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Factual Background:

The Michael H. Brams Trust #2 was created under the Last Will and Testament of Harriet Brams.  Mrs. Brams died in 2002.  Pursuant to the will, the Mr. Bram, as Trustee of the Brams Trust #2 was granted testamentary power of appointment. In 2005 Mr. Brams filed a petition seeking to terminate the Trust, claiming that the power of appointment provided to him under the trust provided him the right and power to represent the Trust beneficiaries, both ascertained and unascertained, and provided him the power to unilaterally seek termination. All beneficiaries and contingent remaindermen of the trust consented to the termination, except Loren Abel a decendant of Harriet Brams.  The Circuit Court of Jackson County, Forsyth, J., agreed, holding that the proper reading of MUTC §§ 456.3-301.2 and 456.3-302 created an ambiguity and provided the party holding power of appointment to represent all trust beneficiaries except whose interests could not be extinguished by the power of appointment.  So holding, the Circuit court reasoned that the interests of both Ms. Abel’s and all unascertained and unborn remaindermen could be extinguished by Mr. Bram’s power of appointment, and he could therefore represent their interests with regard to the trust termination.

On Appeal:

1. A literal reading of the language of MUTC §456.3-301.2 unambiguously provides that a party holding power of appointment may represent all trust beneficiaries except whose interests could not be extinguished by the power of appointment unless the person being represented objects to the representation in a timely fashion.  The ability to object and defeat virtual representation is not limited to persons holding “protectable interests” in trust property.
2. Even where unascertained and unborn remaindermen are virtually represented by a trustee holding testamentary power of appointment, the trustee must still show that the unascertained and unborn beneficiaries will benefit from termination of the trust—whether virtually represented or not, the petitioner must show the benefit of termination to these unascertained and unborn parties.

Rationale:

The trial court improperly found that MUTC §§ 456.3-301.2 and 456.3-302 created an “illogical and absurd result” and, in the mind of the trial court, provided a basis to examine the case beyond the wording of the statute itself.  Rather, the wording of §456.3-301.2 is clear and unambiguous in that it forbids virtual representation where a beneficiary or remainderman has timely filed an objection to said representation.  The trial court’s examination of the MUTC beyond the plain language of §456.3-301.2 was improper because of the clarity of this Section.  Here, Ms. Abel explicitly objected to termination of the trust, and this fact was conceded by Mr. Brams in his petition, and by the trial court itself.  By stating such an objection, this barred Mr. Bram from representing Ms. Abel with regard to termination of the Trust (the court left it to the trial court on remand to determine whether Ms. Abel had in fact interposed a timely and effective objection barring Mr. Brams representation of her interests).

The trial court also improperly held that Mr. Bram’s testamentary power of appointment eliminated his need to present evidence that termination of the Trust was in the best interest of unborn and unascertained beneficiaries.  MUTC §456.590.2 draws a clear distinction between the consent of non-disabled adult trust beneficiaries (which is self executing without court action or inquiry) and the consent of unascertained and unborn beneficiaries and remaindermen.  By drawing this distinction, §456.590.2 clearly indicates that, unlike non-disabled adult beneficiaries, the consent of unborn and unascertained beneficiaries and remaindermen must be provided through affirmative action of the court.  As a result, the mere consent to trust termination of unborn and unascertained beneficiaries gained through virtual representation does not obviate the need for a petitioner to show that those beneficiaries will be benefited by the trust termination.

Factual Background:

Bill Rhodes Sr. and Jean Rhodes were married and had three children, Bill Rhodes Jr., Kathy Kinder and Amelia Winchester.  Winchester had a child named Abigail Winchester.  In 1992 both Bill Sr. and Jean established individual and identical trusts. Each trust contained a spendthrift provision which provided that any payments from the trust beneficiaries will not be subject to garnishment, levy, execution, anticipation, assignment or encumbrance, nor can they be sold or transferred in any manner, nor shall such interest, while in possession of the trustee, be liable for or subject to the debts, contracts, obligations, liabilities or torts of any beneficiary of the trust.  Bill Rhodes Senior died in 1993.  Jean Rhodes died in November of 2002.  Shortly thereafter, Amelia Winchester died in December of 2002, leaving Abigail Winchester as her sole heir.  The personal representative of Winchester’s estate demanded that trustees of the Jean Rhodes Trust distribute the trust assets that were due to Winchester to her estate pursuant to the Rhodes Trust Agreement.  The trustees refused claiming that the spendthrift clause of the trust precluded payment to Winchester’s estate.  After the trustees’ refusal, the Rhode’s Trust Trustees and Winchester’s Estate filed cross motions for summary judgment.  Circuit Court, Stoddard County, Sharp, J., held in favor of Winchester’s estate, and entered an order compelling release of all assets due to Winchester.

