Opinion
14-P-585
05-21-2015
CHRISTINE M. McGOVERN v. FRANCIS J. McGOVERN, individually and as trustee, & another.
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
After a bench trial, the defendants appeal from the judgment for the plaintiff on count II. Count II alleged that the trustees' sale of the real property held by one trust to another trust that was created for the benefit of John Joseph McGovern (John), Francis J. McGovern (Frank), and their issue, was a breach of the trustees' fiduciary duty and violated the provisions of both trusts that governed such an action. We affirm.
We refer to these parties by their first names as they have the same last names.
Background. On or around June 30, 1997, Arlene Murphy and Hollis Murphy created two trusts: the Bagley Realty Trust and the HSM Trust. At the same time the trusts were created, Arlene and Hollis Murphy transferred by deed three pieces of real property, one in Bedford, Massachusetts, and two in Maine, to the Bagley Realty Trust. The relevant terms of the Bagley Realty Trust provided as follows: the beneficial interest in the trust "shall be held as designated in the Schedule of Beneficial Interests." The schedule that was created at the time provides that before Hollis Murphy's death, he could amend the schedule but after he died the "[s]chedule shall not be further amendable or revocable." Hollis Murphy died on August 13, 1997, without amending the schedule. The schedule provided that after his death "the entire beneficial interest hereunder shall vest in the HSM Trust, and be administered as trust property according to the terms thereof" (emphasis supplied). The Bagley Realty Trust further provided that the "Trustee will hold, administer and dispose of all property now or later transferred . . . in accordance with the terms and provisions of this trust, and as directed in the Schedule" (emphasis supplied).
As a result, by August of 1997, the HSM Trust had a vested beneficial interest in the Bagley Realty Trust and the real property in the Bagley Realty Trust had to be "administered as trust property" according to the terms of the HSM Trust.
The HSM Trust provided that on the death of the donor, who was defined as Hollis Murphy, "the Trustee shall divide all property of the trust into three separate trusts" but that if, pursuant to a funding formula, "only one or two separate trusts are to be funded, the Trustee shall allocate the property of the trust only to such one or two trusts." Funding of the two marital trusts was tied to the "Optimum Federal Marital Amount" and the "Optimum State Marital Amount." The HSM Trust provided that "[t]he family trust shall be funded with all property remaining after funding the marital trust, or with all the trust property if each Marital Amount is zero." The trial judge found that when Hollis Murphy died, "because the property in the trust was worth $600,000, there were no additional assets to put into either marital trust, thus, all of the property thus flowed into the family trust."
The defendants contend that there was no evidence that the family trust was ever funded. However, the only evidence concerning the value of the real property in the trust presented at trial was that it was estimated to be worth $600,000. In August of 1997, the Federal estate tax exemption was $600,000. See 26 U.S.C. § 6018 (1994 & Supp II 1996); Pub. L. No. 105-34, § 501(a)(1)(C), 111 Stat. 845 (1997) (changing exemption for estates starting in 1998). See also Walker v. Walker, 433 Mass. 581, 584-585 (2001) (describing how a trust intended to eliminate or minimize estate tax is separated into subtrusts that are funded upon the settlor's death). This finding was not clearly erroneous.
The HSM Trust included the following terms for administering the family trust (HSM Family Trust):
"Out of the net income or principal of the family trust, or both, the Trustee shall, from time to time during the lifetime of the Donor's spouse, pay such amount or amounts (whether equal or unequal) as the Trustee, in her discretion, shall determine, to or for the benefit of such one or more persons as the Trustee, in her discretion, shall select from the class consisting of the Donor's spouse and the Donor's issue of all generations, as necessary for the health, education, support, or maintenance of the recipient."
After Arlene Murphy's death, the property was to be distributed in four gifts, of $3,000 each, to her grandchildren and then the remainder divided equally among the donor's children, who are defined as "Christine M. McGovern, Francis J. McGovern, and John Joseph McGovern," or their issue by right of representation unless Arlene Murphy provided for distribution in different proportions "in a writing specifically referencing the intent to exercise the limited power of appointment."
Although the trustee does have the power to distribute principal, the instrument later specifies that with respect to real property while the donor's spouse, Arlene Murphy, is alive she will have "the exclusive right to use and occupy the subject property" and "to direct the trustee to join in a sale of any such real property at such time, for such price and upon such terms as the Donor's spouse in the exercise of sole discretion may deem appropriate, unless any remainder beneficiary hereunder objects to the terms of said sale."
