard-</v>

312
00:14:38.340 --> 00:14:39.394
<v Tracy>It gives them the discretion</v>

313
00:14:39.394 --> 00:14:40.500
because--
<v ->then how is it</v>

314
00:14:40.500 --> 00:14:43.713
that this case doesn't fall under section 3A2?

315
00:14:44.970 --> 00:14:49.173
<v ->If I may address the Article 7th first, Your Honor.</v>

316
00:14:51.840 --> 00:14:53.940
This article that we're talking,

317
00:14:53.940 --> 00:14:55.140
this clause that we're talking,

318
00:14:55.140 --> 00:14:56.430
this paragraph that we're talking about

319
00:14:56.430 --> 00:14:58.770
that gives the discretion to apportion

320
00:14:58.770 --> 00:15:01.500
is done so for the express purpose

321
00:15:01.500 --> 00:15:03.420
of maintaining net income

322
00:15:03.420 --> 00:15:04.770
for the income beneficiary,

323
00:15:04.770 --> 00:15:09.270
because if you did not have that clause in that section,

324
00:15:09.270 --> 00:15:14.010
the trustee would've had to deduct income taxes from income.

325
00:15:14.010 --> 00:15:15.570
This is giving the trustee

326
00:15:15.570 --> 00:15:19.860
the actual ability to maintain net income

327
00:15:19.860 --> 00:15:21.150
for the income beneficiary.

328
00:15:21.150 --> 00:15:23.627
<v ->So the judge erred in relying on that</v>

329
00:15:23.627 --> 00:15:25.323
you're saying I take it?

330
00:15:26.325 --> 00:15:28.620
'Cause the judge bases her decision,

331
00:15:28.620 --> 00:15:29.550
I think it's a her,

332
00:15:29.550 --> 00:15:31.110
decision on this, right?

333
00:15:31.110 --> 00:15:33.690
<v ->She did, but she--</v>
<v ->Yeah, can I ask one thing?</v>

334
00:15:33.690 --> 00:15:34.740
I don't know about the others,

335
00:15:34.740 --> 00:15:37.923
my page 46 is completely illegible.

336
00:15:39.000 --> 00:15:39.833
<v ->It just goes</v>

337
00:15:39.833 --> 00:15:40.737
from 45 to 47.
<v ->47.</v>

338
00:15:40.737 --> 00:15:43.650
<v ->Oh, oh, okay, all right.</v>

339
00:15:43.650 --> 00:15:48.420
Okay, so this thing in your view is a red herring,

340
00:15:48.420 --> 00:15:50.400
it's just a income tax?

341
00:15:50.400 --> 00:15:51.750
<v ->It is because it applies</v>

342
00:15:51.750 --> 00:15:53.670
to the accounting principals for trust

343
00:15:53.670 --> 00:15:56.430
that were in effect when the trust was created.

344
00:15:56.430 --> 00:15:59.370
Those principals were changed

345
00:15:59.370 --> 00:16:01.323
by the enactment of the MPIA.

346
00:16:02.220 --> 00:16:03.600
We didn't have those principals.

347
00:16:03.600 --> 00:16:05.730
The trustee back when this trust was written

348
00:16:05.730 --> 00:16:10.730
was not allowed to deduct income taxes from principal.

349
00:16:11.340 --> 00:16:16.340
So if you had not included that language in Article 7,

350
00:16:16.530 --> 00:16:18.420
net income would've decreased.

351
00:16:18.420 --> 00:16:22.980
<v ->So if the trust did give,</v>

352
00:16:22.980 --> 00:16:26.010
or if the will did give the trustee

353
00:16:26.010 --> 00:16:28.890
a discretionary power of adjustment

354
00:16:28.890 --> 00:16:32.700
or allocation between principal and income,

355
00:16:32.700 --> 00:16:37.090
why does this case not then fall under section 3A2

356
00:16:38.610 --> 00:16:40.683
instead of 3A1?

357
00:16:44.550 --> 00:16:46.472
<v ->I think they're both equally applicable, Your Honor.</v>

358
00:16:46.472 --> 00:16:47.760
They both--
<v ->Except that the outcome</v>

359
00:16:47.760 --> 00:16:49.143
would be very different.

360
00:16:50.910 --> 00:16:52.260
<v ->I don't believe the outcome</v>

361
00:16:52.260 --> 00:16:55.140
would be very different.
<v ->Because 3A2</v>

362
00:16:55.140 --> 00:16:57.570
says that if the trust

363
00:16:57.570 --> 00:17:00.630
gives a discretionary power of administration

364
00:17:00.630 --> 00:17:03.720
to the fiduciary by the terms of the trust or the will,

365
00:17:03.720 --> 00:17:05.493
which this paragraph does,

366
00:17:08.340 --> 00:17:13.340
then you would apply the terms of the MPIA,

367
00:17:14.340 --> 00:17:16.710
even if the outcome is different,

368
00:17:16.710 --> 00:17:20.757
then the result would be under the,

369
00:17:22.800 --> 00:17:24.750
even if the outcome would be different.

370
00:17:27.090 --> 00:17:30.840
<v ->I still think we have contrary provisions in the will.</v>

371
00:17:30.840 --> 00:17:32.490
But even if you get beyond that

372
00:17:32.490 --> 00:17:35.280
and you apply the MPIA,

373
00:17:35.280 --> 00:17:38.970
Section 3 of the MPIA, 3B,

374
00:17:38.970 --> 00:17:40.800
says the trustee has the duty

375
00:17:40.800 --> 00:17:44.897
to apply the power to adjust impartially

376
00:17:44.897 --> 00:17:48.360
and in a method that's fair to all beneficiaries.

377
00:17:48.360 --> 00:17:50.100
And I would direct your attention

378
00:17:50.100 --> 00:17:53.550
to the comment to the UPIA,

379
00:17:53.550 --> 00:17:57.330
which I believe is at page 116 in the appendix,

380
00:17:57.330 --> 00:17:59.970
and the second full paragraph there,

381
00:17:59.970 --> 00:18:03.990
which makes it explicitly clear

382
00:18:03.990 --> 00:18:05.700
that these acts were enacted

383
00:18:05.700 --> 00:18:08.880
as a response to the Prudent Investor Act,

384
00:18:08.880 --> 00:18:11.760
which allowed the trustee

385
00:18:11.760 --> 00:18:13.800
to then grow principal

386
00:18:13.800 --> 00:18:18.150
without regard to the income beneficiary's rights.

