Opinion
No. 1 CA-CV 14-0322
06-16-2015
In The Matter of: THE WALTER W. QUISLING AND MARCELLA E. QUISLING REVOCABLE TRUST. JOHN QUISLING, Petitioner/Appellant, v. DAVID QUISLING, Respondent/Appellee.
COUNSEL Hunter, Humphrey & Yavitz, PLC, Phoenix By Isabel M. Humphrey Counsel for Petitioner/Appellant Charles Hultstrand P.C., Mesa By Charles Hultstrand Counsel for Respondent/Appellee
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. PB2013-002081
The Honorable Lori L. Horn Bustamante, Judge
AFFIRMED
COUNSEL Hunter, Humphrey & Yavitz, PLC, Phoenix
By Isabel M. Humphrey
Counsel for Petitioner/Appellant
Charles Hultstrand P.C., Mesa
By Charles Hultstrand
Counsel for Respondent/Appellee
MEMORANDUM DECISION
Judge Patricia K. Norris delivered the decision of the Court, in which Presiding Judge Margaret H. Downie and Judge Randall M. Howe joined. NORRIS, Judge:
¶1 Petitioner/Appellant John Quisling appeals from the probate court's order finding his father had failed to exercise a power of appointment ("POA") in accordance with the terms of an irrevocable and unamendable trust. On appeal, John argues the probate court should have, first, found his brother, Respondent/Appellee David Quisling, time-barred from contesting his father's attempted exercise of the POA, and, second, enforced his father's attempted exercise by applying equitable principles. We disagree with both arguments and affirm the probate court's order.
FACTS AND PROCEDURAL BACKGROUND
¶2 The facts of this case are undisputed. Therefore, "we determine de novo whether the trial court correctly applied the substantive law to those facts." Wetherill v. Basham, 197 Ariz. 198, 202, ¶ 9, 3 P.3d 1118, 1122 (App. 2000).
David suggests this court was not authorized to reinstate the appeal after the court deemed it abandoned because John had failed to pay the filing fee. David, however, failed to respond to John's motion to reinstate the appeal. Accordingly, David has waived this argument.
¶3 In 1985, John and David's father, Walter, and their mother, Marcella, established a revocable trust. By its terms, the trust became irrevocable and unamendable upon the death of one spouse. The trust provided that after the death of the first spouse, the surviving spouse could reallocate trust assets through a POA by "making specific reference to [the POA]" in "his or her Will."
¶4 Marcella died in 2003. In 2004, Walter executed a Fifth Amendment to the trust which purported to add to, delete from, amend, restate, and clarify various trust provisions. The purported effect of the Fifth Amendment was to reallocate trust assets between John and David. Walter died in 2012. Walter's will neither referred to the POA nor the Fifth Amendment.
¶5 In 2013, John and David petitioned the probate court for instructions concerning the Fifth Amendment to the trust. The probate court ruled David was not time-barred from contesting the validity of the Fifth Amendment to the trust, and Walter's attempt to exercise the POA through the Fifth Amendment was invalid.
We disagree with David's contention that John's appeal violates John's duty as a co-trustee to act impartially "in investing, managing and distributing the trust property, giving due regard to the beneficiaries' respective interests." See Ariz. Rev. Stat. § 14-10803 (2012). John is a beneficiary as well as a trustee and was entitled to ask the court for instructions regarding the proper administration of the trust.
DISCUSSION
I. The Statute of Limitations
¶6 John contends David was time-barred from challenging the Fifth Amendment pursuant to Arizona Revised Statutes ("A.R.S.") § 14-10604(A)(1) (2012). That statute provides, in relevant part: "A person may commence a judicial proceeding to contest the validity of a trust that was revocable at the settlor's death within . . . [o]ne year after the settlor's death."