"On September 10, 2004, Arlene and Frank, as trustees of the Bagley Trust, transferred the Bedford Property from the Bagley Trust to the McGovern Bros. Trust[ ] for consideration of $1.00." "On November 4, 2004, Arlene and Frank similarly transferred the [Maine] Property from the Bagley Trust to the McGovern brothers trust 'for consideration paid.'" The plaintiff, "a beneficiary of the HSM Family sub-trust from which the [beneficial interest in the] property was conveyed, was not consulted on either of these transactions."
The parties and some of the documentation refer to the Francis J. McGovern and John Joseph McGovern Family Trust as the McGovern Brothers Trust. We do also.
Sometime in the weeks before this transfer Frank asked the lawyer who had drafted the other trust instruments "to create the McGovern Bros. Trust, designating Frank and John as trustees, and their children as beneficiaries."
Standing. The defendants argue that the plaintiff does not have standing to bring this action because her interest in the real property is too remote. "In the case of a private trust, only a named beneficiary, or one suing on his or her behalf, can maintain an action to enforce a trust." Weaver v. Wood, 425 Mass. 270, 275 (1997), citing Collector of Taxes of Lowell v. Slafsky, 332 Mass. 700 (1955). The plaintiff is a named beneficiary of the HSM Family Trust.
The plaintiff's interest in the real estate being contingent at the time of the "sale" has no effect on her right to enforce the terms of the trust. "A suit to enforce a private trust . . . ordinarily may be maintained by any beneficiary whose rights are or may be adversely affected by the matter(s) at issue." Restatement (Third) of Trusts § 94 comment b, at 5-6 (2012). Beneficiaries include "any person who holds a beneficial interest, present or future, vested or contingent." Restatement (Third) of Trusts, supra at 6. See Restatement (Third) of Trusts § 48 (2003). See also Corkery v. Dorsey, 223 Mass. 97, 100, 103 (1916); Lannin v. Buckley, 256 Mass. 78, 83 (1926); Collector of Taxes of Lowell v. Slafsky, supra at 704; Loring & Rounds, Trustee's Handbook § 5.1, at 291 (2015) ("The beneficiary of a trust with even a 'minute or remote' equitable interest has standing [locus standi] to seek its enforcement, to include having the trust property secured").
We acknowledge that there could be some exceptions to this general rule. See O'Brien v. Farrell, 241 Mass. 44, 47 (1922) (the sister of the testator could not maintain a suit against the trust when her interest in the property only existed if "both children [of the testator] died without issue before" the younger child turned thirty-five and that date had passed and there was a child alive). See also 4 Scott & Ascher, Trusts § 24.19 (5th ed. 2007). As none of these exceptions is applicable here, we will not address them.
The plaintiff is suing to enforce the terms of the HSM Family Trust and the HSM Trust generally. Cf. Chase v. Chase, 84 Mass. 101, 105 (1861) (upon petition of a subtrust beneficiary the court enjoined the trustee of the main trust from making payments to the subtrustee who was misapplying the income of the trust that was supposed to be for the subtrustee's support "and his family and the education of his children"). The plaintiff's contingent remainder interest in the real estate was implicated by the sale of the property for one dollar and consideration provided to the McGovern Brothers Trust. Further, the HSM Trust's beneficial interest in the property at issue had already vested at the time of the sale and the judge found as fact that based upon the funding formula and the estate tax exemption at the time, the beneficial interest in the real property should have been held in the HSM Family Trust. The legal title to the property being held by the Bagley Real Estate Trust does not alter the plaintiff's right to enforce the terms of the trust of which she is a beneficiary. The plaintiff has standing to enforce the terms of the HSM Family Trust. See Billings v. Fowler, 361 Mass. 230, 233-234 (1972) (a direct present interest is not required to bring a suit pursuant to G. L. c. 231A).
N ecessary parties. The defendants argue that the plaintiff failed to join the following necessary parties: the estate of Arlene Murphy and the additional family members who are beneficiaries of the HSM Family Trust but not already parties to this action., Under Mass.R.Civ.P. 19(a), 365 Mass. 765 (1974), necessary parties are defined as follows:
The defendants also allege that the trustees of each of the HSM subtrusts should have been joined. However, there is no indication on the record that those subtrusts have separate trustees and the subtrust sections of the trust instrument do not include a procedure for appointing trustees. Further, the trust instrument provides a single procedure that is to "apply to each trust" for filling the general vacancy of the office of trustee. As a result, the trust instrument expresses an intent that the cotrustees administer all subtrusts that were funded. The HSM trustees, or its de facto trustee, were joined as parties.
We further note that even if the parties were necessary, the failure to join would not be grounds for dismissal. See Mass.R.Civ.P. 21, 365 Mass. 767 (1974) ("Misjoinder of parties is not ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or of its own initiative, after hearing, at any stage of the action and on such terms as are just"). Contrast Sadler v. Industrial Trust Co., 327 Mass. 10, 13 (1951) (appropriate to dismiss action where an indispensable party cannot be joined due to lack of personal jurisdiction).
