Hodges v. Johnson
169 N.H. 254 (2017)
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Rule of Law:
A trustee's power to decant a trust is limited by the fiduciary duty of impartiality, which requires the trustee to give due consideration to the interests of all beneficiaries, including those with future, non-vested interests who are being eliminated through the decanting.
Facts:
- David A. Hodges, Sr. founded Hodges Development Company (HDC) and, in 2004, created two irrevocable trusts primarily funded with non-voting stock of HDC.
- The beneficiaries of the trusts were David Sr.'s wife, his three biological children (including David A. Hodges, Jr.), and two step-children (Barry R. Sanborn and Patricia Sanborn Hodges).
- The trust instruments granted the trustees broad discretion to make distributions and to decant trust property into new trusts for the benefit of some, but not all, of the beneficiaries.
- Following significant family conflict, which included David Jr. and Barry being fired from the family business, David Sr. instructed his attorney, Joseph McDonald, to restructure the trusts.
- Between 2010 and 2013, the trustees executed a series of decantings, with McDonald acting as the decanting trustee, which ultimately removed David Jr., Barry Sanborn, Patricia Sanborn Hodges, and David Sr.'s wife as beneficiaries.
- McDonald testified that in executing the decantings, he 'never gave [the plaintiffs'] financial interest any consideration.'
Procedural Posture:
- David A. Hodges, Jr., Barry R. Sanborn, and Patricia Sanborn Hodges filed a petition in the 7th Circuit Court-Dover Probate Division (trial court) against trustees Alan Johnson, Joseph McDonald, and William Saturley.
- The plaintiffs sought to have the trust decantings declared void ab initio and to have Johnson and Saturley removed as co-trustees.
- After a three-day bench trial, the trial court ruled in favor of the plaintiffs, voiding the decantings and removing the trustees.
- The defendants (appellants) appealed the trial court's order to the New Hampshire Supreme Court.
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Issue:
Does a trustee breach the fiduciary duty of impartiality by decanting a trust to eliminate the future, non-vested beneficial interests of some beneficiaries without giving any consideration to those interests?
Opinions:
Majority - Dalianis, C.J.
Yes, a trustee breaches the fiduciary duty of impartiality by decanting a trust to eliminate the future, non-vested beneficial interests of some beneficiaries without giving any consideration to those interests. The statutory duty of impartiality, codified in RSA 564-B:8-803, requires a trustee to treat beneficiaries 'equitably in light of the purposes and terms of the trust.' This duty is owed to all beneficiaries, regardless of whether their interests are present or future, vested or contingent. While decanting to exclude a beneficiary is permissible under statute, it does not abrogate this fundamental fiduciary duty. Here, the record shows the decanting trustee completely failed to consider the plaintiffs' interests, which constitutes an abuse of discretion and a serious breach of trust. The trial court's finding was supported by the trustee's own admission and the lack of any evidence showing consideration of alternatives to complete disinheritance. Therefore, voiding the decantings and removing the co-trustees was a proper remedy for this breach.
Dissenting - Bassett, J.
The court should not decide this issue on the grounds of impartiality, as it was not the basis of the trial court's decision nor was it briefed by the parties on appeal. The majority correctly finds the trial court erred in its legal reasoning but then improperly affirms on an alternate ground, violating principles of due process by deciding a novel and complex issue of trust law without the benefit of adversarial briefing. The trial court explicitly distinguished between the duty to consider the 'interests of the beneficiaries' under RSA 564-B:8-801 and the separate duty of impartiality under RSA 564-B:8-803. By deciding this case sua sponte on the latter, the majority risks creating unintended consequences for trust law in New Hampshire. The proper course would be to vacate the trial court's order and remand for full development of the legal arguments regarding the duty of impartiality in the context of decanting.
Analysis:
This decision establishes a significant precedent in New Hampshire trust law by placing a clear limit on a trustee's decanting power. It affirms that even broad discretionary authority is constrained by fundamental fiduciary duties, specifically the duty of impartiality. The ruling serves as a warning to trustees that actions as severe as eliminating a beneficiary's interest require a demonstrable, good-faith consideration of that beneficiary's interests, even if those interests are merely contingent. This will likely lead to more rigorous processes and documentation by trustees when contemplating decanting, to protect against claims of abuse of discretion.
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