Brenda Sue Gittings and Marc Richmond Gittings v. William H. Deal , 84 N.E.3d 749 ( 2017 )

FILED
Oct 13 2017, 7:51 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
James D. Johnson David L. Jones
Jackson Kelly, PLLC David E. Gray
Evansville, Indiana Jones  Wallace, LLC
Evansville, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Brenda Sue Gittings and October 13, 2017
Marc Richmond Gittings, Court of Appeals Case No.
Appellants-Respondents, 74A01-1611-TR-2551
Appeal from the Spencer Circuit
v. Court
The Honorable Jonathon A. Dartt,
William H. Deal, Judge
Appellee-Peetitioner. Trial Court Cause No.
74C01-1305-TR-27
Barnes, Judge.
Case Summary
[1] Brenda Sue Gittings and Marc Gittings (“the Gittingses”) appeal the trial
court’s judgment in favor of William Deal. We affirm.
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Issues
[2] The Gittingses raise three issues, and we address the following two issues:
I. whether the trial court’s findings that the Gittingses’
claims are barred by the statute of limitations are
clearly erroneous; and
II. whether the trial court’s findings that transfers of
property from the NDR Primary Trust to the NDR
Trust A and from the NDR Trust A to the GLR
Trust were proper are clearly erroneous.
Facts
[3] Brenda is the daughter of Nile D. Richmond, and Marc Gittings is Brenda’s son
and Nile’s grandson. In 1985, Nile married Georgia L. Richmond, who also
had a prior child, William. Prior to their wedding, they signed an Antenuptial
Agreement, which provided that all property acquired after marriage would be
owned as community property and that, after their death, one-half of the
community property would pass to each estate. In 1988, Nile and Georgia
acquired property and mineral interests in West Virginia (“West Virginia
Properties”).
[4] In 1993, Nile and Georgia retained Attorney David E. Price to prepare trusts
for them. Nile executed the NDR Trust Agreement, and Georgia executed the
GLR Trust Agreement. Nile and Georgia funded the trusts with half of the
parties’ assets being placed in each of the respective trusts. The Trust
Agreements had substantially identical terms. The Trust Agreements provided:
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[D]uring the life of the Settlor, the Settlor shall have the power to
completely revoke or terminate this Trust Agreement, at any
time, by an instrument signed by the Settlor and delivered to the
Trustees during the life of the Settlor. In addition, during the life
of the Settlor, the Settlor shall have the power to alter or amend
this Trust Agreement, in whole or in part, at any time and from
time to time, by an instrument signed by the Settlor, and
delivered to the Trustees.
Exhibits Vol. IV pp. 22, 46. Additionally, the Trust Agreements provided that
they could not be “changed orally, but only by a written agreement of the
parties hereto.” Id. at 37, 61. Upon the death of the Settlor, the Trust
Agreement became “irrevocable.” Id. at 21, 45.
[5] Each Trust Agreement created three separate trusts—the Primary Trust, Trust
A, and Trust B. The Primary Trust was established to hold the primary trust
estate during the life of the Settlor (Nile in the NDR Trust Agreement and
Georgia in the GLR Trust Agreement). Upon the Settlor’s death, the Primary
Trust estate was to be distributed to Trust A and Trust B. Trust A was designed
to be a Q-TIP trust and qualify for a marital deduction to minimize the federal
estate tax. Trust A was to be funded with
the smallest fraction of the assets of Settlor’s estate that qualify
for the federal estate tax marital deduction as will be sufficient to
result in the lowest federal estate tax being imposed upon [the]
estate after allowing for the unified credit, and any other
allowable credits and deduction, but in no event shall Trust A be
less than the smaller of $100,000.00 or the balance of the Primary
Trust.
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Id. at 24, 48. Trust A was to be used to provide for the support, maintenance,
and health of the Settlor’s spouse.
[6] The remainder of the Primary Trust’s assets were to be distributed to Trust B.
Upon the surviving spouse’s death, the remainder of Trust A was also to be
distributed to Trust B. In the event that the Settlor’s spouse predeceased the
settlor, upon the Settlor’s death, the Primary Estate’s assets were to be
transferred to Trust B. Upon the death of both the Settlor and the Settlor’s
spouse, Trust B was to be distributed as follows: one-third to Brenda, one-third
to William, and one-third to the grandchildren of the Settlor and Settlor’s
spouse.