On Appeal:

The executor or administrator of a deceased beneficiary of a spendthrift trust is entitled to income or other distributions that have accrued but have not been paid at the time of the beneficiary’s death to the same extent as if the trust were not a spendthrift trust because income or principal received by the personal representative is distributed and no longer subject to the trust, these funds are subject to creditors’ claims and other obligations of the deceased beneficiary’s estate, and to disposition by the beneficiary’s will or by intestate succession.

Rationale:

Here, Jean Rhodes was survived, if only for a short period of time, by her daughter Winchester.  The trust in question did not explicitly require a beneficiary to survive until the date of distribution in order to receive trust assets.  As a result, Winchester had a vested right in her share of the trust assets at the time of Jean Rhode’s death.  A spendthrift provision prevents alienation of trust property that a beneficiary is entitled to receive in the future, but has no effect with regard to property actually received or with regard to property in which a beneficiary has a vested right to receive such property.  Here, because Winchester survived her mother, she had a vested right to receive the trust property at that moment, and the spendthrift provision became inapplicable.  To implicitly treat a personal representative’s demand for release of trust assets owed to a beneficiary as a creditor is improper.  In such a situation, the personal representative stands in the shoes of the deceased beneficiary, and cannot be characterized as a creditor making application of the spendthrift clause inapplicable.

Factual Background:

In 1995, Erna Strawn executed a revocable living trust naming her adult daughters, Delores Cronin and Elaine Klinkerfuss, as the primary beneficiaries.  Ms. Strawn named herself and her grandson, defendant William Cronin, as co-trustees, with Mr. Cronin continuing as sole trustee upon Ms. Strawn’s incapacity or death.  The trust also provided that the trust assets would be divided into two equal shares, and each beneficiary would receive three distributions after Ms. Strawn’s death, the last being 10 years after her death.  After Ms. Strawn’s death in July 1999, Ms. Klinkerfuss, Plaintiff, informed the trustee, Defendant, that she intended to break the trust, have the trustee removed, and take her share of the trust outright.

Plaintiff filed suit in 2000 for removal of the trustee, an accounting, and actual and punitive damages.  The suit to remove the trustee went to trial in 2002, and the trial court found for Defendant, finding that Plaintiff had sued for selfish reasons and not to protect the trust.  The judgment was affirmed on appeal.  Defendant then filed a motion for trustee’s fees and attorneys’ fees, requesting that the attorneys’ fees be allocated exclusively against Plaintiff’s share of the trust.  The trial court awarded only a portion of the attorneys’ fees against the Plaintiff’s share, and the judgment was reversed in part on appeal, the court finding that the second appeal represented a continuation of the Plaintiff’s groundless and selfish litigation against the trustee.   The appellate court remanded with instructions that the trial court determine the reasonable attorneys’ fees caused by the beneficiary’s vexatious litigation and allocate those amounts against Plaintiff’s share of the trust.  The trial court then conducted a hearing in July 2007 to determine the reasonable amount of attorneys’ fees.

Held:

The Circuit Court of St. Louis County issued a judgment allocating a total of $161,728.95 in attorneys’ fees and expenses against the beneficiary’s share of the trust, which exceeds the Plaintiff’s share and thus exhausts it.  Plaintiff Klinkerfuss appealed.

On Appeal:

Affirmed.  The trial court properly determined and allocated the amount of attorneys’ fees and expenses against the plaintiff beneficiary’s share of the trust.   Regarding additional attorneys’ fees and expenses incurred on appeal, the Plaintiff can be held personally liable for these fees pursuant to RSMo. §456.10-1004 and exceptions to the American Rule of attorneys’ fees.

Rationale:

As to the trial court’s determination of attorneys’ fees, the trial court conducted the hearing in accordance with instructions given on remand, and despite the Plaintiff’s numerous contentions to the contrary, there was no error.