387
00:18:18.150 --> 00:18:23.150
So the comment to the act

388
00:18:23.250 --> 00:18:26.280
makes it clear that in order to apply it impartially,

389
00:18:26.280 --> 00:18:29.280
in order to apply the power to adjust impartially,

390
00:18:29.280 --> 00:18:33.540
you can't just say, "Oh, the trust has grown

391
00:18:33.540 --> 00:18:38.540
and the income beneficiary's income has not kept up."

392
00:18:39.090 --> 00:18:43.203
You need, and this goes to the Example 4

393
00:18:44.670 --> 00:18:45.510
under the comment,

394
00:18:45.510 --> 00:18:48.870
which is exactly on point in this case,

395
00:18:48.870 --> 00:18:50.370
you need to show--
<v ->Well, excuse me,</v>

396
00:18:50.370 --> 00:18:51.720
it's not exactly on point

397
00:18:51.720 --> 00:18:52.860
because that example

398
00:18:52.860 --> 00:18:56.040
contains a 6% ceiling-
<v ->You're correct.</v>

399
00:18:56.040 --> 00:18:58.530
<v ->which you don't have a 6% ceiling here.</v>

400
00:18:58.530 --> 00:19:00.330
<v ->No, but you could infer</v>

401
00:19:00.330 --> 00:19:02.550
that when the rate of income

402
00:19:02.550 --> 00:19:06.240
that the income beneficiary was receiving,

403
00:19:06.240 --> 00:19:08.130
at the time that the trust was created,

404
00:19:08.130 --> 00:19:09.843
at the death of the testator,

405
00:19:10.740 --> 00:19:14.580
that if you're going to utilize the power of adjust,

406
00:19:14.580 --> 00:19:16.350
the trustee would need to make a showing

407
00:19:16.350 --> 00:19:21.350
that he has, A, made a change in investments.

408
00:19:22.020 --> 00:19:23.580
And I would suggest to you

409
00:19:23.580 --> 00:19:25.650
we do not have any evidence here

410
00:19:25.650 --> 00:19:27.630
that that has occurred.

411
00:19:27.630 --> 00:19:29.100
He needs to make the showing

412
00:19:29.100 --> 00:19:31.230
that he made a change in investments

413
00:19:31.230 --> 00:19:34.680
to benefit the full value of the trust

414
00:19:34.680 --> 00:19:38.460
and that the income beneficiary's income has decreased.

415
00:19:38.460 --> 00:19:40.230
We don't have either of those things.

416
00:19:40.230 --> 00:19:41.480
<v ->So on that first point,</v>

417
00:19:42.540 --> 00:19:47.280
reading through the committee report behind the legislation,

418
00:19:47.280 --> 00:19:48.113
it seemed like there

419
00:19:48.113 --> 00:19:50.460
were actually two financial circumstances

420
00:19:50.460 --> 00:19:51.810
that they were focused on.

421
00:19:51.810 --> 00:19:53.370
One, the one you raised,

422
00:19:53.370 --> 00:19:55.740
that you wanna manage for growth, et cetera.

423
00:19:55.740 --> 00:19:56.573
<v Tracy>Exactly.</v>

424
00:19:56.573 --> 00:19:59.280
<v ->But secondly, that top-performing companies</v>

425
00:19:59.280 --> 00:20:03.000
simply aren't paying dividends very often anymore.

426
00:20:03.000 --> 00:20:05.760
And in fact, even if you don't make a change

427
00:20:05.760 --> 00:20:06.960
in the investments,

428
00:20:06.960 --> 00:20:08.700
investments that may have been held for a long time

429
00:20:08.700 --> 00:20:10.830
are just no longer yielding dividends.

430
00:20:10.830 --> 00:20:13.830
So is there a basis in the act

431
00:20:13.830 --> 00:20:17.250
that the trustee would have to have actually changed?

432
00:20:17.250 --> 00:20:18.750
You're claiming that the trustee

433
00:20:18.750 --> 00:20:20.850
would've had to change the investment allocation.

434
00:20:20.850 --> 00:20:23.070
Is there a basis for that in the statute?

435
00:20:23.070 --> 00:20:24.480
<v ->I'm basing that on,</v>

436
00:20:24.480 --> 00:20:27.870
yes, the section that says

437
00:20:27.870 --> 00:20:30.663
that they are complying with the Prudent Investor Act,

438
00:20:32.880 --> 00:20:35.313
and they have to make a showing,

439
00:20:36.330 --> 00:20:37.710
the trustee has to make a showing,

440
00:20:37.710 --> 00:20:39.300
the trustee has to keep records

441
00:20:39.300 --> 00:20:44.300
as to how his changes in investment strategy,

442
00:20:45.300 --> 00:20:50.010
or even to give Your Honor's argument its due,

443
00:20:50.010 --> 00:20:53.490
that principal increased by X amount

444
00:20:53.490 --> 00:20:54.690
over the course of the years.

445
00:20:54.690 --> 00:20:56.100
<v ->Well, Counsel, I'm going to interrupt you</v>

446
00:20:56.100 --> 00:20:56.970
before we lose you

447
00:20:56.970 --> 00:20:58.680
because I know you might disagree

448
00:20:58.680 --> 00:21:02.520
as to whether or not the co-trustee did any of this.

449
00:21:02.520 --> 00:21:03.870
I read it in the record

450
00:21:03.870 --> 00:21:06.150
that he had made these determinations

451
00:21:06.150 --> 00:21:07.230
about the investments

452
00:21:07.230 --> 00:21:10.500
and as to why he did the allocations the way he did.

453
00:21:10.500 --> 00:21:13.500
I'm trying to kind of zero in on what your point is.

