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.
- Residual beneficiaries who were not trustees had standing to appeal judgment;
- Trustees of other trusts that owned non-voting stock in trust’s holding company were not necessary and indispensable parties
- 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;
- 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;
- Trial court’s removal of non-family trustees on its own initiative was warranted;
- Trial court’s removal of trustee who was a family member was not warranted; and
- 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.
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.