Legal Memorandum: Review of a Trustee's Actions

Issue: Whether a co-trustee’s management decisions would be subject to critical and/or judicial review only if they impinge on management of trust funds.

Area of Law: Estate Planning & Probate
Keywords: Trustee's actions; Management of trust funds; Prudent investor standard
Jurisdiction: Federal, New York
Cited Cases: 568 N.Y.S.2d 660; 3 N.Y.2d 22; 845 N.Y.S.2d 833; 165 A.D.2d 499; 814 N.Y.S.2d 889; 163 N.Y.S.2d 644
Cited Statutes: N.Y. E.P.T.L. § 11-2.3
Date: 04/01/2012

The general rule is that a trustee must invest and manage property held in a fiduciary capacity according to the prudent investor standards.  In re Hyde, 44 A.D.3d 1195, 1197, 845 N.Y.S.2d 833, 836 (3d Dep’t 2007) (citing N.Y. E.P.T.L. § 11-2.3).  A trustee’s actions are judged by trustee standards, even if the trustee’s job entails corporation management.  In re Estate of Schulman, 165 A.D.2d 499, 568 N.Y.S.2d 660 (3d Dep’t 1991).

It appears that the Prudent Investors Act, N.Y. E.P.T.L § 11-2.3, and the common law requirement that a trustee manage trust funds in accordance with the standard of a prudent trustee, are applicable to warrant review of a trustee’s actions and inaction in the trustee’s role in the management of real property owned by the trust.  See In re Estate of Schinasi, 3 N.Y.2d 22, 143 N.E.2d 369, 163 N.Y.S.2d 644 (1957) (discussing trustee’s duties as including collection of rents and other property management tasks); In re Zirinsky, 26 Misc. 3d 625, 889 N.Y.S.2d 423 (Surr. Ct. Nassau County 2009) (discussing dominant co-trustee’s actions as real estate manager as reviewable by stringent standards applicable to fiduciaries); In re Chadrjian, No. 284060, 10 Misc. 3d 1077(A), 814 N.Y.S.2d 889 (Surr. Ct. Nassau County Jan. 27, 2006) (noting, in action to suspend letters of trusteeship, that trustees’ roles as trustees were closely intertwined with their roles as day-to-day managers of the real estate and corporate entities that funded the trust).  […]

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