Canandaigua National Bank & Trust Company (CNB) was appointed, under Article VI of the Last Will and Testament of Ann B. Maloy, as trustee of a trust ("the Trust") created for the for the benefit of her husband, Charles T. Maloy ("Charles").

CNB commenced a proceeding in this Court, a Petition for Judicial Settlement of its intermediate account. Two of the remainder beneficiaries of the Trust, Richard Maloy and Laurie Maloy, Ann Maloys's children from a previous marriage, have filed objections to the account, claiming that CNB overpaid Charles from the assets in the Trust. They now move for summary judgment on a theory of unjust enrichment, seeking from Charles (not CNB) reimbursement to the Trust of the excessive payments.

Separately, Charles has filed objections to the account, claiming that CNB underpaid Charles in miscalculating the required withdrawals from the Trust, and that he is due and owed additional amounts from the Trust. He too has moved for summary judgment.

For the reasons below, the motion of Richard Maloy and Laurie Maloy is granted, the trustee is found to have misapplied the directive in the Last Will and Testament and in this court's 2015 Decree regarding payments of trust assets, and the beneficiary is directed to reimburse the trust in an amount to be determined at a hearing.

The motion of Charles T. Maloy is denied.

The undisputed facts are as follows.

Ann Maloy died on June 8, 2013, survived by her husband, Charles T. Maloy ("Charles") and children Richard B. Maloy, Laurie Maloy Sheller, and William J. Maloy, III. The children are the issue of Ann Maloy and her predeceased husband, William J. Maloy II (cousin of Charles T. Maloy, thus his "step"-children bear his surname).

In her Last Will and Testament ("the Will"), Ann named Charles as the executor of her estate.

She directed her residuary assets to pass into a trust, entitled the "Charles T. Maloy Trust Under the Will of Ann B. Maloy ("the Trust")," for the benefit of her husband Charles, with the remainder of the assets upon his death to pass one-third to Richard, one-third to a trust for the benefit of Laurie, and one-third to a trust for the benefit of William III.

The Trust provides that Charles is to receive the entire net income from her estate for his natural life.

Additionally, the Trust was named as the beneficiary of an Individual Retirement Account ("the Plan") that had been created and held by Ann. Pursuant to the Will, the trustee was to withdraw from the Trust "whichever of the of the following amounts is greater, and distribute the same to my husband: (i) the net income of the trust's share of the Plan for such year; or (emphasis added) (ii) the 'minimum required distribution amount' ["RMD"] which is required to be withdrawn from such share under Section 401(a)(9) of the Internal Revenue Code . . ."

By Decree dated June 26, 2013, the Will was admitted to probate and letters testamentary [*2]were issued to Charles T. Maloy and letters of trusteeship were issued to the Canandaigua National Bank ("CNB").

The executor elected to treat the trust as a "qualified terminable interest property" ("QTIP") trust, also known as a marital deduction trust.

In 2015 Charles, as executor, petitioned for judicial settlement of Ann's estate. Following discussions ^[FN1] regarding the application of Article VI (B) of Ann's Will (the paragraph that created the Trust) all parties and their counsel stipulated, in a signed writing, to a Decree ("the Decree") directing that the "Trustee be authorized and directed to comply with the requirement of the 4% Unitrust methodology by New York Estate, Powers and Trusts Law § 11-2.4 with respect to the calculation and distribution of Trust income to or for the benefit of Charles T. Maloy from the date of entry of this Decree." There is no dispute that the election of the unitrust option was done in order to "allow [the] trustee to invest for total return without concern for achieving a balance between income distributions and principal growth" (5 Warren's Heaton on Surrogate's Court Practice § 69.07 [2022]).

In 2020 CNB petitioned for judicial settlement of its intermediate account.

CNB stated that up through 2018 it had paid Charles the full amount of net income from the residuary assets, the full amount of net income from the Plan, and (emphasis added) the full amount of the RMD. At the end of 2018 CNB assigned a new trust administrator, Lou Rossetti, to manage the Trust. Upon review he realized that CNB had been mistakenly using "net income" to calculate withdrawals and had not applied the 4% unitrust calculation mandated by the 2015 Decree. Accordingly, at his direction CNB "began paying Charles the required 4% Unitrust distributions in accordance with the terms of the Final Decree plus (emphasis added) the (entirety of the) RMDS from the inherited IRA."

