When restrictions in a trust frustrate the purposes of the trust a court will often ease the restrictions as a recent New York case illustrates.
When people leave money in a trust, charitable or otherwise, it is not uncommon for them to restrict how the money can be used and invested. This is normally done to ensure the money is not wasted by beneficiaries and that trustees do not make foolish investment decisions. However, restrictions that might have seemed wise at the time often become burdensome later and actually frustrate the purpose of the trust.
The Wills, Trusts & Estates Prof Blog reported on one such case in “Rockefeller University Wins Legal Battle Over Will Restrictions.”
James P. Martin of New York created a testamentary trust in his will that named specific income beneficiaries. When the last of those beneficiaries passed away, the trust was to be dissolved and a new trust created that gave the remaining principle to Rockefeller University for the purposes of combating arteriosclerosis.
The university took control of the funds in 2007.
The will included many restrictions on how the university could invest the funds in the trust. There were restrictions about what stocks could be sold and what type of securities could be purchased. The result was that the trust investments severely underperformed the market and the university’s general endowment.
The university petitioned the court to ease the restrictions, which the court agreed to do.
This was a fairly straightforward case as some of the corporate stock not to be sold was in companies that no longer existed and many of the restrictions clashed with modern portfolio theory.
What this illustrates is that courts can overturn old trust restrictions when necessary.
Reference: Wills, Trusts & Estates Prof Blog (Sept. 3, 2016) “Rockefeller University Wins Legal Battle Over Will Restrictions.”