Category Archives: Updates on the Law

Factual Background:

Decedent died intestate.  He had a life insurance policy with Crown Life Insurance Company and Canada Assurance Company.  The policy was owned by Melanjo Investment, Inc.  Decedent’s dad and sister were the sole directors of the company.  His parents and sister paid the premiums on the policy.  The company executed a trust, of which Decedent’s parents and sister were the trustees and primary beneficiaries.  At the time the trust was created, no property was identified or placed in the trust.  Approximately 18 months later, the company transferred most of the ownership in the policy to the trust and designated the trust as the beneficiary of most of the proceeds.  There was no contingent beneficiary.  The trust was also named the contingent owner and contingent beneficiary of another life insurance policy which also insured the life of Decedent.  After insured died, the company’s president filed a death claim and the death benefits were paid to the company.  Decedent’s children, his only heirs, brought an action against Crown Life Insurance Company and Canada Life Assurance Company to challenge payments to the trust.

Held:

Trial court entered summary judgment in favor of insurers.  Heirs appealed contending: 1) the trial court erred in granting Insurance Companies’ motion for summary judgment because a genuine issue of material fact existed with respect to the manner in which the contract disposed of the insurance proceeds in the event that the Trust was nonexistent; 2) that the trial court erred in granting summary judgment to Insurance Companies because the evidence demonstrated that the Trust did not exist at the time of the death of Insured and the insurance contract did not provide a contingent beneficiary; and 3) that the trial court erred in not entering summary judgment for Heirs because the Trust did not exist at the time of death of the Insured and the insurance contract did not provide a contingent beneficiary.

On Appeal:

Affirmed.  Court held that the life insurance trust statute, §456.030 (re-numbered as §456.005) did not require that the trust and beneficiary designations be made simultaneously.  A trust does not need to be funded or have a corpus.  It need only have the right to be able to receive proceeds of a life insurance policy.  Therefore, the trust was valid, even though the policyholder executed a title request to transfer ownership to the trust more than one year after it was created.

Absent ambiguity in the terms, the intent of the grantor of a testamentary or inter vivos trust is to be ascertained from the four corners of the instrument without resort to parol evidence as to that intent.  The Nineteen page trust document established the company’s intent to create a trust.

Factual Background:

Grantor died, leaving most of her property in trust.  Most of the property was distributed to Successor Trustee and other Primary Beneficiaries in specific devises.  In trust, Grantor named Hospitals as residuary beneficiaries.  Grantor’s trust did not have specific instructions providing for the payment of federal estate taxes.  At trial, Grantor’s attorney testified that, when the trust was created, Grantor planned to leave the payment of expenses to Successor Trustee’s discretion.  After consulting an accountant and his attorney, Successor Trustee distributed the property to the Primary Beneficiaries first, and to specifically identified charities second.  Next, he paid the expenses including the federal estate tax and finally distributed the residual estate to Hospitals.  Hospitals received less than expected and filed suit claiming Successor Trustee and other primary beneficiaries claiming unjust enrichment.

Held:

The trial entered final judgment in favor of the Hospitals, applying the doctrine of equitable apportionment.

On Appeal:    

Reversed and Remanded.

The doctrine of equitable apportionment does not apply.  When read as a whole, Grantor’s will and trust show that Grantor wanted Successor Trustee to have broad discretion in distributing the trust assets.

Federal law requires the estate tax on the gross estate to be paid out of the whole estate, but state law actually governs the apportionment of the taxes.  Missouri has no apportionment statute addressing the ultimate burden of federal tax, so Missouri courts look to the decedent’s testamentary instruments to discern the decedent’s intent.  The doctrine of equitable apportionment causes the property generating the federal estate tax to bear the estate’s tax burdens and exonerates from the burden property that does not.  It is only appropriately applied when the grantor’s intent cannot be ascertained.  The court will examine all testamentary instruments in the record to determine the grantor’s intent as to how the estate taxes should be paid.  Where a will and a trust together form parts of the same plan, they must be read together.  When the grantor’s intent clearly appears, then it is to be given effect.  If ambiguity is found, then judicial construction is required.

Here, the Grantor’s will devised her entire estate to the trust and then directed that the Successor Trustee pay off all debts as soon as practicable.  The trust did not expressly address the issue of estate taxes.  However, Grantor made a distinction between her specific bequests and the residual gifts.  She showed a clear intention to keep these specific bequests intact and separate from the residuary estate.  Therefore, without express direction from Grantor, it was reasonable to assume that Grantor intended for the federal estate taxes to be paid from her gross estate and her residuary bequests to be effective only as to the net estate remaining after payment of the various charges imposed by law and distribution of the specific bequests.

