## Facts

- In 1959, Henry Slack McNeil, Sr. created five inter vivos trusts: one for each of his four children and one for his wife, Lois (the “Lois Trust”).
- The Lois Trust gave the trustees discretion to distribute income and principal not only to Lois, but also to the children and the children’s lineal descendants as current discretionary beneficiaries.
- The family, including Hank McNeil (Henry Jr.), believed that the children were only remainder beneficiaries of the Lois Trust; Hank and his children did not know they were current beneficiaries.
- Hank became estranged from the family.
- After Henry Sr. and Lois died, Hank requested distributions from the Lois Trust.
- Although the trustees made distributions to Hank’s siblings, the trustees did not respond to Hank’s requests for distributions.
- Hank sued in the Delaware Court of Chancery to compel distributions.
- During the litigation, the trustees notified Hank’s two children—also current beneficiaries—to take a position in the case, which highlighted that neither Hank nor his children had been told of their status.
- Hank amended his claims to seek removal of certain trustees and surcharge, alleging breaches of fiduciary duty, including failing to inform beneficiaries and failing to act impartially.
- The Court of Chancery ruled for Hank, ordered a “make-up” distribution, surcharged certain trustees, removed certain trustees, and appointed replacements. Multiple parties appealed.

## Issues

1. Whether trustees of a discretionary trust breached fiduciary duties by failing to inform a current beneficiary (and his children) of their beneficiary status and by treating that beneficiary differently from other similarly situated beneficiaries.
2. Whether a trust’s exculpatory clause shielding trustees for discretionary decisions made in good faith bars liability for failures to keep beneficiaries reasonably informed and to administer the trust impartially.
3. Whether the Court of Chancery properly fashioned remedies for the breaches (including make-up distributions, surcharge, and trustee removal), and whether it could appoint a successor trustee in a manner inconsistent with the trust instrument’s succession provisions.

## Decision

- The Delaware Supreme Court affirmed the Court of Chancery’s findings that the trustees breached fiduciary duties by effectively ignoring Hank as a current discretionary beneficiary and by not keeping him (and his children) reasonably informed of their interests.
- The Court affirmed the remedial relief requiring a make-up distribution and surcharge to address the consequences of the trustees’ misconduct.
- The Court affirmed the Court of Chancery’s decisions not to impose broader structural changes sought in the case (including refusal to further divide the trust and related relief concerning a unitrust approach).
- The Court reversed in part as to trustee replacement, holding that the trust instrument’s method for replacing trustees governed in the first instance; the Court of Chancery erred by appointing a successor trustee contrary to that mechanism.
- Disposition: affirmed in part and reversed in part.

## Legal Principles

- Trustees owe fiduciary duties to administer a trust with loyalty to the beneficiaries, including duties to keep beneficiaries reasonably informed about the trust and their interests and to act impartially among beneficiaries when exercising discretionary powers.
- A trustee cannot justify ignoring a beneficiary’s interests by treating the beneficiary as a mere remainder holder when the instrument makes the beneficiary a current discretionary beneficiary.
- Exculpatory provisions protecting trustees from liability for discretionary decisions made in good faith are construed narrowly and do not excuse breaches involving basic fiduciary obligations such as reasonable disclosure to beneficiaries and evenhanded treatment among beneficiaries.
- The Court of Chancery has broad equitable authority to remedy trust-law breaches, including ordering compensatory make-up distributions, imposing surcharge, and removing trustees when warranted by misconduct.
- When a trust instrument specifies a process for trustee succession or replacement, that contractual direction controls initially; a court should not bypass the specified mechanism absent a sufficient reason grounded in law and the terms of the instrument.

## Conclusion

McNeil v. McNeil is a Delaware Supreme Court trust case, not a divorce equitable-distribution appeal: it held that trustees of the Lois Trust breached fiduciary duties by keeping a current discretionary beneficiary and his children uninformed and by failing to treat him evenhandedly compared to other beneficiaries. The Court largely upheld the Court of Chancery’s remedies, including make-up distributions and surcharge, but required that trustee replacement proceed through the trust instrument’s succession method rather than a court-devised appointment.


McNeil v. McNeil, 798 A.2d 503 (2002)