Opinion
No. 107,342.
2012-11-9
Jeremy B. BECKER, Appellant, v. Sonya BROZEK–ROBINSON, a/k/a Sonya B. Brozek, personally and in her capacity as trustee of the Joan G. Leonard Revocable Trust and the Sonya B. Brozek Trust, Appellees.
Appeal from Sedgwick District Court; Terry L. Pullman, Judge. Peter J. Orsi and Timothy King, of Wichita, for appellant. Scott R. Schillings and Matthew K. Holcomb, of Hinkle Law Firm LLC, of Wichita, for appellees.
Appeal from Sedgwick District Court; Terry L. Pullman, Judge.
Peter J. Orsi and Timothy King, of Wichita, for appellant. Scott R. Schillings and Matthew K. Holcomb, of Hinkle Law Firm LLC, of Wichita, for appellees.
Before ARNOLD–BURGER, P.J., McANANY and LEBEN, JJ.
MEMORANDUM OPINION
PER CURIAM.
In November 2010, Jeremy Becker filed a petition seeking a share of his grandmother's estate under the Joan G. Leonard Revocable Trust. Jeremy's grandparents, Ben and Joan Leonard, had executed identical trusts in 1998 that first gave the survivor the marital assets and then provided for a distribution plan to their children or grandchildren after both of them died. Amendments to both trusts in 2006 arguably eliminated Becker as a beneficiary, but he claims that the literal terms of the amended trust still gave him a share of the estate. The trustee of the trusts—Sonya Brozek, the Leonards' only surviving child and Becker's aunt—contended that the trust documents excluded Becker from sharing in the estate.
The district court found that the trust and its amendments unambiguously provided Becker no share of the trust, and the court also ruled that even if the trust documents could be read as Becker suggested, they should be reformed, or revised, to carry out his grandparents' intent—to eliminate Becker from sharing in the estate. On appeal, Becker again argues that the plain language of the trust as amended still left him as a beneficiary. But we conclude that the evidence is quite clear that his grandparents intended otherwise, and reformation of a trust to carry out the maker's intention is appropriate under the Kansas Uniform Trust Code even if the terms of the trust are unambiguous and to the contrary. We therefore affirm the district court's judgment that Becker not share in distribution from the trusts except for specific items of property that were designated to be given to him.
Factual Background
In March 1998, Ben and Joan Leonard executed identical revocable trusts as husband and wife. The original trusts left the Leonards' assets to their two children, Sonya Brozek and Janet Becker. In January 2005, after Janet Becker died, the Leonards both executed a first amendment to their trusts to reflect that her share was to go to her children, Jeremy Becker and Jenny Becker (also known as Jenny Haskell). In December 2005, the Leonards both executed a second amendment that reduced Jeremy Becker's share. In July 2006, the Leonards both executed a third amendment that eliminated Becker as a beneficiary except for a few specific items of personal property. The third amendment expressly revoked the first and second amendments, and it also indicated that Brozek would serve as the successor trustee. The third amendment to Joan's trust provided for a distribution plan “if my spouse does not survive me.” So, for Joan's trust, the third amendment didn't explicitly reference a distribution plan if Ben survived her. Nor did the amendment specify which sections of the original trust the amendment was intended to replace. Of course, once either Joan or Ben died, the trust assets were to be available for use by the other spouse until his or her death.
Joan Leonard died January 9, 2009, and Ben Leonard died July 1, 2009. In November 2010, Becker filed a petition seeking a share of the Joan G. Leonard Revocable Trust. In February 2011, Brozek filed an answer and counterclaim seeking a declaratory judgment that Becker wasn't entitled to a distribution from the trust and seeking reformation of the trust to that effect if there was any problem in achieving that result by simply following the trust's provisions.