Factual Background:

Trust beneficiaries brought action against co-trustee, alleging breach of fiduciary duty, negligence, and civil conspiracy.  Individual Co-Trustee spent $1,200,000.00 on repairs to home.  Corporate Co-Trustee A.G. Edwards Trust Company, Defendant herein, did not independently inquire as to the propriety of the expenditures because it had in its file a letter of direction from the Grantor of the Trust, authorizing the expenditures.

Held:

The Circuit Court, St. Louis County, B.C. Drumm, Jr., J., granted co-trustee A.G. Edwards summary judgment. Beneficiaries appealed.

On Appeal:

The Court of Appeals held that: (1) genuine issues of material fact as to whether co-trustee acted in the beneficiary’s best interest and exercised reasonable care in approving $1,200,000 in renovations to the estate property, precluded summary judgment, and (2) co-trustee was not liable for civil conspiracy.  Affirmed in part, and reversed and remanded in part. Although the trustee has many duties emanating from the fiduciary relationship, the most fundamental is the duty of loyalty; as part of its duty of loyalty, the trustee is to administer the trust solely in the interest of the beneficiary. The general rule regarding liability for a co-trustee’s actions is that a trustee is not liable to the beneficiary for a breach of trust committed by a co-trustee. The limited circumstances under which a co-trustee is liable for breach of trust by another co-trustee are when a trustee: (1) participates in a breach of trust committed by his co-trustee; or (2) improperly delegates the administration of the trust to his co-trustee; or (3) approves or acquiesces in or conceals a breach of trust committed by his co-trustee; or (4) by his failure to exercise reasonable care in the administration of the trust has enabled his co-trustee to commit a breach of trust; or (5) neglects to take proper steps to compel his co-trustee to redress a breach of trust.  The trial court erred in granting summary judgment in favor of A.G. Edwards because there are genuine issues of material fact as to whether it acted in the beneficiary’s best interest and exercised reasonable care in approving the $1,200,000 renovation to the estate property.

Co-trustee was not liable for civil conspiracy in the absence of evidence that co-trustee agreed with other trustee to carry out an unlawful objective or that co-trustee knowingly acted to carry out the unlawful purposes of the conspiracy. In order to prove a civil conspiracy, plaintiffs must establish: (1) two or more persons; (2) with an unlawful objective; (3) after a meeting of the minds; (4) committed at least one act in furtherance of the conspiracy; and, (5) the plaintiff was thereby damaged. Proof of the civil conspiracy must be supported by clear and convincing evidence. In a civil conspiracy action, there must be clear and convincing evidence that the alleged conspirator knowingly performed any act or took any action to further carry out the unlawful purposes of the conspiracy.

Factual Background:

Beneficiaries of trust filed lis pendens action to prevent distribution of sale assets, seeking declaratory judgment construing terms of trust.

Held:

The Circuit Court, Clay County, Larry D. Harman, J., found that settlor could amend trust after other settlor’s death and that altered, irrevocable trust was valid. Successor personal representative of settlor’s estate appealed.

On Appeal:

Affirmed.  The Court of Appeals, Victor C. Howard, C.J., held that trust allowed amendment of trust after death of one of the settlors.  Trust, which allowed settlors “acting jointly only” to amend or alter trust, allowed amendment of trust after death of one of the settlors; phrase “acting jointly only” contemplated only pre-death amendments, trust explicitly allowed surviving settlor to revoke trust, and it would have served no purpose to allow revocation of trust and creation of new trust with same corpus while prohibiting amendment of trust. Generally, where a trust provides a power to revoke, there is a power to amend. Restatement Third, Trusts § 63.

Factual Background:

Income beneficiary petitioned to remove corporate trustee and appoint a successor corporate trustee. Trustee answered, asserting that plaintiff failed to join remainder beneficiaries as necessary and indispensable parties and that plaintiff could not virtually represent those beneficiaries, and moved to dismiss on same grounds. Plaintiff moved for summary judgment.

Held:

The Circuit Court, St. Louis County, Bernhardt C. Drumm, Jr., J., denied the motion to dismiss, granted plaintiff summary judgment, and ordered removal of trustee and appointed successor trustee. Trustee appealed.

