Opinion
No. 106,744.
2013-01-18
MIDWEST TRUST COMPANY, Appellee, v. Michael R. ONG, et al., Appellees, (Unity Church of the Living Truth, d/b/a Unity Church of Overland Park; Appellant, Special Fiduciary to the 2002 Norma J. Carter Trust; Appellant, (Michael Carter, Thomas A. Rayl, Karen Vaag Keys, Eric A. Moore, and Linda Moore), Appellees.
Appeal from Johnson District Court; John P. Bennett, Judge. Constance L. Shidler, of Smithyman & Zakoura, Chartered, of Overland Park, for appellant Unity Church of Overland Park. Mark A. Rohrbaugh, of Fletcher, Rohrbaugh & Chahine, LLP, of Olathe, for appellees Thomas A. Rayl & Rex Rayl.
Appeal from Johnson District Court; John P. Bennett, Judge.
Constance L. Shidler, of Smithyman & Zakoura, Chartered, of Overland Park, for appellant Unity Church of Overland Park. Mark A. Rohrbaugh, of Fletcher, Rohrbaugh & Chahine, LLP, of Olathe, for appellees Thomas A. Rayl & Rex Rayl.
Linda S. Dickens, of Dickens Law, LLC, of Overland Park, for appellees Michael Carter, Suzann L. Maloney, and David Rayl.
Before PIERRON, P.J., MALONE, C.J., and BUKATY, S.J.
MEMORANDUM OPINION
PER CURIAM:
Norma Carter executed a revocable trust in 1983—the Norma J. Carter Intervivos Trust (1983 Trust)—as part of her estate plan. She and her husband, Houston Carter, each quitclaimed their home to Norma's trust. Norma and Houston each had children by a prior marriage. One of the purposes of the trust was to distribute their property after both died. When that occurred, the trust provided that one half of the remaining estate would go to certain heirs of Norma and one half to certain heirs of Houston. Houston died first. Years later, in 2002, Norma executed another trust (2002 Trust) with different beneficiaries from those in the 1983 trust, one of whom was the Unity Church of Overland Park (Unity). The 2002 trust made no mention of the 1983 Trust. About the same time, she also executed a warranty deed purporting to convey her home to the new trust but did not indicate on the deed that she was acting as a trustee or grantor of the 1983 trust. Norma died in 2009. Litigation then ensued between the beneficiaries of the two trusts over which trust owned the house. The district court granted summary judgment to the beneficiaries of the 1983 trust, finding that that trust still owned the house despite the warranty deed that Norma had executed in 2002. Unity appeals.
We conclude that the district court properly interpreted the written instruments material to this appeal and correctly concluded that the residence was an asset of the 1983 Trust at the time of Norma's death. We affirm.
Facts
In 1983, Norma and Houston retained attorney E. Denver Voldfor estate planning purposes. Norma executed the 1983 Trust, and she was the named grantor, trustee, and primary beneficiary of this trust. Houston was named as one of the secondary beneficiaries. The trust gave the trustee the authority to manage and invest the trust assets and to pay over the net income to Norma during her lifetime. In the event Houston predeceased Norma, the instrument provided that upon Norma's deaththe trust principal was to be distributed as follows: one-half equally divided among certain heirs of Houston from a previous marriage, and one-half equally divided, subject to certain conditions, among certain heirs of Norma from a previous marriage. Concurrent with the execution of the 1983 Trust, Norma and Houston executed a quitclaim deed conveying their personal residence to the 1983 Trust. The deed was subsequently recorded with the Register of Deeds in Johnson County.
Relevant terms of the 1983 Trust
The 1983 Trust required Norma to hold, manage, invest, and reinvest the trust assets for the benefit of the beneficiaries. In the event the income generated was insufficient to provide adequately for the health, support, maintenance, and education of any of the beneficiaries, Norma was authorized to pay for such benefits by accessing the principal of the trust. The instrument specifically provided that the trustee's “power of invasion herein conferred shall be exercised liberally by the Trustee, and that the interests of Grantor's said husband be preferred to the interests of other beneficiaries.”
Part E of the third section of the 1983 Trust conferred upon the trustee, among other things, the authority
“[t]o sell, exchange, convey or dispose of, or to grant options with respect to, any property, real or personal, which may at any time form a part of the trust estate, and any sale may be made by private contract or by public auction, and for cash or upon credit, or partly for cash and partly upon credit, and no person dealing with the Trustee shall be bound to see to the application of any monies paid.”