[7] Initially, the Trust Agreements provided that Nile and Georgia were the
Trustees of both Primary Trusts. The Trust Agreements then provided:
As to the primary trust during the life of the Settlor, either of the
initial Trustees may resign by giving ten (10) days written notice
to the other Co-Trustee. Upon such event or if either initial Co-
Trustee otherwise ceased to continue to be qualified during the
life of Settlor, then the remaining Trustee shall be the sole
Trustee. If both the initial Co-Trustees cease to be qualified, then
William H. Deal and Brenda Sue Gittings, or the survivor
thereof, shall be the Co-Trustee. Sandra Deal shall be the next
alternate successor Trustee.
Upon the death of the Settlor, if he is survived by his spouse, then
she along with William B. Deal and Brenda Sue Gittings, shall
serve as Co-Trustees of Trust A and Trust B. If William H. Deal
and Brenda Sue Gittings decline to act or are unable to act,
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Sandra Deal shall be the alternate Co-Trustee of Trust A and
Trust B.
Upon the death of Settlor’s spouse, or upon the death of Settlor if
his spouse predeceased him, William H. Deal and Brenda Sue
Gittings, or the survivor therof, shall be the Co-Trustees of Trust
A and Trust B. Sandra Deal shall be the alternate Trustee. In no
event shall the surviving spouse serve as sole Trustee after the
death of Settlor.
Id. at 32-33, 56-57. The Trusts also provided: “Upon the death of the Settlor,
the Trustees shall divide the trust estate of the Primary Trust . . . into separate
trust estates [Trust A and Trust B].” Id. at 22, 46.
[8] Nile died on January 24, 1995. Georgia then distributed property from the
NDR Primary Trust to the NDR Trust A and NDR Trust B without consulting
Brenda or William.
[9] On October 5, 1995, Georgia executed a First Amendment to the GLR Trust
and eliminated Brenda as a beneficiary and as a trustee. That First Amendment
was prepared by Attorney Price. Georgia did not inform Brenda of the
amendment. On the same day, with the assistance of Attorney Price, Georgia
transferred a one-half interest in the West Virginia Properties from the NDR
Primary Trust to the NDR Trust A. Georgia then sent Brenda a copy of the
NDR Trust and asked Brenda to sign and return four deeds and an assignment
regarding the West Virginia Properties to transfer the properties from the NDR
Trust A to the GLR Primary Trust.
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[10] Brenda consulted with her attorney, who requested relevant documents from
Attorney Price. On November 20, 1995, Attorney Price provided some relevant
documents to Brenda’s attorney, but he did not provide copies of the GLR
Trust or its Amendment or inform Brenda’s attorney that Brenda had been
eliminated as a beneficiary of the GLR Trust.
[11] On December 28, 1995, Georgia and William signed deeds as trustees of the
NDR Trust A purporting to transfer the West Virginia properties from the NDR
Trust A to the GLR Primary Trust. Those documents were prepared by
Attorney Price. After consulting with her attorney, on December 29, 1995,
Brenda signed the deeds that had been sent to her as co-trustee of the NDR
Trust and sent the documents to Attorney Price. The deeds signed by Brenda
were not recorded at that time. Brenda did not know that the West Virginia
properties were being transferred to a trust in which she did not have an
interest. Although there are some documents in Attorney Price’s records that
indicate the GLR Primary Trust was purchasing the property from the NDR
Trust A, no funds were transferred into any of the NDR trusts to compensate
the trusts for the properties. Ultimately, Brenda received a distribution of
approximately $90,000 from the NDR Trust B, and Marc received a
distribution of approximately $22,000.
[12] In November 1996, Georgia executed a Second Amendment to the GLR Trust
Agreement that again changed the beneficiaries and left William as the sole
beneficiary if living and, otherwise, to his descendants, per stirpes. Georgia
died on March 4, 1997.
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[13] In July 1997, Brenda received a copy of the GLR Trust Agreement and the First
and Second Amendments and learned that she and Marc had been eliminated
as beneficiaries. In the fall of 1997, according to Brenda, William told Brenda
and her husband that “there wasn’t anything left [of the inheritance] after they
paid the medical bills, the nursing home bills, and the funeral bills.” Tr. Vol. II
p. 22. Brenda believed that all of the money put into the trusts had been used to
care for Georgia. However, in December 1997, William deeded the West
Virginia properties, which were held by the GLR Trust, to himself.
[14] In 2010, some of the oil and gas interests started producing significant amounts
of income. By the time of the trial in this matter, William had received more
than three million dollars in royalties, rental payments, and lease payments
related to the West Virginia Properties. In September 2011, Brenda was
contacted by an attorney and learned that William had transferred the West
Virginia properties to himself in 1997. In June 2012, William recorded the
deeds that Brenda had signed in 1995 as co-trustee transferring the West
Virginia Properties from the NDR Trust A to the GLR Primary Trust.