On Appeal:

The Court of Appeals, Sherri B. Sullivan, J. held that: (1) all of the qualified beneficiaries were before the court as required to bring removal action; (2) income beneficiary and remainder beneficiaries had substantially identical interests with regard to removal of trustee that permitted income beneficiary to virtually represent the other beneficiaries; and (3) change in trustee was in the best interests of the beneficiaries. Affirmed. All of the “qualified beneficiaries” of trust were before the court as required to bring action to remove corporate trustee and appoint a successor corporate trustee, even though there was a contingent remainder beneficiary who was not a party to the action, where father was income beneficiary of trust for life, son and daughter were remainder beneficiaries, college was a contingent remainder beneficiary entitled to trust assets after father’s death only if there were no living heirs of settlor/grandfather, and college would not have been a “permissible distributee” if father had died on the date the action was filed. V.A.M.S. §§ 456.7-706.2(4), 456.1-103(20).

Proposed change in corporate trustee was in the best interests of the beneficiaries of the trust, as required to effect such a change, where trust would have annual savings in trustee fees under the proposed successor of $10,259.55, and the terms of the trust did not prohibit such a change. V.A.M.S. § 456.7-706.2(4).

Factual Background: 

Betty G. Weldon established the Betty G. Weldon Revocable Trust.  The beneficiaries of the Trust were Betty Weldon and her three children, Frank G. Weldon (“Gifford”), Sally Proctor, and Lenore Weldon (“Tony”).   The Trust provided that while Betty Weldon was alive, she was entitled to receive all trust income and to withdraw principal.  Upon her becoming incapacitated, the co-successor trustees could apply net income and principal they deemed appropriate for her comfort, health, and general welfare.  After her death, the remaining Trust assets were to be distributed to her three children.  At the time of the litigation, Betty Weldon had previously become incapacitated.  Therefore, the acting co-successor trustees of the Trust were Larry M. Vivion, Richard F. McGonegal, and Tony.

Tony, as Trustee and Betty Weldon, by her next friend, brought an action seeking an injunction to enjoin the sale of Callaway Hills Stables, a horse breeding farm, which was a subsidiary of Weldon Holding Company (“WHC”).  The Trust owned all of the voting common stock of the WHC.  Larry M. Vivion and Richard F. McGonegal brought an action seeking declaration that, consistent with their obligations to preserve trust assets, they could exercise their power to sell the breeding farm.  The cases were consolidated.  The trial court removed all three trustees, appointed new trustees, and enjoined the sale of the breeding farm.  All three children of settlor, who were residual beneficiaries of the Trust, appealed.

 Held:

1. Residual beneficiaries who were not trustees had standing to appeal judgment;
2. Trustees of other trusts that owned non-voting stock in trust’s holding company were not necessary and indispensable parties
3. Decision to sell farm by trustees who served on board of directors of trust’s holding company was not protected by the business judgment rule;
4. Trustees did not have the authority, under the trust instrument, to sell the horse breeding farm while settler was alive, unless such sale was necessary to support the settlor;
5. Trial court’s removal of non-family trustees on its own initiative was warranted;
6. Trial court’s removal of trustee who was a family member was not warranted; and
7. Trial court had inherent authority to appoint new trustees to replace removed trustees, although such appointments were not required as one of the trustees was still serving.

On Appeal:

Affirmed in part, reversed in part, and remanded.

(1)  In defining “qualified beneficiary,” the Court cited the Uniform Trust Code comment, which discusses first-line remaindermen.  The comment states that where income is left to a beneficiary for life with the remainder to a different beneficiary, that remainder beneficiary is a first-line remainderman, and therefore, a qualified beneficiary.  The Court stated that given the other rights that qualified beneficiaries have under the MUTC, holding that they do not have standing to appeal a judgment would be illogical.  Therefore, the Court found that Gifford, Sally and Tony were aggrieved parties with standing to appeal the trial court’s judgment.

(2) & (3) In determining whether corporate law or trust law applied, the Court held that the case was one of construction of a trust.  In the case of construing a trust, all trustees and beneficiaries are necessary parties.  The trustees of the trusts which owned non-voting stock in The Betty G. Weldon Trust’s holding company were not necessary and indispensable parties.  Because The Betty G. Weldon Trust held all of the voting stock of the holding company, the co-successor trustees of the Trust exercised control of the holding company through use of their voting power to elect the board of directors and control its business decisions and assets.  The co-successor trustees had a duty under §456.8-802.7 to vote the shares in accordance with the provisions of the Trust to promote the interests of the beneficiaries of the Trust, specifically by electing a board of directors who would manage the corporation in the best interest of the beneficiaries.