¶7 As John concedes, however, the trust became irrevocable and unamendable when Marcella died. Thus, because the trust was irrevocable when Walter executed the Fifth Amendment, A.R.S. § 14-10604, which applies only to revocable trusts, did not preclude David from petitioning the probate court for instructions regarding the trust and the Fifth Amendment. II. The Fifth Amendment
¶8 Although Walter did not exercise the POA in his will, John argues the probate court should have applied equitable principles to find Walter's execution of the Fifth Amendment constituted a valid exercise of the POA. Restatement (Second) of Property: Donative Transfers ("Restatement (Second)") § 18.3 (1986) provides that a court applying equitable principles may, in certain circumstances, give effect to a defective POA if the POA fails "to satisfy the formal requisites of an appointment described in § 18.2, other than those required by law."
¶9 Arizona courts have followed Restatement (Second) § 18.3 and applied equitable principles to give effect to a donee's exercise of a POA that failed to, but approximately complied with, donor-imposed formalities. See generally In re Strobel, 149 Ariz. 213, 717 P.2d 892 (1986); Weatherill v. Basham, 197 Ariz. 198, 3 P.2d 1118 (App. 2000); In re Meyer, 195 Ariz. 336, 987 P.2d 822 (App. 1999).
¶10 The Fifth Amendment, however, cannot be saved by equitable principles. The Restatement (Second) distinguishes between the attempted exercise of a POA defective as to donor-imposed formalities and the attempted exercise of a POA defective as to formalities imposed by law. See supra ¶¶ 8-9. As comment b to the Restatement (Second) § 18.3 explains, "Formal requirements imposed by law with reference to instruments of appointment are always regarded as fulfilling a significant purpose. Consequently, their approximation is never sufficient in either law or equity to make the appointment effective."
¶11 As noted above, the trust required the surviving spouse to exercise the POA by making "specific reference" to the POA "in his or her Will." Comment b to the Restatement (Second) § 18.2 explains that when a POA is exercisable "by will," the POA must be exercised by "an instrument which is formally sufficient to be admitted to probate under the applicable law." In Arizona, a will requires two witness signatures, see A.R.S. § 14-2502(A)(3) (2012), but only the notary signed the Fifth Amendment. Accordingly, under the Restatement (Second), the Fifth Amendment did not meet the formalities imposed by Arizona law for a will.
¶12 Although in his supplemental brief John concedes he "cannot and does not argue that this Court should excuse in equity any failure of [Walter] to comply with the legal requirements for the exercise of a [POA]," he nevertheless argues Walter complied with the applicable legal formalities. In making this argument, John relies on Restatement (Third) of Property: Wills & Donative Transfers ("Restatement (Third)") § 19.9 (2011), which, like Restatement (Second) § 18.2, deals with formalities imposed by law. Although similar to Restatement (Second) § 18.2, comment b to the Restatement (Third) § 19.9 relaxes the "by will" requirements and states, "Because a revocable trust operates in substance as a will, a [POA] exercisable 'by will' can be exercised in a revocable-trust document, as long as the revocable trust remained revocable at the donee's death." Consequently, John argues that because Walter was attempting to transfer trust property, Walter only needed to comply with the requirements of A.R.S. § 14-10402(A) (2012) for the creation of a trust, which John argues, he did.
At this court's request, the parties provided supplemental briefing regarding the distinction between Restatement (Second) §§ 18.2 and 18.3 as applied to the Fifth Amendment.
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¶13 Even if we assume comment b to the Restatement (Third) § 19.9 is applicable here, the Fifth Amendment nonetheless does not constitute a valid exercise of the POA. To create a trust, A.R.S. § 14-10402(A) requires, as John recognized in his supplemental brief, "capacity, intent, a defined beneficiary, and a trustee with duties." The Fifth Amendment fails as a trust because Walter was not attempting to create a trust, but was attempting to amend an already-created irrevocable and unamendable trust. Indeed, under the heading "Purpose," the Fifth Amendment states, "the Surviving Settlor, Walter W. Quisling, hereby amends and restates . . . adds . . . clarifies . . . and . . . deletes" trust articles, sections, and other provisions. Thus, the Fifth Amendment does not constitute a document that could, under comment b to the Restatement (Third) § 19.9, meet the legal requirements for the creation of a revocable trust.
CONCLUSION
¶14 For the foregoing reasons, we affirm the probate court's order. As the successful party on appeal, we award David his costs, see A.R.S. § 12-341 (2003), contingent upon his compliance with Arizona Rule of Civil Appellate Procedure 21.