In Millstein v. Millstein, 110 N.E.3d 674 (8th Dis. App. 2018), Norman Millstein sought to compel the trustee of two irrevocable grantor trusts to reimburse him for income taxes he paid on behalf of the trusts.
Norman created the irrevocable trusts for the benefit of his children, and each of the trusts were grantor trusts as to Norman for income tax purposes. Norman argued it was inequitable for the trustee not to reimburse him for those taxes and that he was entitled to a “fiduciary accounting” because he “has been saddled with millions of dollars of income tax liability” over a 20-year period due to the administration and activities of the trusts. He didn’t attach copies of the trust agreements to his complaint.
The Court of Appeals of Ohio affirmed the trial court’s dismissal of Norman’s claims for reimburse and for a full accounting of the trusts’ assets. The court agreed with the trial court’s assessment that there’s no cognizable claim in Ohio for equitable reimbursement to a grantor for tax liability incurred under the terms of a trust that the grantor created. Also, as per the clear terms of the trusts, Norman was entitled to an annual financial report of the trusts’ assets (not a full fiduciary accounting). The court noted that Norman “voluntarily created the situation that he now claims is inequitable.”
This decision may serve as a reminder for practitioners to build in an “escape hatch” for clients to turn off grantor trust status if the payment of income taxes becomes too onerous.