Gerschel v. Bank of America , N.A.

Background

Marianne Gerschel brought the action seeking to remove Bank of America as trustee of three trusts. The parties resolved their issues concerning two trusts. The remaining dispute concerned the 1950 Trust, created by Marianne’s grandfather for her lifetime benefit. Marianne is entitled to the trust’s net current income during her lifetime, while the trust’s principal is designated for remainder beneficiaries under the trust instrument.

Bank of America and Marianne were the current trustees. The trust instrument did not provide a way for a corporate trustee to resign, so court approval was required. Bank of America moved for summary judgment, seeking approval to resign subject to conditions imposed by the court. The intervenor-defendants had been allowed to participate to protect the interests of the remainder beneficiaries.

Parties’ Positions

No party opposed Bank of America’s resignation. Marianne initially sought to become the sole trustee and later proposed appointing Frank Baglieri, a certified public accountant, as successor trustee and co-trustee with her. The intervenor-defendants opposed both proposals. They argued that an individual trustee could potentially be removed without court approval and that Baglieri’s prior relationship with Marianne meant he would not be sufficiently independent.

The intervenor-defendants proposed conditioning Bank of America’s resignation on the appointment of an independent corporate trustee. Bank of America did not take a position on whether a successor or co-trustee should be appointed and did not object to conditions on its resignation.

Court’s Analysis

The court applied New York law. It explained that the controlling consideration was the 1950 Trust’s best interests, including the interests of its remainder beneficiaries. Trustees also owe beneficiaries fiduciary duties, including a duty of loyalty and a duty to avoid potential conflicts of interest.

The court concluded that Marianne’s position as both lifetime income beneficiary and potential sole trustee created a possible conflict because she could have authority affecting the trust’s income and principal. The court also considered the contentious relationship between Marianne and the intervenor-defendants. It found that appointing an individual trustee would not adequately address the conflict because the trust instrument allowed an individual trustee to resign without court approval, potentially leaving Marianne as sole trustee. The court also found that Baglieri’s prior work for Marianne’s private charitable foundation raised concerns about his independence.

The court determined that an independent corporate trustee would reduce the risk of personal conflicts and could not be removed without court approval under the trust instrument. It therefore rejected Marianne’s proposals as insufficient to protect the trust’s best interests.

Ruling

The court granted Bank of America’s motion for summary judgment and accepted its resignation as trustee of the 1950 Trust. The resignation would become effective only after the court approved a successor independent corporate trustee nominated and consented to by all parties.

The court directed Bank of America and Marianne to submit, within 30 days, two trust departments from two banks or trust companies that met the trust instrument’s requirements and agreed to serve. Each nomination had to include a description of the proposed successor’s qualifications. Judge Naomi Reice Buchwald also directed the clerk to terminate the pending motion.