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Practice Points with Mark Scruggs: The Trustee’s Duty of Neutrality

by Mark Scruggs |

Do you ever serve as trustee of a client’s trust? If so, you might want to read the Court of Appeals’ Opinion in Wing v. Goldman Sachs Trust Company, N.A., 2020 WS 6140397 (October 20, 2020). In a case of first impression, the Court of Appeals considered the trustee’s duty of and liability for distribution to disputed beneficiaries during pending litigation.

In Wing v. Goldman Sachs, the decedent created a revocable trust in August 2011. He underwent brain surgery to remove several brain tumors in October 2012, and thereafter began to suffer a series of serious physical and mental health problems. After the surgery in December 2012 until December 2014, the decedent executed six amendments to the 2011 Trust. Under the original Trust, Plaintiff Wing was a beneficiary. Under the last amendment, she was not. Conversely, two beneficiaries under last amendment – Sellers and Cone - were not beneficiaries under the original Trust. Goldman Sachs was named trustee of the Trust.

The decedent died on May 11, 2015. In 2016, Plaintiff Wing filed a claim challenging the validity of the purported amendments and gave Goldman Sachs notice of their claims. Goldman Sachs continued making distributions to Sellers and Cone despite being on notice that the amendments were being challenged and that Sellers and Cone were not named beneficiaries under the original Trust. Sellers and Cone filed a motion to pay, asking the Court to direct Goldman Sachs to pay the cost of defending the Trust as amended. Wing filed a motion to freeze administration of the revocable trust until the rightful beneficiaries were determined. The trial court granted Sellers’ and Cone’s motion to pay the costs of defending the trust and denied Wing’s motion.  Wing appealed.

On appeal, Goldman Sachs argued that a trustee has a duty to defend the purported amendments during pending litigation between purported beneficiaries. (Importantly, Plaintiff Wing was not challenging the underlying validity of the Trust, only the decedent’s capacity to execute the amendments and the rightful beneficiaries of the Trust. The Trust itself, the res, was not in jeopardy.)

The Court of Appeals disagreed with Goldman Sachs and held that Goldman Sachs, as trustee, had a duty to remain neutral regarding competitive claims between putative beneficiaries. The Court said the trustee is not required to pay attorney fees or legal costs unless the res of the Trust is in peril which in this case it was not. The Court reversed the Motion to Pay Order and remanded the case back to the trial court for entry of an Order allowing Wing’s Motion to Freeze.

What could have (and probably should have) Goldman Sachs done upon receiving notice of Wing’s claim challenging the decedent’s capacity to execute the amendments and the rightful beneficiaries under the last amendment? The Court pointed out that Goldman Sachs did not independently seek instructions on whether to make distributions to any of the purported claimants or seek an interpleader action for the Trust res under Rule 22(a) of the North Carolina Rules of Civil Procedure.  

This was an interlocutory appeal because there has been no final determination of who are the rightful beneficiaries. So, the final chapter has not yet been written. However, this case gives guidance to the trustee of a trust on how the trustee should act when confronted by competing claims between putative beneficiaries.

About the Author

Mark Scruggs

Mark Scruggs is senior claims counsel with Lawyers Mutual specializing in litigation, workers compensation and family law matters. You can reach Mark at 800.662.8843 or at mscruggs@lawyersmutualnc.com.

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