[15] In May 2013, William filed a petition to docket the NDR Trust Agreement.
William requested that the trust be docketed to approve “the execution, delivery
and recording of the deeds herein referenced, and the partial distribution of
Trust A outright to Settlor’s spouse, Georgia L. Richmond, as being all within
the terms of the subject trust and hence properly made pursuant to the trust
terms and Indiana law.” Appellants’ App. Vol. II p. 48. William alleged that
Brenda’s claims were barred due to her “consent and participation” and due to
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the statute of limitations. Id. at 49. In her answer and affirmative defenses,
Brenda alleged in part that the transfers of the West Virginia Properties violated
the terms of the trust agreements and were void and/or voidable, the transfers
were induced by improper conduct, and Georgia and William had an adverse
interest in the transactions. Brenda also filed a counterclaim alleging breach of
a mutual estate plan/implied trust, breach of the trust agreement, self-dealing,
breach of fiduciary duty, mismanagement of trust assets, tortious interference
with an expectancy interest, fraud/misrepresentation by omission, negligent
misrepresentation by omission, conversion, and failure to provide an
accounting. William responded that the trusts were not mutual trusts and that
Brenda’s claims were barred by the statute of limitations. Marc filed a petition
to intervene, which the trial court granted.
[16] After a bench trial, the trial court entered findings of fact and conclusions
thereon in favor of William as follows:
1. The Primary Trusts of Nile and Georgia by their terms
were each revocable during the life of the Settlor. There
was no mutual estate plan that created an implied trust
and no binding agreement between Nile and Georgia that
their Trusts could not be amended. No evidence was
produced at trial to support these claims by [Brenda and
Marc].
2. Georgia as the Trustee of the Nile Primary Trust exercised
her authority to transfer assets from the Primary Trust into
Trusts A and B, and to determine the allocation of assets
for the marital deduction trust with Q-TIP (Trust A).
Brenda, William, and Georgia were Co-trustees of Trust
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A—not the Primary Trust. Until Trust A and Trust B
were funded, the duties of the Co-trustees were not
activated. In any event, Respondent, Brenda, had notice
and knowledge of these transfers and made no timely
objection to same in 1995. Any such objection made in
2013 is waived and time-barred. I.C. 30-4-6-14 and I.C.
29-1-14-1(a).
3. Georgia had authority pursuant to Article II(F) of her
Primary Trust to amend the Trust to eliminate Brenda and
her offspring as beneficiaries. Georgia had no duty or
obligation to inform Brenda or her offspring that she chose
to amend her Primary Trust to eliminate them as
beneficiaries. Respondents had the burden of proof on
each of their Counterclaims. McGinnis v. Boyd, 42 N.E.
678. Respondents wholly failed to produce any evidence
at trial that the transfer of property from the Nile Trust A
to the Georgia Primary Trust was not for the “support,
maintenance or health” of Georgia.
4. Georgia’s actions as the surviving spouse—beneficiary and
Trustee were vested with broad discretion under the terms
of the Nile Trust A. . . .
5. Georgia clearly had the authority and discretion to transfer
assets from the Georgia Trust A to herself or the Georgia
Primary Trust. The uncontradicted evidence at trial
established an inference that Georgia transferred assets
from the Nile Trust A for reasons of and concern for her
support, maintenance, and health. Respondents had the
burden of proof on their claims that the said transfers were
contrary to the terms of Nile Trust A. Respondents wholly
failed to produce any evidence to support their claims.
*****
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7. Article III(B) manifests the intent of Nile that the wishes of
the Settlor’s spouse shall prevail regarding the operation or
management of his Trust A. Article III(D) manifests the
intent of Nile during the life of Settlor’s spouse the
Trustees may distribute to the Settlor’s spouse all or any
portion of the principal of Trust A to provide for the
support, maintenance, and health of the Settlor’s spouse
and, in the event of any disagreement among the Trustees
regarding the distribution of principal, the decisions of the
Settlor’s spouse shall in all events control.
8. Georgia had no conflict of interest because she clearly had
the right to distribute all of the principal of the Nile Trust
A for her own support, maintenance and health of the
Settlor’s spouse and the decisions of the Settlor’s spouse in
all events controlled (Article III(D) Nile Primary Trust). If
this provision or the fact Georgia was a beneficiary of
Nile’s Trust, as well as a Co-trustee, has the appearance of
a conflict of interest, the Settlor, Nile, was well aware of
the authority he was giving to Georgia to make such
transfers.