From 2016 CNB also applied the "smoothing rule" of EPTL 11-2.4 (c) (see NYS Bar Journal, vol. 74, no. 1, p. 15 (Charles J. Groppe): Uniform Principal and Income Act Will Work Fundamental Changes In Estate and Trust Administration).

In Schedule J of its account CNB showed the amounts paid to Charles, and the overpayments, which amounted to $255.74.

Responding to the Petition for Judicial Settlement and Intermediate Account, Richard Maloy and Laurie Maloy filed Objections and an Answer (and then an Amended Answer). They claimed that since 2015 CNB had overpaid Charles $167,919.00 because it had wrongly paid him the full amount of the RMDs in addition to the entire net income (and after 2018 the 4% of trust assets) from the residuary assets and the Plan assets. The correct interpretation of the Will and 2015 Decree, these Objectants assert, is that the trustee should be paying Charles the net income from the residuary assets, and the greater of the net income of the Plan assets or the RMD, and an additional amount if the net income did not equal the amount the IRS required to be withdrawn from the Plan (i.e., the RMDs).

Additionally, they claim that the trustee misapplied the "smoothing rule," resulting in excessive payments of $13, 472.00.^[FN2]

Richard Maloy and Laurie Maloy, as Objectants, now move for summary judgment.All agree that judgment turns on the interpretation of this Court's Decree in 2015.

A summary judgment motion "shall be granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party" (CPLR 3212 [b]).

Here, the issue is the interpretation of the court's 2015 Decree, and it is well-settled that a decree on consent "is in the nature of a contract" (see Callahan v Carey, 12 NY3d 496 [2009], and as such, must be interpreted in light of its plain language (see 19th St. Assoc. v. State of New York, 79 NY2d 434, 442[1992]).

Accordingly, as with any interpretation of a contract provision, "[t]o be entitled to summary judgment, the moving party has the burden of establishing that its construction of the [contract] 'is the only construction which can fairly be placed thereon' " (Nancy Rose Stormer, P.C. v County of Oneida, 66 AD3d 1449, 1450 [4th Dept 2009] quoting Jellinick v. Naples & Assoc., 296 AD2d 75, 78—79 [4th Dept 2002]; see Syracuse Orthopedic Specialists, P.C. v. Hootnick, 42 AD3d 890, 891 [4th Dept 2007]). Here, plaintiff met that burden.

Moreover, where a court by decree exercises its authority to reform a trust (see generally 11 Warren's Heaton on Surrogate's Court Practice § 188.02 [2021]; SCPA 1420; EPTL 7-1.13), the meaning of the decree, if in dispute, must be determined by reference back to the language of the document - here, the Last Will and Testament of Ann B. Maloy - which it reformed (see EPTL 11—2.4[e][5][A]; see also Matter of Ives, 192 Misc 2d 479 [Sur Ct, Broome County 2002]; Matter of Moore, 41 Misc 3d 687, 689-90 [Sur Ct, Nassau County 2013]).

The Objectants argue that the Last Will and Testament of Ann B. Maloy is unambiguous, and that it mandated that CNB pay annually to Charles Maloy the net income from the residuary assets, plus the net income from the Plan assets, and then an additional sum to make up any shortfall in the RMD.

They further argue that Judge Owens's 2015 Decree is equally unambiguous, and that it mandates CNB to pay Charles not the net income but rather according to the "4% Unitrust methodology," which means 4% of the fair market value of the residuary assets, 4% of the fair market value of the Plan assets, and if required, an additional sum from Plan assets to ensure that [*3]the full RMD has been paid.

CNB argues that the Will and the Decree required that the full RMD be paid to Charles from the Plan assets in addition to the entire net income (or, after the Decree, the 4% unitrust amount), and that the interpretation offered by the Objectants would put the trust at odds with IRS Revenue ruling 2006-26.

However, that is a misread of that Ruling, because, as the court reads it, the Ruling is entirely consistent with the view expressed by the Objectants.