As to the motion for attorneys’ fees on appeal, there are two independent bases for awarding attorneys’ fees and expenses against the beneficiary personally.  The first is RSMo. §456.10-1004, which provides that “[i]n a judicial proceeding involving the administration of a trust, the court, as justice and equity may require, may award costs and expenses, including reasonable attorney’s fees, to any party, to be paid by another party or from the trust that is the subject of the controversy.”  No Missouri appellate decisions have interpreted this statute, but the plain language of the statute supports a finding that equity and justice requires that the Plaintiff pay attorneys’ fees and costs when she has instituted baseless and vexatious litigation against the trust.  Otherwise, the “innocent beneficiary” would find her share depleted by the Plaintiff’s vexatious litigation, or the trustee would have to personally bear the expense for performing his duty.

The second basis for awarding attorneys’ fees and expenses against the Plaintiff personally is the “special circumstances” exception to the American Rule of attorneys’ fees.  Missouri adheres to the American Rule, meaning that generally, absent statutory authorization or contractual agreement, each litigant pays his or her own attorneys’ fees, with few exceptions.  The exceptions include special circumstances where an award of attorneys’ fees is necessary in equity to balance the benefits.  One situation considered “special circumstances” is when there has been intentional misconduct by a party.  When a party institutes litigation and proceeds in pursuing the litigation through three appeals, despite the characterization of the case by the trial and appellate courts as “vexatious” and “groundless and unsuccessful,” that party’s intentional actions of misconduct are the sole cause of all costs incurred by the opposing party.  Thus, a Plaintiff beneficiary who causes a Defendant trust to incur litigation costs through the litigation of meritless claims can be held personally responsible for the trust’s attorneys’ fees and expenses.

Factual Background:

In 1976, Grantor created an irrevocable trust and designated his wife and one of his children as the trustees (“Trustees”).  Income was to be paid to Grantor’s four children during his lifetime and for five years thereafter; the trust was to terminate five years after Grantor’s death and the principal distributed to Grantor’s descendants.  In 1984, Trustees creation a Corporation, and the irrevocable trust was its sole shareholder.  In 1986, Grantor and his wife created a second trust, a revocable trust, and named themselves as trustees.  Upon Grantor’s death in 1998, the revocable trust split into three sub-trusts, and the wife is the trustee of all three sub-trusts.  At Grantor’s death, the irrevocable trust held three assets:  cash or cash equivalents, land, and stock in the Corporation.

In 2001, Trustees formed a Family Limited Partnership and an LLC.  Shortly after forming these entities, the Trustees conveyed all assets of the irrevocable trust into the Partnership and LLC in exchange for a small interest in the entities.  Beneficiaries learned of the conveyance after it occurred.  The wife also conveyed all of the assets in two of the three sub-trusts and a portion of the third trust into the Partnership in exchange for substantial partnership interests.  Additionally, the Corporation transferred an office building it owned to the Partnership and money to the LLC.  The wife, as trustee of the three sub-trusts and president of the Corporation, held a 59.57 percent controlling interest in the LLC.

Prior to May 2003, Trustees exchanged the irrevocable trust’s interests in the Partnership and LLC for additional shares of the Corporation.  As a result of all these conversions, most of the meaningful assets in the trusts were transferred to the Partnership controlled by Grantor’s wife.  When the irrevocable trust terminated in May 2003, shares of the Corporation were the only asset held by the irrevocable trust.  These shares were distributed to Grantor’s four children.  In November 2005, Beneficiaries filed their petition for declaratory judgment, alleging that the Trustees had no power under the terms of the irrevocable trust to convert trust assets into Partnership assets, that Trustees’ fiduciary obligations continued after formation of the Partnership, and that distribution of the Corporation stock to Beneficiaries was an improper distribution of the trust corpus and did not discharge Trustees of their fiduciary obligations.  They also alleged that wife had no power under the terms of the sub-trusts to convert assets of the trusts into Partnership assets and that her fiduciary obligations continued after formation of the Partnership.

Beneficiaries took the position that there were no disputed facts relevant to their action for declaratory judgment, so they waived trial and asked the court to decide the case solely upon the legal issues.  Beneficiaries then filed a trial brief setting forth a statement of undisputed facts, and the Trustees filed a response.  The court stated that, as a basis for deciding the legal issues, it would consider only those factual assertions in Beneficiaries’ trial brief which were uncontested by Trustees’ response and the affirmative defenses argued in Trustees’ brief that were based upon uncontested fact.