"A person who is subject to service of process shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest."Under G. L. c. 231A, § 8, inserted by St. 1945, c. 582, § 1, necessary parties for declaratory relief are: "persons . . . who have or claim any interest which would be affected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceeding."
Here, neither of the alleged missing parties are necessary for complete relief to be afforded. The property at issue was held at the time of trial by the McGovern Brothers Trust, the Bagley Realty Trust is the party that executed the deed, and the HSM Trust could be (and was) required to take action as a result of the declaration. Since the current trustees of these trusts were joined, complete relief can be afforded. See Sadler v. Industrial Trust Co., 327 Mass. 10, 13 (1951) ("[T]he trustee is an indispensable party to any adjudication of the life beneficiary's interests under the trusts. Justice requires that the trustee be bound by the declaration and not left free to raise the same question, for example in an accounting, with the same parties at a later date"); DeSimone v. Civil Serv. Commn., 27 Mass. App. Ct. 1177, 1179 (1989) ("A declaratory judgment cannot issue if the person who will bear the expense of relief is not a party").
As a result, the issue is whether there are other individuals who have a claim or interest in the declaration that have not been joined or whether failing to join any of these parties would result in a substantial risk that the named parties would incur double or inconsistent obligations. Generally in a suit for damages by a beneficiary, cotrustees who committed the alleged breach "may and should be joined in order to settle questions of contribution or indemnity." Bogert & Bogert, Trusts and Trustees c. 41, § 871, at 170 (2d ed. rev. 1995). Arlene Murphy was a cotrustee at the time of the alleged breach of trust and fiduciary duty. However, the plaintiff is not seeking damages here. Arlene Murphy's estate does not have any claim or interest in the property or the trust. Her estate was not a necessary party.
We further note that Frank or, alternatively, John, was nominated as executor of Arlene Murphy's will. As a result, practically, as the executor likely was fully aware of the proceedings, he could have intervened had he believed the interest of the estate to be at risk.
Finally, although the other beneficiaries of the HSM Trust, namely Jacqueline, Elisa, Lesley, and Colleen McGovern do have an interest in the HSM Trust property, their interest in the property "was adequately represented by other parties." Id. at 176 ("Nevertheless, under certain circumstances all beneficiaries need not be joined as parties, in some cases depending upon the type of relief requested, and in other cases where the absentee beneficiaries have remote contingent interests or are adequately represented by other parties under the doctrine of virtual representation" [footnotes omitted]). See 4 Scott & Ascher, Trusts § 24.19 (5th ed. 2007) ("Ordinarily, [all beneficiaries] should be joined as parties if the decree would adversely affect their interests. Increasingly, however, they need not be joined if their interests are sufficiently represented by one or more of the parties to the suit"). All necessary parties were joined.
Breach of trusts and fiduciary duty. The defendants argue that the trial judge erred in concluding that there was a breach of the trusts and fiduciary duty by Frank because Frank and Arlene's sale of both properties for only nominal consideration was allowed under the terms of the Bagley Realty Trust and the HSM Trust. We disagree.
"In interpreting a trust, the intent of the settlor is paramount. In determining such intention, we regard as particularly significant the language used by the donor viewed in light of the rule of law in effect in these circumstances at the time the powers in question were created." Morse v. Kraft, 466 Mass. 92, 98 (2013) (quotation marks and citations omitted). See Powers v. Wilkinson, 399 Mass. 650, 653 (1987) ("It is fundamental that a trust instrument must be construed to give effect to the intention of the donor as ascertained from the language of the whole instrument considered in the light of circumstances known to the donor at the time of its execution" [citation omitted]). There is no need to consider any external evidence beyond the trust language, if the provisions of the trust are "not ambiguous." Museum of Fine Arts v. Beland, 432 Mass. 540, 543 (2000).
Here, the language of the Bagley Realty Trust and its attached schedule, which was never amended, unambiguously expresses an intention that upon Hollis Murphy's death the Bagley Realty Trust property must be "h[e]ld, administer[ed] and dispos[ed] of" in accordance with both the terms of the Bagley Realty Trust and the terms of the HSM Trust and that the HSM Trust will have a vested beneficial interest in the Bagley Realty Trust property. Under the terms of the Bagley Realty Trust, the property in Bedford, Massachusetts, and the properties in Maine were "an interest in real estate" that came to be held by one of the subtrusts. The HSM Trust provided specific instructions "[w]ith respect to any real estate or interest in real estate that may come to be held in any trust hereunder." The real estate provision of the HSM Trust provided, in pertinent part, that:
The schedule provided that after Hollis Murphy's death "the entire beneficial interest hereunder shall vest in the HSM Trust, and be administered as trust property according to the terms thereof" (emphasis supplied). The Bagley Realty Trust further provided that the "Trustee will hold, administer and dispose of all property now or later transferred . . . in accordance with the terms and provisions of this trust, and as directed in the Schedule" (emphasis supplied). These were limitations on the general power of the trustee to "distribute all of the principal of the trust."
