In a Dispute Among Siblings Over the Terms of a Trust, the Court Was Asked to Make A Judicial Construction and to Enforce a No Contest Clause

In New York a construction proceeding involves a petitioner asking the Surrogate’s Court to interpret language in a will or trust that is unclear.  The language may be open to conflicting interpretations, the language may be inconsistent with other terms of the will, or the language simply might not make sense.

In In re Petition of Nadler, the decedent was survived by three adult children.  Four years prior to her death, the decedent created trust that was funded by shares of a realty company.  One of the decedent’s children is a trustee.  Under the terms of the trust, the children as beneficiaries were entitled to the income from the trust.   Five years after the decedent’s death, the primary asset of the realty company was sold for over $8 million, and a year later the realty company was dissolved.

The petitioners, the beneficiaries of the trust, petitioned the Nassau County Surrogate’s Court for a judicial construction to provide that because of the sale of the assets the realty company and its dissolution, there is no longer a need for the trust.  As a result, the trust should end and its assets distributed to the beneficiaries of the trust.  The petitioners argue that because the trust does not contain directions related to what should happen in the event of the dissolution of the realty company, there is an ambiguity that requires to court to make a judicial construction.  The petitioners point to language in a related trust that allows for the court to step in to resolve any ambiguity related to the trust termination date.  The petitioners also rely on the law which states that a trust can be terminated when its purpose ends.

The trustee, who is also the sister of the petitioner, responded to the petition for construction by arguing that the trust provides a plan for distribution that is undermined by the petitioner’s construction petition.  Further, the petitioner argues that by filing the construction petition the petitioner violate the no contest provision of the related trust.

The Surrogate’s first addressed the construction issue, noting that a construction proceeding is appropriate to determine the intent of the settlor.  In doing so, the court can consider extrinsic evidence.  Extrinsic evidence is information outside of the actual written trust document.  When interpreting the terms of a trust or a will, courts generally will not consider extrinsic evidence, unless there are an ambiguity.

Here, the court found that the trust agreement is not ambiguous.  The trust specifically authorized the trustee to sell trust assets.  In addition, the trust did not mention that its sole purpose was to hold assets of the realty company.  Nor does the trust state that it would terminate upon the sale of the asses of the realty company.

The trust actually gave very specific instructions as to when the trust would terminate, and how the assets would then be distributed. Thus, the court concluded that a construction was not required and extrinsic evidence was needed to understand the unambiguous terms of the trust.

As for the trustees’ assertion that by petitioning the court for a judicial construction the petitioners violated the no contest clause and therefore forfeited their interests in the trust, the court disagreed.  It concluded that although the court found that the terms of the trust were unambiguous, it did not find that seeking a construction amounted to actions that would require forfeiture.