The 1983 Trust provided that it was revocable, and Norma reserved the right “at any time and from time to time, to alter, amend and revoke this Agreement, in whole or in part, by duly executed instrument delivered to the Trustee.” Upon any revocation, the trustee was then required to return to the grantor any property affected by the revocation and any supporting instruments that may have been necessary to release any interest that the trustee may have had in the affected property.
Norma subsequently executed three amendments to the 1983 Trust. One of those amendments designated Midwest Trust Company as cotrustee and successor trustee in the event of Norma's death, resignation, or designation of incompetency.
The 2002 Trust
In 2002, Norma retained another attorney, Peter Mallouk, for estate planning purposes, whom the parties deposed in connection with the case. Apparently, Mallouk met with Norma several times and recalled that she had expressed that she was unhappy with her son, Thomas Rayl, and wanted to disinherit him. During one meeting, Mallouk had her fill out an estate planning worksheet. When doing so, Norma responded affirmatively to one question which asked whether she currently had a trust. Later, Norma executed a second revocable living trust entitled the Norma Carter Trust, dated April 12, 2002—the 2002 Trust. Norma was again the grantor, trustee, and primary beneficiary of this second trust. Upon her death, the 2002 Trust directed the successor trustee to make monetary distributions to several beneficiaries and to distribute the remainder of the trust estate to Unity.
To fund the 2002 Trust, the agreement provided that Norma “will execute and deliver all deeds, assignments, bills of sale, written instructions and other legal documents necessary to convey and register all of my assets that I choose to place in trust under this trust to be owned by the trustee of this trust.” The agreement further provided that “[a]ssets which are evidenced by titles or deeds currently being transferred to the trustee of this trust are listed on Schedule A, which is attached to this trust and made a part of this trust.” That Schedule A attachment specified that the assets referred to in the agreement included “all real estate.” It did not specifically list the home she had previously deeded to the 1983 Trust. At the same time, Norma also executed a warranty deed conveying that home to herself as trustee of the 2002 Trust. The deed did not refer to the 1983 Trust or to Norma's role as grantor and trustee of the 1983 Trust. The deed was subsequently recorded with the Register of Deeds in Johnson County.
Mallouk testified that when Norma executed the warranty deed conveying the residence to the 2002 Trust, he did not know that the residence was already titled in the name of the 1983 Trust in a recorded deed. He stated that Norma never verbally told him that she already had a trust or that she had previously conveyed the residence to a different trust. He explained that had he known those facts, he would have executed a restatement to the 1983 Trust or would have deeded the residence from that trust to the 2002 Trust.
In 2006, Vold—Norma's attorney in 1983—contacted Mallouk by telephone and told him that Norma had retained him to perform some additional estate planning work and that she requested that Vold revoke all of the estate planning work that Mallouk had performed on Norma's behalf. Mallouk then sent copies of all of the estate planning work that he had performed for Norma to Vold's office. It is not clear from the record what, if anything, was then done by either Mallouk or Vold on behalf of Norma.
The Legal Proceedings in the District Court
Norma died in May 2009. Midwest Trust Company as trustee filed a petition for a declaratory judgment and to quiet title, requesting that the district court determine whether the 1983 Trust or the 2002 Trust owned Norma's residence. To assist in resolving the dispute, the district court appointed Michael Ong as special fiduciary for the 1983 Trust and Kristopher Kuckelman as special fiduciary for the 2002 Trust. After the filing of the petition, Michael Carter, Suzann L. Maloney, and David Rayl (hereinafter Maloney) collectively filed an answer. Unity, Thomas Rayl, Ong, acting as a special fiduciary, and Kuckelman, acting as a special fiduciary, each filed separate answers to the petition.
Maloney, Unity, and Kuckelman subsequently filed motions for summary judgment. Following a hearing on the motions, the district court entered summary judgment in favor of the Maloney parties and denied the motions of Unity and Kuckelman. The court also relieved Ong and Kuckelman from their responsibilities as special fiduciaries and dismissed them from the case. Unity timely filed its notice of appeal.
Standard of Review
The rules regarding the granting of summary judgment are well known. When the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law, summary judgment is appropriate. The district court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, the same rules apply; summary judgment must be denied if reasonable minds could differ as to the conclusions drawn from the evidence. Osterhaus v. Toth, 291 Kan. 759, 768, 249 P.3d 888 (2011).
