Duty of Impartiality

• Author: Browne C. Lewis
• Pages: 302-322

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Chapter 11 - Duty of Impartiality

Most trustees are accountable to two types of beneficiaries—present and future.

The present beneficiary relies on the income from the trust. Typically, the future

beneficiaries are paid the principal remaining in the trust after the present beneficiary dies.

For instance, O could execute a will containing the following language: “I leave the residuary

of my estate in trust for the benefit of my daughter for life. After the death of my daughter,

the remaining assets are to be held in trust for my then living grandchildren.” O’s daughter

has a life estate in the first trust; O’s grandchildren have a contingent remainder in the

second trust. The trustee has to make sure that the trust produces enough income to meet

O’s daughter’s needs. In addition, the trustee has to act to ensure that there will be enough

money left in the trust to create the second trust for O’s grandchildren. There is tension

between the interests of beneficiaries entitled to income and those who may later be entitled

to the principal. According to the duty of impartiality, a trustee has a duty to deal with both

the income beneficiary and the remainderman impartially. Consequently, the trustee must

make sure that the trust property produces a reasonable income while being preserved for

the remaindermen. In order to accomplish that goal, the trustee must preserve the trust

property and make it productive so he will have the resources to meet the needs of both the

present and future beneficiaries. The decision often comes down to investing in income-

producing property that does not appreciate or investing in property that increases in value

that produces little income.

Pennsylvania Company For Insurance on Lives and Granting Annuities v. Gilmore

,

43 A.2d 667

SOOY, Vice Chancellor.

This is a bill filed by the trustee of the estate of Frederick Hemsley, deceased, in part

asking for instructions as to its duty with respect to certain ‘tax free’ securities held by it in

its capacity as trustee.

The bill was filed May 15, 1944, final hearing was held on December, 6, 1944, and

final briefs on July 2, 1945. This history of the litigation is not intended as showing any lack

of diligence on the part of the litigants under the circumstances of this case but to make

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record of the fact that there has been no delay on the part of the Court.

That which gives rise to the request for instructions by the trustee is the question as

to whether it should sell all or part of certain ‘tax exempt’ securities now held by it as a part

of the residuary trust in its hands for a ‘profit’ of approximately $212,381.25 over par, and

also certain Government Bonds which are partially tax exempt on which there is a profit of

approximately $19,000 over par. These securities constitute somewhat over 50% of the

original ‘residuary’ trust estate, which aggregated $3,075,000.

This Court uses values that were fixed as of November 27, 1944 but it is conceded

that any variances which have or will result is of small importance ‘because the Court is

asked to adjudicate upon policy and not upon precision and upon the effect generally upon

the life tenants and the remaindermen respectively and not upon the precise dollars which

either will gain or lose.’

While this Court is not called upon to execute the trustee's discretion (3 Bogert on

Trusts and Trustees § 559, page 1787), it would seem that on the facts presented herein the

trustee was amply justified in asking for the Court's aid. The trustee had advised the life

tenants and vested remaindermen of the possibility of the sale of the tax exempts at a price

which would augment the corpus of the trust fund and the life tenants and vested

remaindermen objected to such a sale. The contingent remaindermen are infants and not in

position to voice their wishes. The trustee was in duty bound to consider the interests of

these minors and the only avenue for a full and fair determination of the question was the

filing of the bill and the appointment of the guardian and counsel to represent the infa nts,

with the resultant decree as to the rights of all parties. This course has not been resisted by

the life tenants or remaindermen and the guardian ad litem for the infants has requested the

Court's determination, and the Court having assumed jurisdiction without objection, should

be very hesitant of its own motion to deny the trustee the protection a decree will afford on

a question which the trustee could not answer in safety.

It is argued by counsel for the life tenants and vested remaindermen that the position

of the trustee is that of stakeholder and that it has assumed the attitude of a champion for

the sale of the tax exempts. I do not so find. True, it has presented its approach to the

solution of the problem and the result of its consideration of that problem, but in so doing

has only given to the Court the benefit of the picture as it sees it, conceding at the same time