IRS Revenue ruling 2006-26 states at page 5 ("Situation 2 — Unitrust Determination):

"The trustee determines an amount equal to 4 percent of the fair market value of the IRA assets and an amount equal to 4 percent of the fair market value of Trust's assets, exclusive of the IRA, as of the appropriate valuation date. In accordance with the terms of Trust, trustee distributes the amount equal to 4 percent of the Trust assets, exclusive of the IRA, to B, annually. In addition, if B exercises the withdrawal power, Trustee withdraws from the IRA the greater of the required minimum distribution amount under section 408(a)(6) or (emphasis added) the amount equal to 4 percent of the value of IRA assets and distributes to B at least the amount equal to 4 percent of the value of the IRA assets."

In a letter to the court (sent at the request of the court) counsel for CNB stresses that if the court were to issue a decision that is "contrary to the established revenue rulings concerning this QTIP election" the trust may lose the QTIP deduction. Counsel argues that in order to preserve the deduction, "Charles T. Maloy is required to receive all income from the Trust and all income from the IRA."

The court does not disagree. But that is not the issue. The issue is whether the trustee should also pay Charles Maloy, in addition to the 4% of the Plan assets, the entire RMD as well. Clearly, Charles Maloy must receive the entire 4% unitrust amount from both the residuary assets in the Trust and the Plan assets to preserve the marital deduction. Where the 4% from the Plan assets do not equal the RMD, he must also receive an amount equal to the difference between 4% of Plan assets and the RMD. Otherwise, the Plan, a SEP-IRA (a Simplified Employee Pension - Individual Retirement Account, see IRS Form 5305-SEP) would have to pay a penalty equal to 50% of the amount not taken in time, a result that no one wants.

But nowhere does the IRS state that the full RMD must be paid in addition to the 4% of Plan assets.

There is one ambiguity in the Decree, if it were read without reference to the Will, and it is the interpretation offered by counsel for Charles Maloy in his Motion for Summary Judgment. That interpretation suggests that the Will created two trusts, one out of residuary assets, and one out of the Plan assets, and that the Decree, which refers to "the Trust income" only affected the withdrawal amounts from the residuary assets, not the Plan assets. Thus, Charles argues that since 2015 he was entitled to the 4% of the residuary assets, and in addition, to be paid directly to him, the net income of the Plan assets and the full RMD, and that since 2015 he has been underpaid.

That interpretation is rejected. The Will did not create two trusts. The Plan was already a trust.^[FN3] The beneficiary of the Plan is not Charles, but rather, the Charles T. Maloy Trust. The Plan's net income (or after 2015 4% of Plan assets) and an amount necessary to make up the RMD annually pour into the trust created by the Will. The two-trust interpretation is rejected.

Here, the Decree's reference to "Trust income" can only mean, when read in reference to the Will, the income from the residuary assets and the income from the Plan assets.

The 2015 Decree has no language that alters the mandate of the Will, other than to change the manner of calculation of withdrawals from the residuary assets in the Trust and net income of the Plan assets, from net income to a 4% unitrust amount of residuary assets and Plan assets.

Additionally, Charles argues that the RMD calculation has been erroneous since 2015. His motion for summary judgment on that issue is denied, since it presents a fact issue that will be addressed at a damages hearing.

As the Decree is unambiguous when read in reference to the Will which it reformed and given that the language in the Will is also plain and capable of only one construction, the Objectants Richard Maloy and Laurie Maloy have established their entitlement to judgment as a matter of law. Their Motion for Summary Judgment is GRANTED. The trustee shall annually pay Charles T. Maloy, in accordance with the "smoothing" rule, 4% of principal and income of the residuary assets, 4% of the principal and income of the Plan assets, and if the 4% of the Plan assets do not equal the required minimum distribution, or RMD, then it shall pay a sum equal to the difference between the required minimum distribution and the 4% of principal and income of the Plan assets.

As there are questions of fact regarding the calculations of damages, which involves the application of the "smoothing" rule and the calculation of the required minimum distributions (the RMDs), damages will be determined following a hearing. The parties are directed to file submissions regarding calculation of damages consistent with this Decision.

The motion for summary judgment brought by Charles T. Maloy claiming an underpayment is DENIED. As to that part of his motion claiming a miscalculation of the RMD amount, summary judgment is denied, but he is allowed to re-submit his claim regarding he proper calculation of the RMD as part of the damages hearing.