On November 17, 2011, the district court granted Brozek's motion for summary judgment. The drafter of the trusts, Larry Toomey, had testified in a deposition that the Leonards both intended to disinherit Becker from their trusts. An email from the Leonards' financial advisor to Toomey also indicated that the Leonards intended to disinherit Becker. In its journal entry, the district court found that the Leonards' clear intent was to disinherit Becker as a beneficiary of their trusts. The district court found that the Leonards' intent was demonstrated by the trust documents and by additional evidence. The district court also found that even if Becker's interpretation of the plain language of the third amendment was correct, reformation was necessary to give effect to the Leonards' intent. Becker made an additional argument that a clause in the trusts providing that anyone who contested the trust must forfeit his or her share—known as a no-contest clause—prevented Brozek from seeking a reformation that would increase her share. But the district court rejected that argument, concluding that the clause didn't apply to Brozek's actions as trustee.
Becker has appealed to this court.
Analysis
I. The District Court Had Authority to Grant Reformation.
Becker makes several arguments challenging the district court's interpretation of the Joan G. Leonard Revocable Trust. First, Becker argues that the district court improperly looked beyond the terms of Joan Leonard's trust to ascertain her intent. Second, Becker argues that the district court erred by choosing to reform the trust to be consistent with extrinsic evidence (evidence outside of the trust document). Third, Becker argues that the district court erred by ruling on summary judgment and interpreting the trust to exclude him as a beneficiary. Brozek essentially contends that the district court was correct on all three of Becker's arguments.
Although we have noted each of Becker's arguments, we find that the analysis can be simplified for the purposes of this appeal. Even if we assume that the literal language of the trust documents could be interpreted in Becker's favor, the district court concluded that the terms would have to be reformed to meet the Leonards' intent to leave him out of the trust distributions. That ruling is supported by clear and convincing evidence, so Becker cannot get a distribution from the trusts even if the trust language could be interpreted as he suggests.
We have unlimited review of the interpretation and legal effect of written instruments, including contracts. National Bank of Andover v. Kansas Bankers Surety Co., 290 Kan. 247, 263, 225 P.3d 707 (2010). We also have unlimited review over a district court's reformation of a trust. In re Harris Testamentary Trust, 275 Kan. 946, 951, 69 P.3d 1109 (2003). And we have unlimited review of the interpretation of a trust and the determination of whether its terms are ambiguous. In re Estate of Oswald, 45 Kan.App.2d 106, 112, 244 P.3d 698 (2010), rev. denied 292 Kan. 967 (2011).
Here, Joan Leonard executed a third amendment to her trust in 2006. This third amendment expressly revoked her first and second amendments. The third amendment lacked precision about which sections of the original document were specifically being amended. The amendment provided a distribution only “if my spouse does not survive me,” leaving the possible meaning that the designated distribution only happens if Ben is already dead when Joan dies. The amendment didn't specify what was to happen if Ben survived Joan, though the original trust document provided that everything went to Ben if he was the surviving spouse. In fact, of course, Ben did survive Joan, though only by a few months.
Becker's argument that the terms of the trust are unambiguous rests on the ideas that the distribution according to Joan's third amendment doesn't apply because Ben survived her and, further, that the amendment didn't include any plan of distribution if Ben survived her. Thus, Becker's argument goes, the plain language of Joan's trust means that Becker should be excluded as a beneficiary only if Ben died before Joan. Brozek claims that the terms of the trust are unambiguous when the entirety of both Ben's and Joan's trusts are examined because both executed third amendments that expressed the intent to exclude Becker as a beneficiary.
Ultimately, we need not determine whether the terms of the trust are ambiguous or unambiguous because the district court had the authority to reform the terms of the trust to reflect Joan's intent as the settlor (the person who set up the trust). The Kansas Uniform Trust Code provides:
“The court may reform the terms of a trust, even if unambiguous, to conform the terms to the settlor's intention if it is proved by clear and convincing evidence that both the settlor's intent and the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement.” K.S.A. 58a–415.
