Sara died. Her will created a
testamentary trust that provided
her second husband Cappy with, "reasonable maintenance, comfort and
support...after having considered the various available sources of support
for him."
Basically, the trust gave
Cappy a small quarterly income with the ability to ask for more if he
needed it for, "comfortable support and maintenance."
What was left over after
Cappy's death would go into a separate trust for her daughter Sally.
The will gave the trustees
sole and uncontrolled discretion over how much money to give Cappy.
That's known as a discretionary
trust.
Cappy continued to live in the
house that he'd shared with Sara, and eventually married Margaret.
The house was actually a
mansion, bought with the money Sara had inherited from her previous
husbands' estates.
A few years after Sara's
death, Cappy wrote to the trustee (Farr) and asked for money since his
horse breeding business was slow. Farr sent him $300. Farr also asked
Cappy to explain in writing why he needed the money.
A few years after that, Cappy
had trouble paying the mortgage. Farr suggested that he make a deal with
Sally where she would take over payments for the house, and then get it
when Cappy died.
Farr made no mention that
Cappy could get money out of the trust to pay his bills!
The deal gave no life estate
to Margaret to continue living in the house after Cappy died.
Farr acted as the only
attorney in the transactions, working for both Cappy and Sally.
(conflict of interest maybe...?)
Sally died. Then Cappy died.
Sally's heir, Martlette now owned the house and told Margaret to get out.
Margaret sued to stay.
The Probate Court found that
Farr had breached his fiduciary duties. Farr and Martlette appealed.
The Probate Court found that
if Farr had explained to Cappy that he could ask for money out of the
trust to pay his mortgage, he never would have sold the house to Sally.
The Probate Court ordered
Martlette to give the deed to Margaret and ordered Farr to reimburse
Martlette for the mortgage payments out of Cappy's trust.
The Appellate Court affirmed
the judgment against Farr, but reversed the judgment against Martlette.
The Appellate Court agreed
that Farr was under a duty to inquire about Cappy's finances and offer
extra money for Cappy's "comfortable support and maintenance."
Although Sara's will gave
Farr discretion, he was still required to use prudence and
reasonableness in his actions.
By not inquiring, Farr
breached his fiduciary duty.
The Appellate Court found
that Sally and Martlette had done nothing wrong in taking over the
mortgage, and therefore the contract between Sally and Cappy was valid.
It would not be equitable
to make Martlette pay for Farr's malfeasance.
The Appellate Court found
that the money in Cappy's trust which should have gone to him if Farr had
been doing a better job should go to Cappy's heir (Margaret) and not
Sally's heir (Martlette). Therefore, a new constructive trust was formed consisting of all the money Cappy
should have gotten.
The exact amount of money
in this constructive trust was a
question of fact for a jury, so it was remanded back to the Probate
Court.