On appeal, we review questions of law de novo, including those at the heart of summary judgment motions. Thomas v. Board of Shawnee County Comm'rs, 293 Kan. 208, Syl. ¶ 2, 262 P.3d 336 (2011). Since this case involves the interpretation of written instruments, both deeds and trust agreements, our standard of review is de novo. See Estate of Draper v. Bank of America, 288 Kan. 510, 517, 205 P.3d 698 (2009). As to trust instruments, this court has stated: “The primary function of a court in interpreting a trust is to ascertain the settlor's or testator's intent as derived from the four corners of the document, and, once ascertained, the intent will be executed unless contrary to law or public policy.” In re Estate of Oswald, 45 Kan.App.2d 106, 112, 244 P.3d 698 (2010). If the words used in the trust document clearly express the settlor's intent, then there is no need to resort to canons of construction, and a court will enforce the express terms and provisions of the trust as drafted. 45 Kan.App.2d at 112.
Did Norma Have Authority to Transfer the House out of the 1983 Trust
We begin with the observation that the legal title to the house obviously resided in the 1983 Trust from the time Norma and Houston executed a quitclaim deed of the house to that trust. The issue in this case then boils down to whether Norma's execution of the warranty deed in 2002 transferred title in the house to the 2002 Trust. To resolve the issue, we must first determine whether Norma had the authority under the 1983 Trust to transfer the property.
Unity argues that three specific provisions of the 1983 Trust agreement authorized Norma to remove or transfer property out of that trust: the provision authorizing the trustee to invade the Trust principal to make distributions for the health, support, maintenance, and education of any of the beneficiaries; the provision empowering the trustee to sell, exchange, convey, or dispose of property; and Carter's reservation of the right as grantor to alter, amend, or revoke the 1983 Trust.
It is doubtful that either of the first two provisions Unity cites provided Norma the authority to transfer the property under the facts present here. Both provide that Norma could act only in certain circumstances. First, there is nothing in the record to suggest that the reason Norma executed the warranty deed in 2002 had anything to do with providing for the health, support, maintenance, and education of any of the trust beneficiaries, including herself. Second, a strong argument can be made that for Norma to be able to transfer the property under the facts in this record where there is no evidence any trust funds were needed for the health, support, maintenance, and education of any of the beneficiaries, she would have had to make the transfer in return for some form of compensation to put back in the trust estate. In managing the assets of a trust, a trustee's duty is not limited to managing the trust for the benefit of the primary beneficiary (herself); the trustee also has a duty to manage the trust for the benefit of the successor beneficiaries and to protect their interests. In re Breeding Trust, 21 Kan.App.2d 351, 356, 899 P.2d 511 (1995).
As to the third provision of the 1983 Trust cited by Unity, Norma reserved the right as grantor to partially or fully alter, amend, or revoke the Trust. That provision provides, in pertinent part:
“Grantor expressly reserves the right, any time and from time to time, to alter, amend and revoke this Agreement, in whole or in part, by duly executed instrument delivered to the Trustee.... Upon any revocation, the Trustee shall deliver to Grantor, against receipt, any property on hand as to which the Trust has been revoked, together with such supporting instruments as may be necessary to release any interest the Trustee may have in or to such property.”
Such provisions in a revocable living trust are valid. See State Bank of Parsons v. First National Bank in Wichita, 210 Kan. 647, 651, 504 P.2d 156 (1972). Thus, Norma's ability to modify or revoke the 1983 Trust included the ability to affect a partial modification or revocation by removing certain property from the Trust estate provided that she complied with the procedures established by the trust agreement for revocation or modification. See In re Estate of Sanders, 261 Kan. 176, 182–83, 929 P.2d 153 (1996). Hence, she had the authority to transfer the residence from the 1983 Trust to the 2002 Trust (or any other party) if she properly complied with the terms of the 1983 Trust. That takes us to the issue of whether Norma's actions in this case accomplished such a transfer.
Did the 2002 Warranty Deed Transfer the House to the 2002 Trust?
Our determination of this issue requires that we simultaneously consider two related questions: Did Norma comply with the procedures and guidelines set out in the 1983 Trust for accomplishing a modification or revocation of that trust, and did the 2002 warranty deed or the 2002 Trust instrument effect a transfer of the house to the 2002 Trust?