454
00:21:13.500 --> 00:21:16.290
Is it that summary judgment was wrong here

455
00:21:16.290 --> 00:21:18.450
because there's a factual dispute

456
00:21:18.450 --> 00:21:22.980
or because you claim the judge made an error of law?

457
00:21:22.980 --> 00:21:25.170
<v ->I claim the judge made an error of law, Your Honor,</v>

458
00:21:25.170 --> 00:21:27.390
and that she completely ignored Section 3A

459
00:21:27.390 --> 00:21:29.146
of the MPIA.

460
00:21:29.146 --> 00:21:30.990
She didn't even get there.
<v ->So what are we to do</v>

461
00:21:30.990 --> 00:21:34.500
with your saying that there was a counterfactual affidavit

462
00:21:34.500 --> 00:21:35.617
from your client saying,

463
00:21:35.617 --> 00:21:38.250
"I heard all of this stuff from my mom,"

464
00:21:38.250 --> 00:21:39.930
that she had done well

465
00:21:39.930 --> 00:21:44.760
and that the concerns of the co-trustee about reallocating

466
00:21:44.760 --> 00:21:49.290
because of her personal circumstances weren't founded?

467
00:21:49.290 --> 00:21:51.090
<v ->I don't think we even need to get there, Your Honor,</v>

468
00:21:51.090 --> 00:21:53.910
because I think the crux of the argument is,

469
00:21:53.910 --> 00:21:56.430
the lower court ignored Section 3A,

470
00:21:56.430 --> 00:21:58.500
they had a misreading of Article 7

471
00:21:58.500 --> 00:22:00.240
because the court didn't understand

472
00:22:00.240 --> 00:22:01.680
that that language pertained

473
00:22:01.680 --> 00:22:04.260
to trust accounting principals

474
00:22:04.260 --> 00:22:06.030
that were in effect at the time,

475
00:22:06.030 --> 00:22:07.350
which have now changed

476
00:22:07.350 --> 00:22:10.593
with the inaction of the MPIA.

477
00:22:13.590 --> 00:22:15.510
<v ->Okay.</v>
<v ->Thank you very much.</v>

478
00:22:15.510 --> 00:22:16.760
<v ->Thank you, Your Honors.</v>

479
00:22:20.280 --> 00:22:21.630
<v ->Okay, Attorney Lindstrom.</v>

480
00:22:30.390 --> 00:22:31.800
<v ->All right, (throat clearing) good morning.</v>

481
00:22:31.800 --> 00:22:32.940
Thank you, Christopher Lindstrom

482
00:22:32.940 --> 00:22:35.760
on behalf of the appellees and trustees.

483
00:22:35.760 --> 00:22:38.100
So we have two issues presented on this appeal.

484
00:22:38.100 --> 00:22:43.100
First, being whether the probate and trial court, (coughing)

485
00:22:43.260 --> 00:22:46.620
probate and family court found that Attorney Friedman

486
00:22:46.620 --> 00:22:50.310
had the right, the authority to adjust

487
00:22:50.310 --> 00:22:51.720
as between principal and income

488
00:22:51.720 --> 00:22:53.490
under the Principal and Income Act.

489
00:22:53.490 --> 00:22:57.030
And secondly, if he did have that power,

490
00:22:57.030 --> 00:22:59.070
was there any evidence in the record

491
00:22:59.070 --> 00:23:02.910
to show that he abused that discretionary power?

492
00:23:02.910 --> 00:23:05.760
<v ->Why do we keep thinking of this as a,</v>

493
00:23:05.760 --> 00:23:07.413
or at least you do, I think,

494
00:23:07.413 --> 00:23:10.470
that the trustee can act unilaterally?

495
00:23:10.470 --> 00:23:13.263
I didn't see that in the will.

496
00:23:14.280 --> 00:23:18.180
I thought that this was a testamentary trust

497
00:23:18.180 --> 00:23:22.200
that appointed multiple trustees,

498
00:23:22.200 --> 00:23:23.670
and it did not say,

499
00:23:23.670 --> 00:23:24.960
I didn't see a provision

500
00:23:24.960 --> 00:23:26.640
and no one cited me to one

501
00:23:26.640 --> 00:23:28.680
that says that each trustee

502
00:23:28.680 --> 00:23:30.540
can act unilaterally.

503
00:23:30.540 --> 00:23:32.280
Is there one?

504
00:23:32.280 --> 00:23:33.570
<v ->But there was that provision</v>

505
00:23:33.570 --> 00:23:36.570
if you are a beneficiary and co-trustee,

506
00:23:36.570 --> 00:23:38.460
that you're accepted out.

507
00:23:38.460 --> 00:23:39.293
<v ->Correct.</v>

508
00:23:40.290 --> 00:23:42.060
So the trust sets forth

509
00:23:42.060 --> 00:23:45.570
that it is intended to have at least two trustees

510
00:23:45.570 --> 00:23:47.070
at any given time.

511
00:23:47.070 --> 00:23:48.870
But then as Justice Georges points out,

512
00:23:48.870 --> 00:23:51.420
there is the separate provision, Article 8th,

513
00:23:51.420 --> 00:23:54.600
which states that if you are a beneficiary,

514
00:23:54.600 --> 00:23:57.240
you are not to make a decision that may impact you.

515
00:23:57.240 --> 00:23:59.520
<v ->Okay, and so--</v>
<v ->And therefore</v>

516
00:23:59.520 --> 00:24:04.520
the co-trustee excused herself from this decision.

517
00:24:04.770 --> 00:24:08.970
And Attorney Friedman, as the unbiased trustee,

518
00:24:08.970 --> 00:24:10.953
made the decision on his own.

519
00:24:12.120 --> 00:24:16.380
<v ->And he does so based on the fact</v>

520
00:24:16.380 --> 00:24:18.930
that the principal has gone up a lot, right?

521
00:24:18.930 --> 00:24:23.930
And that the income is not rising accordingly.

522
00:24:24.300 --> 00:24:27.270
Is that a fair statement of that?

