In re Matter of Heller

Jacob Heller created a trust under which his wife, Bertha Heller, was to receive the trust income and the remainder was to be distributed to his children. Jacob designated his brother, Frank Heller, as trustee, and Jacob’s two sons, Herbert and Alan Heller as successor trustees after his brother died. After Jacob died in 1986 and Frank died in 1997, Herbert and Alan became trustees. In 2003, Herbert and Alan elected under EPTL 11-2.4(e)(1)(B)(I) to have the unitrust provision of the Uniform Principal and Income Act (UPAIA) applied retroactively to January 1, 2002. Herbert and Alan informed the trust beneficiaries of the election as required by the statute. Under the unitrust provision, trustees were entitled to elect to have trust income calculated under a fixed formula based on the market value of the assets. As a result of the trustees’ election, Bertha’s annual income from the trust dropped from $190,000 to $70,000. Acting as attorney-in-fact for Bertha, Sandra Davis (plaintiff), Bertha’s daughter, brought an action to annul the election under the unitrust provision and remove Alan and Herbert as trustees. Davis moved for summary judgment asserting that Alan and Herbert were not entitled to elect under the unitrust provision because they are remainder beneficiaries of the trust, and that they cannot elect retroactively. The Surrogate’s Court denied her motion and Davis appealed. Herbert and Alan cross appealed. The Appellate Division affirmed the denial of Davis’ motion for summary judgment, holding that an election under the unitrust provision by an interested trustee was not barred by the UPAIA or the common law principles governing the conduct of fiduciaries. The Appellate Division also granted the parties leave to appeal and certified to the Court of Appeals of New York the question of whether its order was correct.