Jackson County Circuit Court, J. Forsyth, Held:

The circuit court entered judgment in favor of the Beneficiaries on their petition for declaratory judgment.  The court described the primary legal issue as whether Trustees acted outside their authority in converting trust assets into assets of the Partnership.  The court found that the overall effect of Trustees’ actions was to delay Beneficiaries’ enjoyment of the irrevocable trust, and that Trustees had violated their duties to Beneficiaries to adhere to the purpose of the trust, be loyal, and prudently administer the trust.  The court held that the transfers of trust assets to the LLC and Partnership were voidable transfers and should be set aside.  The court found that Trustees had failed to allege uncontradicted facts to support the elements of the defenses asserted.  Trustees subsequently filed a motion to vacate parts of the judgment and an alternative motion for a new trial, which the court denied.  The Trustees appealed.

Court of Appeals, J. Howard, Held:

Reversed in part, affirmed in part.  Trustees’ first point on appeal is that the trial court erred in entering a declaratory judgment finding the Trustees breached fiduciary duties because such a finding exceeded the scope of the pleadings and the issue was not tried by consent.  Trustees argue that the issue of violation of fiduciary duty was not before the court because the Beneficiaries only claimed that Trustees had no power under the terms of the trust to convert assets.  However, arguments from both parties before the trial court show that Trustees contemplated that issues Beneficiaries presented could involve the application of Missouri law, in addition to an interpretation of the terms of the trust.  Therefore, the trial court did not err in addressing the issue of violation of fiduciary duties.

Trustees’ second point is that the trial court erred in entering the judgment because it failed to hear evidence and consider facts that would have supported Trustees’ investment decisions.  Trustees argue that the trial court should not have disregarded their affirmative defenses simply because they were based on disputed facts.  In the context of a summary judgment motion, the claimant must establish that there is no genuine dispute as to the material facts upon which the claimant would have the burden of persuasion at trial.  However, when the defendant has raised affirmative defenses, the claimant must also establish that the affirmative defenses fail as a matter of law.  Though there may have been no disputed facts relevant for Beneficiaries to make their case, it is clear that there were disputed facts relevant to Trustees’ affirmative defenses.  Therefore, the trial court erred in granting judgment in Beneficiaries’ favor without hearing evidence to determine the factual issues related to the affirmative defenses.

Factual Background:

Decedent and his wife created a joint trust.  Decedent funded the trust with their jointly-owned residence and ten acres, horses, and stock certificates for all the shares of two closely held companies.  Decedent was suffering from cancer and began to experience debilitating pain and delusional thoughts.  He filed an ex parte against his wife, as he believed that she had attempted to kill him.  Thereafter, Decedent contacted his attorney to ask if he could withdraw assets from the joint trust.  The attorney advised him that he could possibly convey up to one-half of the joint trust assets without the consent or knowledge of his wife.  Decedent then executed his own Trust, which made no provisions for his wife.  He then transferred one-half of the assets in the joint trust to the new Trust.  After the transfer, the wife was requested to re-issue the stock shares to the new Trust, and she refused.

After Decedent’s death, his son brought an action as Trustee of the Trust, seeking a declaratory judgment that the steps Decedent took to fund the Trust were effective and that the Trustee of the Trust owned the property.

Jasper County Circuit Court, J. Mouton, Held:

The circuit court denied declaratory relief, finding that the transfers from the joint trust were in fraud of the wife’s marital rights.  Son and the other Trust beneficiaries appealed.

Court of Appeals, J. Rahmeyer, Held:

Affirmed.  Appellants contend that the trial court lacked jurisdiction to decide that the transfers were in fraud of the wife’s marital rights because it constituted a counterclaim that had not been pled.  However, Appellants failed to provide the wife’s Answer in the legal file on appeal, and thus the court did not have the materials necessary to decide this point, and thus it was denied.