523
00:24:27.270 --> 00:24:28.710
'Cause I'd like you to finish your point

524
00:24:28.710 --> 00:24:30.600
about why is this right,

525
00:24:30.600 --> 00:24:33.180
'cause I don't think it's right

526
00:24:33.180 --> 00:24:37.080
because of the tax provision flexibility,

527
00:24:37.080 --> 00:24:39.120
and nor does it appear that you think it's right,

528
00:24:39.120 --> 00:24:40.713
'cause it's your last argument.

529
00:24:41.550 --> 00:24:44.010
So tell me why (laughing) the judge got it right,

530
00:24:44.010 --> 00:24:45.510
besides that.

531
00:24:45.510 --> 00:24:47.070
<v ->Sure.</v>

532
00:24:47.070 --> 00:24:50.250
Respectfully, Judson's entire appeal here

533
00:24:50.250 --> 00:24:52.950
is premised on a fundamental misunderstanding

534
00:24:52.950 --> 00:24:55.500
of what the power to adjust

535
00:24:55.500 --> 00:24:57.750
under the Principal and Income Act really is.

536
00:24:59.370 --> 00:25:02.040
Judson appears to be equating the power to adjust

537
00:25:02.040 --> 00:25:04.380
to the power to invade principal,

538
00:25:04.380 --> 00:25:06.420
which is when a trustee

539
00:25:06.420 --> 00:25:10.170
looks to the circumstances of the income beneficiary

540
00:25:10.170 --> 00:25:12.720
and decides to, quote-unquote, invade the principal

541
00:25:12.720 --> 00:25:14.250
to make a distribution

542
00:25:14.250 --> 00:25:16.500
based on current needs,

543
00:25:16.500 --> 00:25:19.440
emergencies of the income beneficiary.

544
00:25:19.440 --> 00:25:23.310
The power to adjust is a completely separate tool.

545
00:25:23.310 --> 00:25:24.570
It's well recognized now

546
00:25:24.570 --> 00:25:26.580
in the trust and estates community

547
00:25:26.580 --> 00:25:29.970
that permits trustees to correctively adjust

548
00:25:29.970 --> 00:25:31.590
as between principal and income

549
00:25:31.590 --> 00:25:33.270
when investment strategies

550
00:25:33.270 --> 00:25:36.780
have led to comparative allocations between the two

551
00:25:36.780 --> 00:25:39.660
that no longer treat the principal beneficiaries

552
00:25:39.660 --> 00:25:41.220
and the income beneficiaries the same.

553
00:25:41.220 --> 00:25:43.950
<v ->So Article 7 of the will</v>

554
00:25:43.950 --> 00:25:47.730
expressly gives the trustee the power to adjust

555
00:25:47.730 --> 00:25:50.703
between principal and income for tax purposes.

556
00:25:52.230 --> 00:25:54.750
So I'm with you to that point.

557
00:25:54.750 --> 00:25:58.923
And then what happens under the MPIA?

558
00:26:00.003 --> 00:26:01.890
<v ->The MPIA is clear</v>

559
00:26:01.890 --> 00:26:05.010
that if there is no language

560
00:26:05.010 --> 00:26:07.440
speaking to whether the trustee

561
00:26:07.440 --> 00:26:09.090
has the power to adjust,

562
00:26:09.090 --> 00:26:11.130
then the trustee has the power to adjust.

563
00:26:11.130 --> 00:26:11.963
In other words, there needs to be--

564
00:26:11.963 --> 00:26:15.570
<v ->But there is language in Article 7.</v>

565
00:26:15.570 --> 00:26:16.880
And so...

566
00:26:19.560 --> 00:26:21.720
I get it when there's no language,

567
00:26:21.720 --> 00:26:24.210
then the MPIA gives the power to adjust.

568
00:26:24.210 --> 00:26:25.590
When there is language,

569
00:26:25.590 --> 00:26:27.753
for tax purposes, let's just say,

570
00:26:28.890 --> 00:26:30.840
what happens?

571
00:26:30.840 --> 00:26:32.490
<v ->It only bolsters argument</v>

572
00:26:32.490 --> 00:26:34.440
that the settlor's intent

573
00:26:34.440 --> 00:26:39.420
was to provide the trustees the discretionary authority

574
00:26:39.420 --> 00:26:43.710
to adjust or allocate when circumstances

575
00:26:43.710 --> 00:26:45.990
made it necessary to treat everyone equitably.

576
00:26:45.990 --> 00:26:48.150
Now, remember, as--

577
00:26:48.150 --> 00:26:50.790
<v ->So are you under 3B now?</v>

578
00:26:50.790 --> 00:26:52.050
I'm confused as to where

579
00:26:52.050 --> 00:26:55.530
the MPIA--
<v ->Which 3A subsection</v>

580
00:26:55.530 --> 00:26:58.290
do you believe this case falls under?

581
00:26:58.290 --> 00:27:01.050
<v ->That it is a default act</v>

582
00:27:01.050 --> 00:27:04.800
unless there is contrary language in the trust.

583
00:27:04.800 --> 00:27:05.691
<v Scott>Why isn't the-</v>

584
00:27:05.691 --> 00:27:07.320
<v ->So that's 3...</v>
<v ->extraordinary circumstances</v>

585
00:27:07.320 --> 00:27:10.260
language applicable?

586
00:27:10.260 --> 00:27:11.943
I'm confused by that,

587
00:27:13.212 --> 00:27:15.390
'cause you're allowed to do this

588
00:27:15.390 --> 00:27:18.030
if there's extraordinary circumstances.

589
00:27:18.030 --> 00:27:21.660
But isn't that implicitly

590
00:27:21.660 --> 00:27:22.770
that you're not allowed to do it

591
00:27:22.770 --> 00:27:25.200
if there's not extraordinary circumstances?

592
00:27:25.200 --> 00:27:27.853
<v ->Well, respectfully, I disagree.</v>

593
00:27:27.853 --> 00:27:28.860
<v ->I just don't know the answer.</v>

594
00:27:28.860 --> 00:27:30.573
I'm not putting a position out.