"The trustee shall hold and deal with the trust's title to and interest in said real estate for the benefit of the Donor's spouse so long as the Donor's spouse is living. The Donor's spouse shall have the exclusive right to use and occupy the subject property; to direct the trustee to join in a lease of any such property at such rent and upon such terms as the Donor's spouse shall determine; and to direct the trustee to join in a sale of any such real property at such time, for such price and upon such terms as the Donor's spouse in the exercise of sole discretion may deem appropriate, unless any remainder beneficiary hereunder objects to the terms of said sale. The trustee shall be bound by any directive from the Donor's spouse or the Donor's spouse's attorney-in-fact under a Durable Power to Attorney, as the case may be, as to rental or sale of
any real property owned in part by this trust." (Emphasis supplied.)
"[A] trustee has a duty to administer the trust, diligently and in good faith, in accordance with the terms of the trust and applicable law." Restatement (Third) of Trusts § 76(1), at 68 (2007). See Matter of the Trusts Under the Will of Crabtree, 449 Mass. 128, 137-143 (2007) (trustees breached their fiduciary duty when they disbursed funds in violation of the terms of the trusts and without prior court authorization); Steele v. Kelley, 46 Mass. App. Ct. 712, 734 (1999) ("[T]he fundamental fiduciary doctrine long established in equity [is] the trustee's duty of loyalty to administer the trust solely in accordance with its terms and in the interest of the beneficiaries").
To conclude that Frank, as de facto trustee, did not violate the terms of the HSM Trust, the defendants ask us to ignore the plain language of the real estate provision in the trust because they claim that it is inconsistent with the intent of the document as a whole. The document as a whole expresses a clear objective to minimize or avoid estate taxes, and to provide for the health, maintenance, and support of Arlene Murphy during her lifetime as well as the donor's issue in the discretion of the trustee. The provision concerning real estate, which allows the donor's spouse to use and occupy real estate or rent it at her exclusive determination but gives the remainder beneficiaries the right to object to the sale of the property, is not clearly inconsistent with these goals. There is no ambiguity. Further, the trust terms do allow for the unequal distribution of principal to the beneficiaries "as necessary for the health, education, support, or maintenance of the recipient." However, even if distribution of the real property were appropriate under that provision, which we do not believe it was, there was no showing that the distributions to Frank, John, or their issue were made for any of the approved reasons for distributing the principal. In addition, Arlene Murphy was permitted to exercise a limited power of appointment in writing prior to her death, which provided for a different proportion of distribution among her children. However, there is no writing here that "specifically referenc[es her] intent to exercise the limited power of appointment" and it was not executed in her will or another document that would only be operative at her death. As a result, this limited power of appointment was not properly exercised. Finally, although the HSM Trust terms allowed the trustees to terminate the trust or transfer the property to another trust for the "same beneficiary or class of beneficiaries" and terminate the trust, if the "retention of assets in trust is no longer in the best interest of one or more of the beneficiaries due to changes in the tax laws or other legal considerations," the trustees did not terminate the trust or transfer the property to the same class of beneficiaries. The sale or transfer of these properties violated the terms of the HSM Trust and, therefore, was a breach of the trustees' fiduciary duties.
See our discussion, supra (describing real estate provision of the HSM Trust).
The judge incorrectly stated that the trustee could distribute principal "only for the education or financial support or maintenance of the Donor's issue." This is inaccurate, the principal could have also have been used "as necessary for the health, education, support, or maintenance" of Arlene, the donor's spouse. However, transferring the property to the McGovern brothers and their children did not support the trust's purpose of providing for Arlene's support and maintenance. The only evidence concerning Arlene's financial needs in 2004 was that Frank was concerned that her assets were diminishing, had arranged for Arlene to discuss Medicaid planning with an attorney, and that the intent in transferring the property was to allow her to become eligible for Medicaid by removing her name from any of the real estate assets. This objective is not consistent with the objectives of the trust, which were to provide for Arlene's support and health care expenses. There was no evidence at trial that Arlene transferred the property to her sons in return for their promise to take care of her or pay for her care. The judge also found that there was no evidence that the parties who received the property needed it for "health, education, or financial reasons."
Judgment affirmed.
By the Court (Cohen, Trainor & Fecteau, JJ.),
The panelists are listed in order of seniority.
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Clerk Entered: May 21, 2015.