Appellants’ other points were related:  the first claimed that the court erred in declaring the entire transfer “null and void” because if it was a transfer in fraud of marital rights, only one-third was needed to fund the elective share; the second claimed that the court’s finding of fraud on marital rights was unsupported by the evidence.  On review, the appellate court is primarily concerned with the correctness of the result, not the route taken by the trial court to get there.  Though the court found fraud of marital rights, substantial evidence supports the trial court’s judgment regarding the imposition of a constructive trust.  Decedent and his wife had a confidential relationship, and Decedent’s actions wrongfully deprived his wife of her right, title, and interest in property, and that deprivation was a result of Decedent’s violation of confidence.  A correct decision will not be disturbed because the court gave a wrong or insufficient reason.

Factual Background:

Ted Summers acted as secretary/treasurer of Insurance Company and was also a senior vice-president of Bank.  Bank acted as Insurance Company’s depository bank.  Insurance Company had an account at Bank known as the Wind Premium Trust Account.  After the 1970s, Summers was the only person having signature authority on the Trust Account.  In 1993, Insurance Company directed the Trust Account be combined with the general operating accounts.  The president of Insurance Company believed the Trust Account had been closed, but Summers never actually closed the Trust Account.  From 1994 to 2001, Summers misappropriated $346,597.00 from the Trust Account by writing checks to Bank and others or by purchasing cashier’s checks or personal money orders payable to Bank.  Some of the funds were used for loan payments due to Bank by other customers.

Insurance Company filed a suit against Bank and a number of other individuals, including Summers.  By the time of trial, Insurance Company only sought to proceed on its count for a constructive trust against Bank.  In its count for a constructive trust, Insurance Company alleged it was entitled to a constructive trust on the funds Summers applied from the Trust Account and credited against loans which were delinquent, in default, or just as payments on loans which were current.

Marion County Circuit Court, J. Wallace, Held:

The circuit court imposed a constructive trust in the amount of $127,789.63.  The bank appealed.

Court of Appeals, J. Dowd Jr., Held:

Reversed.  The foundation of the remedy of a constructive trust is the identification of a specific property or funds as the res upon which the trust may be attached.  Bank asserts that Insurance Company did not establish through clear, cogent, and convincing evidence any identifiable property or funds as the res.  Insurance Company suggests the funds can be traced to Bank’s general operation account.  However, the record reflects that Insurance Company did not identify a res, and its assertion is not supported by evidence from trial.  Insurance Company only presented evidence that money passed through Bank and never showed where the money was deposited.  Bank president testified that at the time of trial, there was no record of where the misappropriated funds actually went.  There is no clear, cogent, and convincing evidence showing where the funds attributed to Bank went, whether the funds were deposited into Bank, or whether Bank retained those funds.  Because there was no identification of the specific res, no constructive trust can be imposed.

Factual Background:

Decedent’s Trust provided upon his death, Defendant, as Trustee, was to divide the principal of the Trust into two equal shares: one in favor of Defendant and other in favor of Plaintiffs.  Decedent died in 2003, and in 2007, Plaintiffs filed a petition against Defendant, alleging he failed to distribute to Plaintiffs their fifty percent interest in the Trust real estate following decedent’s death.  Plaintiffs sought partition of the Trust real estate in kind, an accounting, and removal of Defendant as Trustee.

Defendant filed a counterclaim for quantum meruit, alleging that he performed valuable services and made material improvements to the Trust property that benefited all beneficiaries for which he has not received compensation or reimbursement.

Audrain County Circuit Court, J. Sutherland, Held:

The circuit court found that Defendant was owed $201,659.81, including $187,259.81 as reimbursement for uncompensated labor and expenses.  The court found that Plaintiffs were owed $152,184.15 in back rent and attorney’s fees.  After setting off these amounts, the court held that Plaintiffs were jointly and severally liable to Defendant for $49,765.66.  Plaintiffs appealed.

Court of Appeals, J. Sullivan, Held:

Reversed and remanded.  Plaintiffs argue that the trial court erred in entering the monetary award, in part because the trial court failed to apply the debits and credits on a consistent basis.  Specifically, the Plaintiffs contend the trial court’s accounting involving the actual and imputed trust rents were divided in half, since the parties were fifty percent trust beneficiaries, but Defendant received a 100 percent credit for his labor and expenses on behalf of the trust.

The net income for the property is gross income less the operating expenses.  The gross income for the property was $243,600.  The Defendant expended $187,259.81 in improvements and maintenance.  Therefore, the net income for the property was $56,340.19.  Each party had a $16,800 liability to the Trust for rental benefits they received, leaving $22,740.19 in undisbursed income.  As equal beneficiaries, Plaintiffs and Respondent were each entitled to half, or $11,370.09.  Therefore, Defendant was entitled to $11,370.09 in Trust income and $6,000 from Plaintiffs for the difference in the appraised values of the parcels after partition, for a total of $17,370.09.

