## Facts

- A 1918 will created a large testamentary trust for the testator’s son; on the son’s death (1944), the trust was divided into four equal trusts for the testator’s grandchildren.
- Guy Stillman and Dr. James Stillman were life income beneficiaries of two of the resulting trusts, each valued in the late 1970s at roughly $8.3–$8.7 million and producing annual income exceeding $300,000 (later about $425,000).
- The will authorized distributions of principal to each grandchild at stated ages “if in [the trustees’] absolute and uncontrolled discretion, they deem it advisable.”
- In 1977, Guy requested $145,000 in principal to modify his housing arrangements; Dr. James requested $150,000 in principal to convert a beach house to commercial use.
- Trustees denied both requests, citing the beneficiaries’ substantial income and the availability of mortgage financing; the beneficiaries obtained mortgages and then sought judicial relief.
- Guy had previously received about $230,000 of principal for a farming venture that failed; Dr. James had not previously requested a principal invasion.
- The beneficiaries also objected to the trustees’ accounting and investment approach, arguing that investing only about one-third of the corpus in tax-exempt securities was inadequate to reduce their income-tax burden.
- Remaindermen were cited; many defaulted, and a contingent remainderman appeared and supported the trustees’ positions.

## Issues

1. Whether trustees with “absolute and uncontrolled” discretion abused that discretion by refusing to invade principal for the beneficiaries’ 1977 requests.
2. Whether the trustees acted imprudently by investing only about one-third of the trust corpus in tax-exempt securities, rather than increasing tax-exempt holdings to improve the income beneficiaries’ after-tax results.

## Decision

- The court held the trustees abused their discretion in denying the requested invasions of principal and granted relief permitting the distributions.
- The court rejected the beneficiaries’ objections to the investment policy, found the portfolio approach prudent and properly balanced, and approved the accounting on that point.

## Legal Principles

- Even “absolute and uncontrolled” trustee discretion remains subject to judicial review; a court may intervene when the trustee’s decision conflicts with the purposes of the instrument and constitutes an unreasonable abuse of discretion.
- Discretionary distribution decisions must be made in light of the settlor’s intent; trustees may not substitute a self-imposed “financial need” requirement or a wealth-preservation policy that defeats the intended standard of living for beneficiaries.
- Past beneficiary financial misjudgments do not, by themselves, justify a categorical refusal to distribute principal where the requested invasion is modest in relation to the corpus and consistent with the instrument’s purpose.
- Trustees have a duty of prudence and impartiality between income beneficiaries and remaindermen; they are not required to structure investments primarily to minimize the income beneficiaries’ taxes at the potential expense of overall risk, yield, diversification, or remainder interests.

## Conclusion

The court ruled that the trustees misconstrued their mandate by withholding relatively small principal distributions contrary to the will’s purpose of providing the beneficiaries comfort and security, constituting an abuse of discretion, while simultaneously holding that the trustees’ investment allocation—including limited tax-exempt holdings—fell within prudent, impartial fiduciary judgment.


In re Estate of Stillman, 107 Misc. 2d 102, 433 N.Y.S.2d 701 (Sur. Ct. N.Y. Cnty. 1980)