(4)  The Court found that the trial court did not err in construing the Trust as prohibiting the sale of Callaway Hills Stables during Mrs. Weldon’s life unless such sale were necessary to enable the co-successor trustees to appropriately provide for Mrs. Weldon.  The Court found that the primary purpose of the Trust was to provide for Betty Weldon during her lifetime.  Therefore, the co-successor trustees’ general power to sell assets was limited by the primary purpose of the trust.  The general power of sale was further limited by trust language that excepted Callaway Hills Stables, from that power.

(5)  Under §456.7-706.1, the Court may remove a trustee on its own initiative if the Court finds that a serious breach of trust has occurred.  Under §456.8-801, a trustee has a duty to administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries.  Upon Betty Weldon’s incapacitation, the primary purpose of the Trust was to provide for her comfort, health and general welfare.  Mr. Vivion and Mr. McGonegal’s participation in the decision to pay $300,000 per year to Gifford and Sally served no Trust purpose and gratuitously expended substantial Trust assets constituting a serious breach of trust.

(6)  The trial court based its decision to remove Tony on lack of cooperation and unwillingness or persistent failure to administer the trust.  The trial court’s reasoning was that the three Co-Successor Trustees had never met, conferred or acted in their capacity as Co-Successor Trustees, and that while even though Tony was the least culpable of the three all three Trustees had to bear their share of the responsibility for the failure of the Trust to operate as a Trust.  The trial court also stated that Tony’s removal and replacement with individuals not beneficiaries of the Trust would serve the best interests of the beneficiaries.  On appeal, the Court held that the trial court’s focus on the lack of meetings between the Co-Successor Trustees as a basis for removal was erroneous.  The evidence showed that the three had met regarding Betty Weldon’s care and other issues.  No evidence was presented that formal meetings about the Trust were required to properly administer the Trust.  Removal of Tony simply because she was a beneficiary violated the intent of Betty Weldon, especially when there was no evidence of misconduct on Tony’s part.

(7)  Under §456.7-704.4, the trial court has the authority to appoint additional trustees even if a vacancy is not required to be filled, if the court feels that doing so would promote better administration of the trust.  Therefore, although the vacancies left by the removal of Mr. Vivion and Mr. McGonegal were not required to be filled under the MUTC because Tony remained in office, the trial court effectively exercised its inherent equity authority in appointing three new co-successor trustees.

Factual Background:

The Michael H. Brams Trust #2 was created under the Last Will and Testament of Harriet Brams.  Mrs. Brams died in 2002.  Pursuant to the will, the Mr. Bram, as Trustee of the Brams Trust #2 was granted testamentary power of appointment. In 2005 Mr. Brams filed a petition seeking to terminate the Trust, claiming that the power of appointment provided to him under the trust provided him the right and power to represent the Trust beneficiaries, both ascertained and unascertained, and provided him the power to unilaterally seek termination. All beneficiaries and contingent remaindermen of the trust consented to the termination, except Loren Abel a decendant of Harriet Brams.  The Circuit Court of Jackson County, Forsyth, J., agreed, holding that the proper reading of MUTC §§ 456.3-301.2 and 456.3-302 created an ambiguity and provided the party holding power of appointment to represent all trust beneficiaries except whose interests could not be extinguished by the power of appointment.  So holding, the Circuit court reasoned that the interests of both Ms. Abel’s and all unascertained and unborn remaindermen could be extinguished by Mr. Bram’s power of appointment, and he could therefore represent their interests with regard to the trust termination.

On Appeal:

1. A literal reading of the language of MUTC §456.3-301.2 unambiguously provides that a party holding power of appointment may represent all trust beneficiaries except whose interests could not be extinguished by the power of appointment unless the person being represented objects to the representation in a timely fashion.  The ability to object and defeat virtual representation is not limited to persons holding “protectable interests” in trust property.
2. Even where unascertained and unborn remaindermen are virtually represented by a trustee holding testamentary power of appointment, the trustee must still show that the unascertained and unborn beneficiaries will benefit from termination of the trust—whether virtually represented or not, the petitioner must show the benefit of termination to these unascertained and unborn parties.