This language is adopted verbatim from section 415 of the Uniform Trust Code, which was prepared by the National Conference of Commissioners on Uniform State Laws. See K.S.A. Chapter 58a—Kansas Uniform Trust Code, Revisor's Note. The comments to section 415 explain that evidence outside the document must be considered on a reformation question, and that evidence must be quite clear if the document is to be rewritten, or reformed, by the court:
“Reformation is different from resolving an ambiguity. Resolving an ambiguity involves the interpretation of language already in the instrument. Reformation, on the other hand, may involve the addition of language not originally in the instrument, or the deletion of language originally included by mistake, if necessary to conform the instrument to the settlor's intent. Because reformation may involve the addition of language to the instrument, or the deletion of language that may appear clear on its face, reliance on extrinsic evidence is essential. To guard against the possibility of unreliable or contrived evidence in such circumstance, the higher standard of clear and convincing proof is required.” Uniform Trust Code § 415 comment, 7C U.L.A. 362, p. 515 (citing Restatement [Third] of Property: Donative Transfers § 12.1 comment e [Tentative Draft No. 1, approved 1995] ).
See In re Trust Created by Isvik, 274 Neb. 525, 534, 741 N.W.2d 638 (2007) (quoting Uniform Trust Code § 415 comment to conclude that outside evidence of settlor's intent is admissible for reformation of trust).
The comment further explains that a mistake of expression “occurs when the terms of the trust misstate the settlor's intention, fail to include a term that was intended to be included, or include a term that was not intended to be included.” Unif. Trust Code § 415 comment. The comment adds that “[m]istakes of expression are frequently caused by scriveners' errors [in drafting a document],” Unif. Trust Code § 415 comment. The rationale for allowing reformation of a trust is to give effect to the settlor's intention and to prevent unjust enrichment. Restatement (Third) of Property: Donative Transfers § 12.1 comment b (“The claim of an unintended taker is an unjust claim. Using the equitable remedy of reformation to correct a mistake is necessary to prevent unjustly enriching the mistaken beneficiary at the expense of the intended beneficiary.”).
Here, there is clear and convincing evidence to support reformation of Joan Leonard's trust to exclude Becker as a beneficiary of anything other than some designated items of personal property. In January 2005, Joan's first amendment listed Becker as a 25% beneficiary of the family farm and her personal property. In December 2005, the second amendment reduced Becker's share to 25% of the family farm and no personal property. In July 2006, the third amendment eliminated Becker as a beneficiary except for specific artwork and outdoors equipment. Larry Toomey, the drafter of the trusts and the amendments, testified that Ben and Joan Leonard both intended to disinherit Becker from their trusts:
“Q. And, as we discussed earlier, the primary thrust of what you were informed of that was why they wanted to change or amend the trust was to, as you have [written in notes] here, take Jeremy out?
“A. Correct.
“Q. Do you recall talking to them about that?
“A. Yes.
“Q. What do you recall of their discussions?
“A. I recall them telling me, volunteering, I think it was Mr. Leonard on the phone, that—and I'm paraphrasing here, of course; I don't remember his exact words. But they had tried to work with Jeremy, as is reflected by the first amendment and the second amendment. It had become apparent to them that he was a problem and, with the exception of a few things ... for him to remember them by, they wanted him out.”
Toomey's handwritten notes from the conversation include the notation: “take Jeremy out.” In addition, an email from the Leonards' financial advisor to Toomey in November 2005 conveyed the Leonards' intent to exclude Becker from the trust:
“Larry, on careful examination of the issues, I believe that Mr. & Mrs. Leonard effectively want to disinherit their grandson, Jeremy Becker, except as provided in paragraph 1 and certain bequests (gun collection, et al.) that they may leave to him at their [discretion]. This is due to their belief that he is involved in substance abuse with his wife and her family, their lack of trust in him to do well where his children are concerned and their conviction that they do not want to contribute financially to his bad habits.”
The district court granted summary judgment in Brozek's favor for three alternate reasons—(1) the trust documents as a whole showed clear intent to disinherit Becker, (2) outside evidence showed intent to disinherit Becker, and (3) reformation is proper to give effect to the Leonards' intent. In its journal entry, the district court found that “[t]he clear intent of Joan G. Leonard and Ben H. Leonard was to disinherit [Becker] as a beneficiary of their respective [t]rusts.” The district court found the Leonards' clear intent from the trust documents and from extrinsic evidence. The district court added, “If [Becker's] interpretation of the Joan G. Leonard Revocable Trust were correct, which it is not, reformation is necessary to give effect to the intent of Joan G. Leonard and Ben H. Leonard.” From the bench, the district judge said:
“Even if the plaintiffs interpretation of the document just on its face is correct, that's still contrary to the overall, in my opinion, clear intent of the ... Leonards. So I would allow, and I think reformation would be necessary to give effect to the intent of the Leonards. I will grant judgment on that as well.”
