Matter of Smathers

When Elmer Smathers died in 1928, his will established a trust. The trust’s primary assets were two commercial properties in New York, namely the Broadway property and the Fifth Avenue property. The trust term was to be measured by the lives of Smathers’s niece-in-law and grandnephew. The niece-in-law died in 1945. During the trust term, $60,000 from trust income was to be paid annually to the niece-in-law and her issue. In 2008, there were three issue. The rest of the trust’s income was to be paid annually to named individuals and, upon their death, to each individual’s surviving spouse or issue. In 2008, there were approximately 100 beneficiaries. The will specified that the commercial properties were to be permanent trust assets, with the trustee lacking authority to sell or dispose of either property unless a sale became necessary by law. Further, if a sale of assets became necessary by law, the Broadway property was to be sold last. Upon the grandnephew’s death, the trust was to terminate, with its assets being distributed to Smathers’s corporation and the corporation’s stock then proportionally distributed to the trust’s beneficiaries. At Smathers’s death, the Broadway property was subject to a 99-year lease to Standard Oil Company (Standard) that allowed Standard to construct a building over the Broadway property, provided the Broadway property remained separate. Standard constructed such an additional building early in the lease term. In 2008, Standard sold its construction to Chetrit Group, LLC (Chetrit) for $225 million. The trustee, JP Morgan Chase Bank (Chase) (plaintiff), negotiated to also sell the Broadway property to Chetrit for $23.4 million. Chase then filed a petition in New York Surrogate Court, seeking the court’s permission to (1) deviate from the trust’s terms by selling the Broadway property and (2) create a limited-liability company for receipt of the trust’s assets upon the grandnephew’s death to avoid the double taxation that would occur under corporate tax laws enacted after Smathers’s death. Chase argued both actions were in the beneficiaries’ best interests. However, certain beneficiaries (defendants) objected.