595
00:27:32.100 --> 00:27:32.933
<v ->Within your question,</v>

596
00:27:32.933 --> 00:27:35.190
you say, "The ability to do this,"

597
00:27:35.190 --> 00:27:36.030
and what I'm saying is,

598
00:27:36.030 --> 00:27:39.000
there are two different thises.

599
00:27:39.000 --> 00:27:43.320
<v ->There's the power to distribute</v>

600
00:27:43.320 --> 00:27:45.090
through an invasion of the principal

601
00:27:45.090 --> 00:27:48.030
when there are these special circumstances,

602
00:27:48.030 --> 00:27:51.240
these emergencies, these dire circumstances.

603
00:27:51.240 --> 00:27:53.580
That's different than here,

604
00:27:53.580 --> 00:27:54.870
the power to adjust

605
00:27:54.870 --> 00:27:56.910
under the Principal and Income Act.

606
00:27:56.910 --> 00:27:59.400
The power to adjust is a reallocation

607
00:27:59.400 --> 00:28:01.440
based on, as you pointed out earlier,

608
00:28:01.440 --> 00:28:04.260
investment decisions under the Prudent Investor Rule

609
00:28:04.260 --> 00:28:05.880
that have grown principal

610
00:28:05.880 --> 00:28:08.190
in a way where income is not.

611
00:28:08.190 --> 00:28:11.220
Now, remember, when this--
<v ->So grown principal</v>

612
00:28:11.220 --> 00:28:13.560
is not invaded principal?

613
00:28:13.560 --> 00:28:16.410
When principal grows, you're not invading it?

614
00:28:16.410 --> 00:28:17.610
Is that clear?

615
00:28:17.610 --> 00:28:20.228
Again, I'm not a trusted estate expert

616
00:28:20.228 --> 00:28:21.990
(laughing) by any means, so.

617
00:28:21.990 --> 00:28:23.550
<v ->It is clear in the comments</v>

618
00:28:23.550 --> 00:28:26.970
to not only the Massachusetts Principal and Income Act,

619
00:28:26.970 --> 00:28:28.830
but also the Uniform--
<v ->But, Counsel, the comment,</v>

620
00:28:28.830 --> 00:28:30.240
oh, sorry, go ahead.

621
00:28:30.240 --> 00:28:33.660
<v ->And that's actually how she uses it in her trust, right?</v>

622
00:28:33.660 --> 00:28:34.740
In her will.

623
00:28:34.740 --> 00:28:39.060
She separates between distribution of principal,

624
00:28:39.060 --> 00:28:41.910
which is only for emergency situations,

625
00:28:41.910 --> 00:28:45.210
and reallocation as between principal and income

626
00:28:45.210 --> 00:28:46.683
for tax purposes.

627
00:28:47.850 --> 00:28:49.170
<v Christopher>Correct, yes.</v>

628
00:28:49.170 --> 00:28:53.850
<v ->But the example that has been cited</v>

629
00:28:53.850 --> 00:28:55.110
specifically contemplates,

630
00:28:55.110 --> 00:28:56.070
I forget what number it is,

631
00:28:56.070 --> 00:28:57.450
Example 4 or something,

632
00:28:57.450 --> 00:29:00.420
specifically contemplates that a trustee will,

633
00:29:00.420 --> 00:29:02.460
and admittedly, it includes the 6%,

634
00:29:02.460 --> 00:29:07.050
in that hypothetical ceiling of 6% distribution,

635
00:29:07.050 --> 00:29:09.000
but it contemplates that a trustee

636
00:29:09.000 --> 00:29:10.530
will actually keep track

637
00:29:10.530 --> 00:29:15.510
of how much the current beneficiaries have lost out

638
00:29:15.510 --> 00:29:18.060
as a result of the investment strategy.

639
00:29:18.060 --> 00:29:19.830
And Mr. Friedman's affidavit here

640
00:29:19.830 --> 00:29:21.510
does not contain any of that information.

641
00:29:21.510 --> 00:29:24.847
It just simply says, in a conclusory fashion,

642
00:29:24.847 --> 00:29:27.660
"I have been investing as a prudent investor

643
00:29:27.660 --> 00:29:30.960
and the income has not kept pace.

644
00:29:30.960 --> 00:29:35.067
So I'm giving her approximately 1% more."

645
00:29:36.600 --> 00:29:39.690
Do you think that that, (laughing)

646
00:29:39.690 --> 00:29:43.913
it doesn't seem to exactly with the level of detail

647
00:29:45.900 --> 00:29:47.553
contemplated by the act.

648
00:29:49.170 --> 00:29:52.830
<v ->Well, first of all, the Comment Number 4,</v>

649
00:29:52.830 --> 00:29:54.633
which you're exact on the number,

650
00:29:56.070 --> 00:29:57.990
I'd just like to point out

651
00:29:57.990 --> 00:30:00.960
that that absolutely shows that Attorney Friedman

652
00:30:00.960 --> 00:30:02.700
had this power to allocate,

653
00:30:02.700 --> 00:30:03.750
'cause in that comment,

654
00:30:03.750 --> 00:30:05.040
it clearly distinguishes

655
00:30:05.040 --> 00:30:07.470
between the power to invade for distributions,

656
00:30:07.470 --> 00:30:12.270
and even if there is a limitation on the power to invade,

657
00:30:12.270 --> 00:30:13.920
the comment states that the trustee

658
00:30:13.920 --> 00:30:16.080
still has the power to do this power of adjustment

659
00:30:16.080 --> 00:30:17.960
under the MPIA,

660
00:30:17.960 --> 00:30:20.130
or in that case, the Uniform Principal and Income Act.

661
00:30:20.130 --> 00:30:20.963
To your point,

662
00:30:20.963 --> 00:30:23.203
the 6% is the key.
<v ->Can I ask one?</v>

663
00:30:23.203 --> 00:30:24.450
I just wanna make sure I understand--

664
00:30:24.450 --> 00:30:25.380
<v ->Can we have an answer</v>

665
00:30:25.380 --> 00:30:27.930
to Justice Georges' question first though, please?