Unity contends that Norma partially amended or revoked the 1983 Trust by executing the warranty deed and thereby transferred the residence from the 1983 Trust to the 2002 Trust. Unity argues that our Supreme Court in Taliaferro v. Taliaferro, 260 Kan. 573, 921 P.2d 803 (1996), recognized that a grantor of a revocable living trust has the authority to revoke a specific interest when the grantor possesses a general power of revocation. Unity essentially argues that because Norma was both grantor and trustee of the 1983 Trust, she could modify the trust to remove her home from the corpus and transfer it to another party simply by executing a deed in her individual capacity without any further expression in the deed that she was acting as trustee or grantor of the 1983 Trust. Unity cites no Kansas case directly on point that supports this proposition, nor are we aware of one.
As we stated, in order to modify or revoke the 1983 Trust, Norma was required to execute an instrument notifying the trustee of her intention to modify or revoke, and to deliver that instrument to the trustee. We recognize that during her life Norma was concurrently the grantor, trustee, and primary beneficiary of the 1983 Trust. To require that she strictly comply with the formal requirement that she deliver an instrument of revocation to herself in these circumstances creates an almost absurd formality that we believe is unnecessary to revoke or modify the 1983 Trust. However, delivery to the trustee is not the only formality required by the 1983 Trust for an effective revocation or modification. The grantee must still execute an instrument that declares his or her intention to do so.
The district court did not base its decision on the fact there was no formal delivery of an instrument declaring an intention to revoke or modify the 1983 Trust from Norma to herself. Instead, it properly focused on the form of the documents she executed and found that her compliance with the requirements for revocation or modification were lacking because she never specified that she was acting in her capacity as grantor of the 1983 Trust when she executed the warranty deed. We agree.
Our Supreme Court has recognized that “ ‘if the settler reserves a power to revoke the trust only in a particular manner or under particular circumstances, he can revoke the trust only in that manner or under those circumstances.’ “ In re Estate of Sanders, 261 Kan. at 182 (quoting 76 Am.Jur.2d, Trusts § 97, p. 134). More specifically, the Sanders court held that a grantor of a revocable living trust who reserves the power to revoke the trust by complying with certain conditions cannot revoke or modify the trust merely by the execution of a will unless the will specifically refers to the trust. In re Estate of Sanders, 261 Kan. at 190. We know of no reason why a deed executed by the grantor should have any more effect than a will to revoke or modify a grantor's existing trust when the deed does not refer to the trust.
Here, neither the 2002 Trust nor the warranty deed contained a declaration that Norma was exercising her right as grantor of the 1983 Trust to revoke or modify that trust. We note that when she had previously executed amendments to the 1983 Trust, she specifically recorded that she was acting in her capacity as grantor in carrying out her desired modifications.
Unity argues that Taliaferro stands for the proposition that a grantor of a revocable living trust has the authority to revoke a specific interest in that trust when the grantor possesses a general power of revocation. As we indicated, the district court agreed and so do we. Taliaferro, however, does not establish that a transfer of the home occurred in the present case by virtue of Norma's executing the 2002 warranty deed.
Nor does Taliaferro support any argument that the 2002 Trust instrument transferred the home. In Taliaferro, the grantor executed a revocable living trust, which included a declaration specifying that the grantor would serve as trustee and would hold all of the property that was described in a separate attachment. The property placed in the trust estate included stock and a life insurance policy, but the grantor never transferred title of those assets to himself as trustee. Our Supreme Court held that, nevertheless, those assets became a part of the trust estate despite the grantor's failure to transfer the title to them to himself as trustee because the declaration of trust was sufficient in and of itself to do so. 260 Kan. at 579–80. The court noted that when “the settler and the trustee are the same person, no transfer of legal title is required, since the trustee already holds legal title .” 260 Kan. at 580.
The present case has similarities to Taliaferro. As we noted in our recitation of the facts, Schedule A attached to the 2002 Trust stated that the assets of that trust included Norma's real estate. However, there is one crucial difference in the facts. In Taliaferro, the grantor possessed legal title to the assets at the time he executed his trust. Here, Norma possessed only equitable title to her home as the primary beneficiary of the 1983 Trust, and the legal title resided in her as the trustee of that trust. Again, she simply had no authority to pass legal title to the home until or unless she properly complied with the terms of the 1983 Trust to modify or revoke the trust by first removing the home property from it prior to transferring it to the 2002 Trust.
Conclusion
Neither the 2002 Trust agreement nor the 2002 warranty deed specified that Norma was acting in her capacity as grantor of the 1983 Trust when she executed the documents. The district court did not err in determining that the residence remained an asset of the 1983 Trust because Norma's execution of the 2002 Trust agreement and the warranty deed did not validly modify or revoke the first trust and transfer the residence from that trust to the second trust.
Affirmed.