Opinion
No. A05-751.
Filed January 3, 2006.
Appeal from the District Court, Ramsey County, File No. C8-04-200049.
Steven R. Hedges, James H. Gilbert Law Group, P.L.L.C., (for appellant Charles A. Maloney)
Jacqueline A. Mrachek, Greene Espel, P.L.L.P., (for respondents American Cancer Society and American Heart Association)
John B. Bellows, Jr., (attorney pro se)
Michael P. Sampson, Sarah B. Stroebel, Lindquist Vennum P.L.L.P., (for respondent U.S. Bank)
Mike Hatch, Attorney General, Blaine A. Markuson, Assistant Attorney General, (for respondent State of Minnesota)
Considered and decided by Kalitowski, Presiding Judge, Stoneburner, Judge, and Crippen, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
Appellant Charles Maloney challenges the district court's denial of his motion for complete termination of his grandmother's testamentary trust and the court's decision instead for a partial termination. Appellant argues that the court erred in concluding that complete termination would violate the instrument's spendthrift provisions. We affirm.
FACTS
Marie La Belle Maloney (decedent) died testate in August 1997. Her will provided several specific bequests and named First Trust Company of Saint Paul (currently known as U.S. Bank) and John B. Bellows, Jr., co-trustees for the residue of the estate. The trust provided for certain payments to decedent's son, who predeceased his mother, and provided that appellant Charles A. Maloney, decedent's grandson, would receive $100 monthly payments beginning on his 25th birthday and continuing until his death, as well as a $10,000 lump-sum payment when he reached age 40. The will directed that following the deaths of both her son and grandson, the remaining corpus of the trust was to be divided equally between respondents American Cancer Society, Inc., and American Heart Association, Inc., Minnesota Affiliate. The will's spendthrift provision stated that neither principal nor income from the trust estate could be charged with a beneficiary's debts and that a beneficiary had no power to sell or encumber his trust interest or income.
In March 2004, respondents contacted appellant and offered him "a one-time payment of [$100,000] in cash, payable from the assets of the trust, to consent to dissolution of the Marie Maloney Trust." The offer letter stated that the offer was "contingent upon Court approval and complete dissolution." In April 2004, after appellant accepted the offer, counsel for the remainder beneficiaries contacted him to reiterate that the money to be paid to him would come from the trust after it was dissolved.
In May 2004, the parties petitioned the district court for an immediate and complete termination of the trust, then valued at approximately $993,279.87, an outright distribution of $100,000 to appellant, and distribution of the remaining balance in equal shares to respondents. When notified of the petition, both trustees objected to complete termination, arguing that the distribution to appellant (1) would violate the trust's specific directives concerning the manner and amount of trust payments to appellant; (2) would violate the trust's spendthrift provision by diverting funds intended for the remainder beneficiaries to appellant; and (3) would frustrate the trust's purpose by assigning to appellant remainder funds specifically intended for medical research.
At the hearing, the court stated its belief that the agreement among the beneficiaries contravened the obvious intent of the trust. The court indicated that it would consider ordering a partial termination of the trust on the conditions that appellant's interests were protected by a set-aside of capital sufficient to guarantee him the monthly payments required by the will and that he was reimbursed for his attorney fees. Following the hearing, the parties negotiated an agreement to which appellant's counsel specifically assented.
In February 2005, the district court issued an order incorporating the parties' agreement. The order (1) partially terminated the trust; (2) reserved $300,000 of the trust to guarantee appellant's monthly lifetime payments; (3) reserved $200,000 to pay for appellant's anticipated legal claims to the $100,000 lump sum; and (4) distributed the remainder of the trust in equal parts to the remainder beneficiaries. Appellant, who does not dispute the terms of the partial distribution, contests the district court's choice of partial, rather than complete termination of the trust.
DECISION
Minnesota law allows a trustee or any person interested in a trust to petition the court for instructions regarding administration of the trust and the discharge of the trustee's duties. Minn. Stat. § 501B.16 (2004). After a hearing on such a petition, the court is to make the order "it considers appropriate." Minn. Stat. § 501B.21 (2004). An order is appropriate if it is legally justified. In re Trusts Created by Hormel, 504 N.W.2d 505, 512 (Minn.App. 1993), review denied (Minn. Oct. 19, 1993).