Becker's arguments against allowing reformation are unpersuasive. First, Becker relies on the plain language of the amendment and advocates ignoring evidence of his grandparents' intent. As noted earlier, this plain-meaning rule is disapproved in the context of determining whether reformation of a trust is proper. Restatement (Third) of Property: Donative Transfers § 12.1 comment d. Second, Becker's assertion that K.S.A. 58a–415 “does not allow for reformation of an unambiguous trust because of an alleged scrivener's error” is simply wrong. Rather, fixing an error in the drafting of a document is one of the main reasons that reformation of a trust is authorized even if its terms are unambiguous. A drafter's error is precisely one of the mistakes of expression that the reformation statute is authorized to address. See Unif. Trust Code § 415 comment.
We conclude that the evidence in the record is clear and convincing that the Leonards intended to exclude Becker as a beneficiary from their trusts because that conclusion is highly probable based on the drafter's deposition and notes and the email from the financial advisor. See In re Weaver, 294 Kan. 751, 778, 281 P.3d 502 (2012) (describing “clear and convincing” as evidence that causes a fact-finder to believe that “ ‘the truth of the facts asserted is highly probable’ ”). So even were we to assume that the terms of the trust were unambiguous and meant what Becker contends, the district court had authority to grant reformation to conform the terms to the Leonards' intent because clear and convincing evidence proves their intent and that the terms of their trusts—under this assumption-were affected by a mistake of fact in expression. See K.S.A. 58a–415.
Although Toomey believed he had drafted the documents to match the Leonards' intent to leave Becker out from any distribution, he also testified that if the documents could be read still to include Becker as a beneficiary, that reading would “result[ ] from a scrivener's error” in drafting the documents. As we have mentioned, K.S.A. 58a–415 allows for reformation of an unambiguous trust because of a drafter's error, which is an example of a mistake in fact of expression. See Unif. Trust Code § 415 comment. The mistake of fact in expression here is the drafter's failure to specify which sections of the trust the third amendment was replacing and which sections of the original remained in effect. Specifying that the third amendment was intended to replace only the section that dealt with the distribution if Ben had predeceased Joan would have made clear her intent that Ben would get everything if he was still alive at her death. Based on the evidence in the record, it is highly probable that this was Joan's intent. Therefore, there is clear and convincing evidence to support reformation of Joan's trust to give effect to the Leonards' intention to exclude Becker as a beneficiary. Allowing Becker, clearly an unintended taker, to inherit a windfall based on inartful drafting would result in unjust enrichment.
II. The Trust's No–Contest Clause Doesn't Apply to the Trustee's Actions.
Becker also contends that the trust's no-contest clause bars Brozek from being a beneficiary since she had contested Becker when he sought a share of the estate. That clause provided that “any taker who asserts any other claim or contests this trust shall forfeit all interest in any property, income or other benefit to him/her.” Brozek contends that she was acting properly in her position as trustee in defending against Becker's claims. The district court found that the no-contest clause didn't apply to Brozek's actions as trustee in seeking declaratory judgment and reformation.
The trust documents granted Brozek, the trustee, the power to pay or contest any claim, “to institute, compromise and defend actions and proceedings,” and to “commence or defend litigation with respect to the trust.” There is also statutory authority under the Kansas Uniform Trust Code for a trustee to “defend claims against the trust” and to “prosecute or defend an action, claim or judicial proceeding in any jurisdiction to protect trust property.” K.S.A. 58a–811; K.S.A. 58a–816(24). Here, Brozek filed a counterclaim in response to Becker's petition and sought a declaratory judgment and reformation. Brozek had authority to do so under the terms of the trust and under the Kansas Uniform Trust Code: the trustee must attempt to carry out the settlor's intentions, and asking for reformation of the trust to do so does not violate the terms of this standard no-contest clause.
We affirm the district court's judgment.