666
00:30:27.930 --> 00:30:30.060
<v ->So to me, the 6% is the key,</v>

667
00:30:30.060 --> 00:30:32.760
because we don't have that similar situation.

668
00:30:32.760 --> 00:30:33.960
All we have--
<v ->But sorry,</v>

669
00:30:33.960 --> 00:30:36.930
can I just change it out as a hypothetical?

670
00:30:36.930 --> 00:30:39.960
So he's asserted that he's managing as a prudent investor,

671
00:30:39.960 --> 00:30:43.170
say it's actually all invested (laughing) in, I don't know,

672
00:30:43.170 --> 00:30:45.420
it's not invested for growth

673
00:30:45.420 --> 00:30:47.280
in a way that has resulted

674
00:30:47.280 --> 00:30:51.090
in massive reduction in income while it's growing.

675
00:30:51.090 --> 00:30:53.280
We don't know that because there are no facts on the record.

676
00:30:53.280 --> 00:30:55.950
And so we don't know if this 1%

677
00:30:55.950 --> 00:30:58.380
actually at all corresponds

678
00:30:58.380 --> 00:31:01.053
with the investment strategy that's been pursued.

679
00:31:02.100 --> 00:31:05.160
<v ->I guess another way of saying this is that,</v>

680
00:31:05.160 --> 00:31:08.070
is it sufficient on summary judgment

681
00:31:08.070 --> 00:31:10.323
for the trustee to simply say,

682
00:31:11.317 --> 00:31:13.113
"I complied with the act,

683
00:31:14.760 --> 00:31:16.830
I considered the factors

684
00:31:16.830 --> 00:31:18.430
and I made my adjustment

685
00:31:20.220 --> 00:31:21.840
in accordance with the MPIA"?

686
00:31:21.840 --> 00:31:22.920
Because that's in essence

687
00:31:22.920 --> 00:31:25.050
the bare-bones affidavit that's here.

688
00:31:25.050 --> 00:31:26.340
It did give a percent,

689
00:31:26.340 --> 00:31:30.180
it did give one piece of information

690
00:31:30.180 --> 00:31:32.130
about the amount of capital growth

691
00:31:32.130 --> 00:31:36.000
and it did give one relative piece of information of,

692
00:31:36.000 --> 00:31:37.620
I mean, one piece of information

693
00:31:37.620 --> 00:31:39.640
about relative increase in income

694
00:31:41.040 --> 00:31:42.870
in terms of income distribution

695
00:31:42.870 --> 00:31:44.910
to the income beneficiary,

696
00:31:44.910 --> 00:31:47.520
but doesn't give anything more than that.

697
00:31:47.520 --> 00:31:50.100
And the question is, is that sufficient

698
00:31:50.100 --> 00:31:55.100
even if it's not opposed to entitle the trustee

699
00:31:55.560 --> 00:31:57.270
to summary judgment on the question

700
00:31:57.270 --> 00:31:59.250
on whether the trustee

701
00:31:59.250 --> 00:32:02.310
complied with the provisions of the MPIA?

702
00:32:02.310 --> 00:32:03.240
<v ->Yes.</v>
<v ->Okay.</v>

703
00:32:03.240 --> 00:32:05.070
So what's your legal authority for that?

704
00:32:05.070 --> 00:32:06.180
<v ->The legal authority there is,</v>

705
00:32:06.180 --> 00:32:07.980
that is the burden on the objector

706
00:32:07.980 --> 00:32:10.020
to show there was an abuse of discretion.

707
00:32:10.020 --> 00:32:11.280
<v ->Okay, so--</v>
<v ->And there's nothing</v>

708
00:32:11.280 --> 00:32:14.220
in Mr. Judson's affidavit

709
00:32:14.220 --> 00:32:17.970
that states that Attorney Friedman

710
00:32:17.970 --> 00:32:19.260
abused his discretion.

711
00:32:19.260 --> 00:32:21.060
All he speaks about

712
00:32:21.060 --> 00:32:24.270
are statements from the other trustee

713
00:32:24.270 --> 00:32:26.670
and income beneficiary, Denise Joy Levy,

714
00:32:26.670 --> 00:32:29.520
that we have no idea that Attorney Friedman

715
00:32:29.520 --> 00:32:30.660
ever heard those statements.

716
00:32:30.660 --> 00:32:33.480
We have no idea if Attorney Friedman

717
00:32:33.480 --> 00:32:37.470
had knowledge of her specific means

718
00:32:37.470 --> 00:32:39.840
that may be higher than he may have expected,

719
00:32:39.840 --> 00:32:43.260
according to Mr. Johnson.
<v ->And the summary judgment</v>

720
00:32:43.260 --> 00:32:45.240
motion was made before there was discovery,

721
00:32:45.240 --> 00:32:46.260
is that correct?

722
00:32:46.260 --> 00:32:47.453
<v Christopher>Correct.</v>

723
00:32:48.690 --> 00:32:53.690
<v ->Can you tell me whether the adjustment in this case</v>

724
00:32:54.660 --> 00:32:58.080
occurred simultaneously with the distribution,

725
00:32:58.080 --> 00:33:01.080
or even if there was a distribution?

726
00:33:01.080 --> 00:33:02.480
<v ->That is not in the record?</v>

727
00:33:06.927 --> 00:33:08.340
I assume there was a distribution

728
00:33:08.340 --> 00:33:09.360
after the adjustment,

729
00:33:09.360 --> 00:33:14.040
or else that's why you make the adjustment.

730
00:33:14.040 --> 00:33:15.120
But it's not in the record.

731
00:33:15.120 --> 00:33:19.770
<v ->Can I follow up on just Justice Wendlandt's point earlier?</v>

732
00:33:19.770 --> 00:33:22.710
So Article 7 gives you the power

733
00:33:22.710 --> 00:33:25.320
to adjust for tax purposes.

734
00:33:25.320 --> 00:33:28.023
I get that you can adjust for tax purposes.

735
00:33:29.370 --> 00:33:30.870
You can't invade principal

736
00:33:30.870 --> 00:33:32.820
unless there are extraordinary circumstances.