This court reviews an order affecting a trust under an abuse of discretion standard. In re Trust Created by Hill, 509 N.W.2d 168, 172 (Minn.App. 1993), review denied (Minn. Feb. 1, 1994). The district court's interpretation of an unambiguous written document is a legal issue subject to de novo review. In re Trust Created by Hill, 499 N.W.2d 475, 482 (Minn.App. 1993), review denied (Minn. July 15, 1993). Where the language of the trust instrument is unambiguous, the intent of the settlor must be ascertained from the four corners of the agreement, without resort to extrinsic evidence of intent. In re Trust Created under Agreement with McLaughlin, 361 N.W.2d 43, 44-45 (Minn. 1985).
The supreme court has recognized that "the beneficiaries of a trust created for successive beneficiaries can compel the termination of the trust before its natural expiration if its continuance is not necessary to carry out a material purpose for its creation — provided that all of the beneficiaries consent." In re Trust of Boright, 377 N.W.2d 9, 12 (Minn. 1985); see also Minn. Stat. § 501B.03 (2004) (providing that "[i]f the purposes for which an active express trust is created have been accomplished, or become impossible of accomplishment or illegal, the trust will be terminated"). The material purpose is a reflection of "the testator's intent, which is to be gathered from the whole instrument and all reasonable inferences that may be drawn from it." In re Tufford's Trust, 275 Minn. 66, 71, 145 N.W.2d 59, 64 (1966).
Appellant's contention that the agreement between him and the remainder beneficiaries must be upheld as a legal, binding contract is flawed. The remainder beneficiaries' offer to terminate the trust was explicitly contingent upon approval by the district court and complete dissolution of the trust. Absent that approval, the agreement never became enforceable.
Appellant also argues that permitting a partial termination of the trust will encourage remainder beneficiaries such as respondents to breach otherwise enforceable agreements "to their own benefit." But the record is clear that the remainder beneficiaries did not breach the agreement and attempted in good faith to secure complete termination and court approval. And the remainder beneficiaries would have collected a greater part of the trust had the petition been granted as initially presented.
Appellant next argues that the district court erred by concluding that the beneficiaries' agreement violated the trust's material purposes and spendthrift provision. A spendthrift trust is "a trust in which the power of alienation has been suspended." Morrison v. Doyle, 582 N.W.2d 237, 240 (Minn. 1998). These trusts are upheld in deference to the owner's freedom to dispose of the estate and to exclude "creditors and others" from provided benefits. In re Moulton's Estate, 233 Minn. 286, 291, 46 N.W.2d 667, 670 (1951).
Decedent's will gave specific directions concerning the timing and amount of distributions to appellant. The lump-sum payment contemplated by the beneficiaries' agreement is plainly contrary to the structured and limited distributions provided by the trust. See Boright, 377 N.W.2d at 12 (observing that "[o]rdinarily, the presence of a spendthrift provision precludes termination of a trust prior to its natural termination date, for if one of the purposes for which the settlor created the trust was to protect the life beneficiary from his own improvidence, that purpose would be frustrated by a premature termination of the trust").
Appellant contends that the beneficiaries' agreement should be enforced because the underlying motive of the will reveals no specific desire to postpone his receipt of trust funds. But where, as here, the trust instrument is unambiguous, the parties may not go outside the four corners of the document in order to discover underlying meanings. See McLaughlin, 361 N.W.2d at 44-45.
Appellant also argues that trustee Bellows went beyond the scope of his duty as a trustee when he challenged the beneficiaries' agreement. But a trustee is bound to administer the trust in a manner consistent with the settlor's intent. See In re Trusts A B of Divine, 672 N.W.2d 912, 917 (Minn.App. 2004) (discussing trustee's fiduciary duty to beneficiary). Because trustee Bellows believed that the beneficiaries' agreement "would violate a material purpose of the trust expressed in the spendthrift provision," Boright, 377 N.W.2d at 14, he acted legally and well within his discretion by challenging the agreement as proposed.
Having properly concluded that the agreement among the beneficiaries contravened the plain intent of the trust, the district court appropriately denied a complete termination of the trust and approved instead a partial termination.