Factual Background:

Settlor created a trust with multiple income beneficiaries.  Settlor specifically named remainder beneficiaries for some of the original income beneficiaries, but for all “others” stated that upon their death, their former share would go to the lawful issue of John Goulding Sr. per stirpes.  John Goulding Sr. had two sons, Patrick and John Jr..  At Patrick’s death, he and John Jr. were each receiving 34.42% of the Trust income, 3.25% of which was each brother’s original share of the income before they began receiving the income of deceased beneficiaries.

At Patrick’s death, the Trustee distributed Patrick’s 34.42% share to his children, in his stead as the lawful issue of John Sr.  In 2005, John Jr. filed a breach of trust action, alleging that when Patrick died, he was entitled to one-half of Patrick’s former share (3.25%) because the Trust stated that for all “other” beneficiaries, which included Patrick, their former share shall accrue per stirpes to the lawful issue of John Sr., which would be John Jr. and Patrick’s children.  In 2007, the court granted partial summary judgment, finding that John Jr. should have received half of Patrick’s 3.25% share, with the other half going to Patrick’s children.

In 2008, John Jr. filed an amended petition claiming that Patrick’s former share included both the 3.25% share and the additional 31.17% being distributed to him as John Sr.’s lawful issue, and thus the Trustee should have distributed half of Patrick’s entire share to John Jr. at his death.  John Jr. moved for partial summary judgment.  The Trustee also moved for partial summary judgment, asking the court to rule that the additional 31.17% being distributed to Patrick at his death was correctly distributed to his children because they took his place as issue of John Sr.

 Jackson County Circuit Court, J. Forsyth, Held:

The circuit court granted the Trustee’s motion for partial summary judgment.  The grandnephew, John Goulding Jr., appealed.

 Court of Appeals, C.J. Hardwick, Held:

Affirmed.  The Trust provides that on the death of an “other named beneficiary,” that beneficiary’s “former share” is to accrue to John Sr. if he is living, and if not, “per stirpes to the lawful issue of John Sr.”  This is not a distribution to a specifically named beneficiary, and thus it cannot be treated as increasing a specifically named beneficiary’s “former share.”  The phrase “former share” as used in the Trust Agreement refers to the amount a specifically named beneficiary received pursuant to the initial terms of the Trust, as increased by any other amount specifically directed to accrue to that named beneficiary upon the death of another beneficiary.  “Former share” does not include the amounts a specifically named beneficiary happened to be receiving by the luck of being an eligible recipient.  The language of the Trust makes the intent of the settlor clear, and that intent must be honored in interpreting the provisions of the Trust.

Factual Background:

Grantor created a testamentary Trust for the benefit of his wife, and then to his ten children as the remainder beneficiaries.  The assets of the Trust consisted primarily of shares of common stock of a family company.  In 1998, the Trustee sold 180,000 shares of the stock from the Trust to each of the ten children.  The children paid for the shares by executing ten separate and identical promissory notes.  The notes provided for fixed annual payments to the Trust by the children.  As security for the promissory notes, the Trustee entered into Stock Pledge Agreements with each beneficiary, providing that the shares purchased by the children would be held as security by the Trustee until the children made full and final payment of the notes.  The Trustee, the company, and the beneficiaries entered into Stock Redemption Agreements, which stated that if a maker of a note failed to make the required payment when due, the company would redeem a sufficient number of that maker’s shares of the company’s stock to make the required payment.

When Grantor’s wife died, each of the children had a different amount outstanding on their notes.  The Trustee proposed offsetting the cash distribution from the Trust to equalize the share each beneficiary received.  The Trustees filed a Petition for Instructions regarding the propriety of making the equalizing distributions of cash.  Nine of the children consented to the proposed distribution and filed a motion for summary judgment in support of the Trustees’ position.  Grasso, the tenth beneficiary, filed a cross motion for summary judgment seeking denial of the Trustees’ plan of distribution.

St. Louis County Circuit Court, J. Gaertner, Held:

The circuit court granted the motion for summary judgment filed by the petitioners and denied Grasso’s motion for summary judgment.  The trial court allowed the cash distribution from the Trust to Grasso to be offset by Grasso’s indebtedness by promissory note to the Trust.