737
00:33:32.820 --> 00:33:35.490
You can adjust, you say,

738
00:33:35.490 --> 00:33:37.800
because Article 7 says, "For tax purposes,"

739
00:33:37.800 --> 00:33:40.920
but can you adjust for any other purposes,

740
00:33:40.920 --> 00:33:43.353
or does that mean it's an invasion principal?

741
00:33:45.090 --> 00:33:46.620
I still don't get that yet.

742
00:33:46.620 --> 00:33:48.060
<v ->That's why we have the statute,</v>

743
00:33:48.060 --> 00:33:49.677
that's why the statute was passed in 2006.

744
00:33:49.677 --> 00:33:51.727
<v ->But when the will actually says,</v>

745
00:33:51.727 --> 00:33:55.143
"You have the power to adjust for tax purposes,"

746
00:33:58.350 --> 00:34:00.690
is there a necessary implication

747
00:34:00.690 --> 00:34:02.730
that you do not have the power

748
00:34:02.730 --> 00:34:05.010
to adjust for any other purposes?

749
00:34:05.010 --> 00:34:07.140
<v Scott>Yeah, that's my question.</v>

750
00:34:07.140 --> 00:34:11.100
<v ->No, in order for the Principal and Income Act</v>

751
00:34:11.100 --> 00:34:11.970
not to apply,

752
00:34:11.970 --> 00:34:14.190
there needs to be clear language

753
00:34:14.190 --> 00:34:17.400
that takes away the power to adjust.

754
00:34:17.400 --> 00:34:21.873
<v ->So this negative implication is not enough?</v>

755
00:34:23.070 --> 00:34:25.147
<v ->The statute itself even says,</v>

756
00:34:25.147 --> 00:34:27.270
"If there are some limitations

757
00:34:27.270 --> 00:34:30.960
on the power to allocate or adjust within the trust,

758
00:34:30.960 --> 00:34:33.420
that's not sufficient to take it outside of the statute."

759
00:34:33.420 --> 00:34:34.560
<v Dalila>Now, what section is that?</v>

760
00:34:34.560 --> 00:34:36.273
<v ->That's Section F, 4F.</v>

761
00:34:37.298 --> 00:34:38.848
<v Dalila>4F, okay, thank you.</v>

762
00:34:40.830 --> 00:34:42.820
<v ->So there needs to be a clear intent</v>

763
00:34:43.950 --> 00:34:47.430
that the trustee has no power to adjust whatsoever.

764
00:34:47.430 --> 00:34:50.100
<v ->So can we go back to my very initial question?</v>

765
00:34:50.100 --> 00:34:52.050
So you think this falls under,

766
00:34:52.050 --> 00:34:54.660
which subsection of 3A

767
00:34:54.660 --> 00:34:59.660
do you believe this particular testamentary trust falls?

768
00:35:03.108 --> 00:35:04.926
<v Christopher>3A3.</v>

769
00:35:04.926 --> 00:35:09.926
<v ->Okay, so the objector thinks it's 3A2</v>

770
00:35:10.410 --> 00:35:12.273
and you think it's 3A3.

771
00:35:16.020 --> 00:35:18.570
<v ->I guess if it did fall within 3A2,</v>

772
00:35:18.570 --> 00:35:21.690
I still think we would prevail,

773
00:35:21.690 --> 00:35:26.690
because if we are saying that the trust is,

774
00:35:26.940 --> 00:35:27.990
if the trustee was given

775
00:35:27.990 --> 00:35:29.610
a discretionary power of administration,

776
00:35:29.610 --> 00:35:31.773
then he would have this power as well.

777
00:35:33.480 --> 00:35:35.043
I'm not sure it matters, but.

778
00:35:38.310 --> 00:35:40.223
<v Dalila>So two, you win, three you win?</v>

779
00:35:40.223 --> 00:35:41.056
(Justices laughing)

780
00:35:41.056 --> 00:35:42.960
<v ->Yes, but I don't think two applies.</v>

781
00:35:42.960 --> 00:35:45.260
So I don't wanna advocate for that whatsoever.

782
00:35:51.030 --> 00:35:53.670
<v ->Can you explain to me the distinction</v>

783
00:35:53.670 --> 00:35:55.620
between the power to adjust

784
00:35:55.620 --> 00:35:57.870
and the ability to make distributions?

785
00:35:57.870 --> 00:36:01.590
Because one is clearly tied to extraordinary circumstances,

786
00:36:01.590 --> 00:36:02.643
the other is not.

787
00:36:03.990 --> 00:36:07.590
<v ->So the power to make distributions,</v>

788
00:36:07.590 --> 00:36:09.870
otherwise known as the power to invade,

789
00:36:09.870 --> 00:36:12.960
is the situation that is spoken to in the trust.

790
00:36:12.960 --> 00:36:14.850
This is when the income beneficiary,

791
00:36:14.850 --> 00:36:16.860
here, the daughter of the settlor,

792
00:36:16.860 --> 00:36:18.030
needs the money,

793
00:36:18.030 --> 00:36:20.460
if there's dire circumstances,

794
00:36:20.460 --> 00:36:23.464
then the trustee has the power to,

795
00:36:23.464 --> 00:36:24.510
(throat clearing) excuse me,

796
00:36:24.510 --> 00:36:25.620
invade the principal

797
00:36:25.620 --> 00:36:28.110
no matter what the investments have done.

798
00:36:28.110 --> 00:36:31.290
Whereas the power to adjust is,

799
00:36:31.290 --> 00:36:35.110
again, this newly-found power

800
00:36:36.720 --> 00:36:40.020
in the trust and estates community, passed in 2006,

801
00:36:40.020 --> 00:36:41.490
which is a recognition

802
00:36:41.490 --> 00:36:43.260
that investment strategies have changed.

803
00:36:43.260 --> 00:36:45.840
<v ->Which will result in distributions.</v>

804
00:36:45.840 --> 00:36:48.960
<v ->They result in (laughing) an adjustment or allocation-</v>

805
00:36:48.960 --> 00:36:51.000
<v Frank>Which result in a distribution.</v>

806
00:36:51.000 --> 00:36:53.790
<v ->which may have the same effect as a distribution,</v>

807
00:36:53.790 --> 00:36:55.191
but-
<v ->Well, it does to the person</v>

808
00:36:55.191 --> 00:36:56.691
who's complaining.