Rationale:

The trial court improperly found that MUTC §§ 456.3-301.2 and 456.3-302 created an “illogical and absurd result” and, in the mind of the trial court, provided a basis to examine the case beyond the wording of the statute itself.  Rather, the wording of §456.3-301.2 is clear and unambiguous in that it forbids virtual representation where a beneficiary or remainderman has timely filed an objection to said representation.  The trial court’s examination of the MUTC beyond the plain language of §456.3-301.2 was improper because of the clarity of this Section.  Here, Ms. Abel explicitly objected to termination of the trust, and this fact was conceded by Mr. Brams in his petition, and by the trial court itself.  By stating such an objection, this barred Mr. Bram from representing Ms. Abel with regard to termination of the Trust (the court left it to the trial court on remand to determine whether Ms. Abel had in fact interposed a timely and effective objection barring Mr. Brams representation of her interests).

The trial court also improperly held that Mr. Bram’s testamentary power of appointment eliminated his need to present evidence that termination of the Trust was in the best interest of unborn and unascertained beneficiaries.  MUTC §456.590.2 draws a clear distinction between the consent of non-disabled adult trust beneficiaries (which is self executing without court action or inquiry) and the consent of unascertained and unborn beneficiaries and remaindermen.  By drawing this distinction, §456.590.2 clearly indicates that, unlike non-disabled adult beneficiaries, the consent of unborn and unascertained beneficiaries and remaindermen must be provided through affirmative action of the court.  As a result, the mere consent to trust termination of unborn and unascertained beneficiaries gained through virtual representation does not obviate the need for a petitioner to show that those beneficiaries will be benefited by the trust termination.

Factual Background:

Bill Rhodes Sr. and Jean Rhodes were married and had three children, Bill Rhodes Jr., Kathy Kinder and Amelia Winchester.  Winchester had a child named Abigail Winchester.  In 1992 both Bill Sr. and Jean established individual and identical trusts. Each trust contained a spendthrift provision which provided that any payments from the trust beneficiaries will not be subject to garnishment, levy, execution, anticipation, assignment or encumbrance, nor can they be sold or transferred in any manner, nor shall such interest, while in possession of the trustee, be liable for or subject to the debts, contracts, obligations, liabilities or torts of any beneficiary of the trust.  Bill Rhodes Senior died in 1993.  Jean Rhodes died in November of 2002.  Shortly thereafter, Amelia Winchester died in December of 2002, leaving Abigail Winchester as her sole heir.  The personal representative of Winchester’s estate demanded that trustees of the Jean Rhodes Trust distribute the trust assets that were due to Winchester to her estate pursuant to the Rhodes Trust Agreement.  The trustees refused claiming that the spendthrift clause of the trust precluded payment to Winchester’s estate.  After the trustees’ refusal, the Rhode’s Trust Trustees and Winchester’s Estate filed cross motions for summary judgment.  Circuit Court, Stoddard County, Sharp, J., held in favor of Winchester’s estate, and entered an order compelling release of all assets due to Winchester.

On Appeal:

The executor or administrator of a deceased beneficiary of a spendthrift trust is entitled to income or other distributions that have accrued but have not been paid at the time of the beneficiary’s death to the same extent as if the trust were not a spendthrift trust because income or principal received by the personal representative is distributed and no longer subject to the trust, these funds are subject to creditors’ claims and other obligations of the deceased beneficiary’s estate, and to disposition by the beneficiary’s will or by intestate succession.

Rationale:

Here, Jean Rhodes was survived, if only for a short period of time, by her daughter Winchester.  The trust in question did not explicitly require a beneficiary to survive until the date of distribution in order to receive trust assets.  As a result, Winchester had a vested right in her share of the trust assets at the time of Jean Rhode’s death.  A spendthrift provision prevents alienation of trust property that a beneficiary is entitled to receive in the future, but has no effect with regard to property actually received or with regard to property in which a beneficiary has a vested right to receive such property.  Here, because Winchester survived her mother, she had a vested right to receive the trust property at that moment, and the spendthrift provision became inapplicable.  To implicitly treat a personal representative’s demand for release of trust assets owed to a beneficiary as a creditor is improper.  In such a situation, the personal representative stands in the shoes of the deceased beneficiary, and cannot be characterized as a creditor making application of the spendthrift clause inapplicable.