Grasso appealed, arguing that the spendthrift provisions of the Trust and the non-recourse provisions of the promissory note precluded any offset.

Court of Appeals, P.J. Odenwald, Held:

Affirmed.  The Trust provision mandating an equal distribution of assets supersedes the separate spendthrift provision of the Trust or the terms of the promissory note.  Because the grantor’s overall or primary intent was to treat the beneficiaries equally, it was proper for the Trustee to offset the cash distribution from the Trust by the amount of the outstanding indebtedness owed by each beneficiary to the Trust.  The nonrecourse provision of the promissory notes did not prevent the application of a retainer or set-off from the distributive share of the debtor; instead, it simply limited the Trustees’ remedies for nonpayment of the notes.  Moreover, the proposed distribution does not run afoul of the nonrecourse provision, as the Trustees are not attempting to collect the amounts owed under the notes by seeking to recover against the beneficiaries’ personal assets.

Factual Background:

Decedent created both a Revocable Trust and an Insurance Trust. The Revocable Trust named decedent’s brother, James Wild, as trustee and directed Trustee Wild to distribute the residue equally to two charitable remainder annuity trusts (CRATs).  Trustee Wild was the lifetime beneficiary of both CRATs, with two different colleges each being the remainder beneficiary of one.  The Revocable Trust gave Trustee Wild discretionary authority to pay federal and estate taxes owed as a result of decedent’s death with such payment being charged before funding the CRATs.  It further specified if such charges were taken, they were “without reimbursement from Grantor’s Personal Representative, from any beneficiary of insurance from Grantor’s life, or any other person.”

The Insurance Trust, which was irrevocable, made a provision for “Outright Gifts” that provided: “the Trustee shall distribute, outright and free of trust, to each person who is determined under Missouri law to be ultimately responsible for any federal estate tax, state estate or inheritance tax or any other death tax as a result of Grantor’s death, an amount equal to such death taxes for which such person is determined by the Trustee to be responsible.” The next paragraph provided that if any funds remained after paying the death taxes, they are to be held in trust to benefit Trustee Wild and then distributed to the then-living descendents of Virginia Cunningham.

After decedent passed away, Trustee Wild disclaimed any personal interest in distributions from the Insurance Trust.  U.S. Bank, upon becoming the second successor trustee of Insurance Trust, filed suit to seek a declaration as to how funds should be distributed.  The Cunninghams and the two colleges all filed cross-motions for judgment on the pleadings.

Jasper County Circuit Court, J. Mouton, Held:

This trial court entered a judgment that only the Cunninghams were entitled to any distribution from the Insurance Trust.          

Court of Appeals, J. Lynch, Held:

Reversed and Remanded.  This Court found the trial court misapplied the law and the judgment was not in accordance with the grantor’s stated intent for the Insurance Trust.

Cunninghams made two arguments.  First, they tried to argue that Trustee Wild was specially excluded from receiving a distribution from the Insurance Trust because that would constitute a “reimbursement”, which was specially precluded by the language in the Revocable Trust.  The Court found this argument failed because the words must be given their plain and ordinary meaning.  The words “reimbursement” used in the Revocable Trust and “gift” used in the Insurance Trust were specifically chosen by the grantor to be different, suggesting the grantor intended the two different words to have two distinct meanings.  Therefore, nothing in the Revocable Trust language prevented Trustee Wild from receiving a gift from the Insurance Trust.

The Cunninghams’ second argument was that the Revocable Trust and Insurance Trust were inconsistent with each other.  “The paramount rule in construing a trust is that the intent of the grantor is supreme.”  Where language is clear and unambiguous as to grantor’s intent, the court must give effect to that intent.  The language of the Insurance Trust explicitly stated that Decedent’s intent in establishing and funding the Insurance Trust was so that any person who received a gift, devise, bequest or other property as the result of grantor’s death received it without being burdened by the death taxes.  The intent of the grantor in creating the Insurance Trust was clear—she wanted any and every beneficiary free of death-tax burdens.  Nothing in the Revocable Trust was inconsistent with this.  Therefore, the trial court, in giving effect to grantor’s intent, should have ordered distributions for all beneficiaries, including but not limited to, the Cunninghams.