809
00:36:57.840 --> 00:37:00.360
<v ->it's the basis of the power that's different</v>

810
00:37:00.360 --> 00:37:01.620
than the power to invade,

811
00:37:01.620 --> 00:37:04.863
and it's also the factors that the trustee weighs.

812
00:37:05.880 --> 00:37:07.620
We have to remember that in 1977

813
00:37:07.620 --> 00:37:09.540
when this trust was put together,

814
00:37:09.540 --> 00:37:12.263
interest rates were 7% to 8%.

815
00:37:13.560 --> 00:37:15.540
Now they're not.
(Frank laughing)

816
00:37:15.540 --> 00:37:18.390
Stocks issued dividends on a regular basis.

817
00:37:18.390 --> 00:37:19.830
Now they don't.

818
00:37:19.830 --> 00:37:22.533
The stock market's 40 times higher than it was then.

819
00:37:24.450 --> 00:37:28.320
This is a situation where the language of the trust,

820
00:37:28.320 --> 00:37:30.000
as seen in Article 7th,

821
00:37:30.000 --> 00:37:31.020
even if you disagree

822
00:37:31.020 --> 00:37:33.540
that that is a more general allocation principal,

823
00:37:33.540 --> 00:37:35.190
but the language of the trust is,

824
00:37:35.190 --> 00:37:39.000
if there are situations where an allocation or adjustment

825
00:37:39.000 --> 00:37:41.220
needs to be made to be fair and equitable

826
00:37:41.220 --> 00:37:42.660
to all the beneficiaries,

827
00:37:42.660 --> 00:37:44.460
then the trustee should do that.

828
00:37:44.460 --> 00:37:46.830
And so therefore there's no reason

829
00:37:46.830 --> 00:37:50.340
why the power to adjust under the MPIA

830
00:37:50.340 --> 00:37:51.173
doesn't apply here.

831
00:37:51.173 --> 00:37:54.000
<v ->Going back to justice Gaziano's question,</v>

832
00:37:54.000 --> 00:37:55.080
am I correct in assuming

833
00:37:55.080 --> 00:37:58.860
that if an adjustment took place,

834
00:37:58.860 --> 00:38:00.750
and let's just talk about this one,

835
00:38:00.750 --> 00:38:02.850
and it goes up to $90,000,

836
00:38:02.850 --> 00:38:04.920
and then that were paid out

837
00:38:04.920 --> 00:38:07.320
to the present beneficiary,

838
00:38:07.320 --> 00:38:09.900
that would be accounted for on the books

839
00:38:09.900 --> 00:38:14.250
as a payment of income to the beneficiary, correct?

840
00:38:14.250 --> 00:38:15.990
<v ->I presume so, yes.</v>
<v ->Okay.</v>

841
00:38:15.990 --> 00:38:19.590
So there actually isn't a distribution of principal

842
00:38:19.590 --> 00:38:22.323
following an adjustment?

843
00:38:23.760 --> 00:38:25.950
<v ->No, it is considered income, correct.</v>

844
00:38:25.950 --> 00:38:28.680
<v ->Right, so you move it from one column to another,</v>

845
00:38:28.680 --> 00:38:30.690
and then say, "I'm taking it outta the other."

846
00:38:30.690 --> 00:38:32.700
<v ->Right, and remember, this can go both ways.</v>

847
00:38:32.700 --> 00:38:34.740
So say we have a stock market crash

848
00:38:34.740 --> 00:38:36.840
like we did in '87 or '08,

849
00:38:36.840 --> 00:38:37.950
the trustee could decide

850
00:38:37.950 --> 00:38:39.900
to move income to principal

851
00:38:39.900 --> 00:38:42.243
if it's fair to all beneficiaries.

852
00:38:43.440 --> 00:38:48.440
<v ->You had said that it was the petitioner,</v>

853
00:38:49.320 --> 00:38:52.470
Mr. Jebson's burden to show

854
00:38:52.470 --> 00:38:55.920
that the trustee abused his discretion.

855
00:38:55.920 --> 00:38:59.220
What is the legal authority for that?

856
00:38:59.220 --> 00:39:00.180
Is that in your brief?

857
00:39:00.180 --> 00:39:01.580
If it is, I'll find it, but.

858
00:39:02.820 --> 00:39:05.190
<v ->Not as clear as it could be, but it's in there.</v>

859
00:39:05.190 --> 00:39:06.780
I can give it to you right now.

860
00:39:06.780 --> 00:39:08.310
So Section 3 of the act

861
00:39:08.310 --> 00:39:10.500
states that a decision by the trustee

862
00:39:10.500 --> 00:39:12.420
is presumed to be fair and reasonable

863
00:39:12.420 --> 00:39:14.007
to all of the beneficiaries.

864
00:39:14.007 --> 00:39:17.340
And then you'll also have Section 5 of the act,

865
00:39:17.340 --> 00:39:22.340
which discusses judicial review of trustees' decisions,

866
00:39:22.350 --> 00:39:25.320
and it states that the burden

867
00:39:25.320 --> 00:39:28.410
is on the party objecting to the trustee's action.

868
00:39:28.410 --> 00:39:31.740
Now, the procedural posture

869
00:39:31.740 --> 00:39:33.270
considered in that Section 5

870
00:39:33.270 --> 00:39:34.710
is slightly different than ours,

871
00:39:34.710 --> 00:39:37.740
so I don't wanna mislead you in that,

872
00:39:37.740 --> 00:39:40.950
but the principal should be the same,

873
00:39:40.950 --> 00:39:42.720
that it is the objector

874
00:39:42.720 --> 00:39:44.580
that has to show use of discretion,

875
00:39:44.580 --> 00:39:45.930
especially where we have Section 3

876
00:39:45.930 --> 00:39:49.383
that says it's presumed to be fair and reasonable.