9. When evaluating the actions of a trustee and the trustee
has been vested with discretion, the Court will not disturb
the trustee’s determinations unless there has been an abuse
of that discretion. Goodwine v. Goodwine, 819 N.E.2d 824,
828 (2004).
10. Each of the Co-trustees, William and Brenda, signed the
instruments conveying the West Virginia Property from
the Nile Trust A to the Georgia Primary Trust. Georgia
had no duty to tell either William or Brenda that she had
amended her Primary Trust. Moreover, Brenda had legal
counsel throughout these transactions to advise her of the
legal ramifications of the documents she was signing and
legal actions she could take to challenge or contest these
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transactions. Brenda, as a co-trustee represented by legal
counsel, did not challenge the transfer of property at the
time based upon either a conflict of interest claim or a
breach of fiduciary duty claim. If the transfer from the
Nile Trust A to the Georgia Primary Trust was a conflict
of interest and/or a breach of fiduciary duty, it would have
been so at the time of the transfer in 1995 and without
regard to any amendment of the Georgia Primary Trust.
11. The Court finds that as a matter of law from the evidence
presented, Georgia did not purchase property from the
Nile Trust A. Insufficient evidence was presented to
substantiate that property was “actually” purchased from
Nile Trust A.
12. The Court further finds that there was no
misrepresentation by Georgia or William relevant to the
issues in the case. There was no breach of fiduciary duty
or failure to disclose by Georgia or William in their
capacities as Trustees and Co-trustees. Under Indiana
Law and Indiana Statutes such as I.C. 30-4-3 et. seq., the
law and statutes on Conflict of Interest or Breach of
Fiduciary Duty have an exception if such transaction is
specifically authorized by the terms of the trust. See i.e.
I.C. 30-4-3-5(a)(3).
13. Each of the Counterclaims is barred by applicable statutes
of limitations, statutes of repose and laches. Brenda had
two (2) years within which to bring her claims against
Georgia and/or William for her claims of Tortious
Interference of Expectancy Interest, Negligent
Misrepresentation by Omission, and Conversion. I.C. 34-
11-2-4(2). Actions for relief against fraud must be
commenced within six (6) years after the cause of action
has accrued. I.C. 34-11-2-7(4). Breach of trust claims
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alleging damages to an interest in real property must be
brought within six (6) years. I.C. 34-11-2-7(3).
14. On July 14, 1997, Brenda’s causes of action, if any,
accrued, at the latest, when she realized and clearly
understood, after she reviewed Georgia’s Primary Trust
and Amendments, that she was excluded from receiving
any further property pursuant to the terms of that Trust.
By her own testimony at trial, Brenda also knew at that
time that all of the property from the Nile Trust A had
been transferred to the Georgia Primary Trust and,
pursuant to the Amendments, William was the only
beneficiary of the Georgia Primary Trust.
*****
22. In summary, although the results of Georgia’s transfers
and Amendments may not “now” seem fair and equitable,
they were and are allowed by the plain language of the
Revocable Trust Agreements signed by Nile and Georgia.
Georgia was the sole trustee of Nile’s Primary Trust when
he died until she funded Nile Trust A and Nile Trust B at
which time Brenda and William became co-trustees with
her. As sole trustee, she had discretion in consulting with
her attorneys as to which assets to place from Nile’s
Primary Trust into Nile’s Trust A. Pursuant to Article II
(I) and Article V(I) of the Trust the Court finds the term
“Trustees” referred to are initially the Settlor and the
Settlor’s spouse as stated in the first paragraph of the Trust
and do not include William and Brenda as Co-Trustees
until Trusts A and B are funded pursuant to Article V(I).
The transfer of property from Nile Primary Trust to Nile
Trust A was proper.
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23. Next, the transfer of property from Nile Trust A to
Georgia’s Primary Trust was allowed as Trust A was to
some extent for Georgia’s benefit to help pay taxes and
pursuant to Article III(D) if deemed necessary for her
support, maintenance, and health. A transfer from Nile
Trust A to Georgia Primary Trust did require the consent
of the cotrustees, William and Brenda. They gave that
consent as to the disputed property by signing the deeds
transferring the West Virginia property from Nile Trust A
to Georgia Primary Trust. Around that time, the evidence
is that Georgia was diagnosed with cancer and facing
having a kidney removed. The Court cannot say that this
transfer was improper as there was evidence to support it
and Brenda did not present contrary evidence.
Furthermore, although more information could have been
shared between the parties, Georgia got the consent for the
transfers in that all parties signed the West Virginia deeds
from Nile Trust A to Georgia Primary Trust. No one
objected and even if they would have, under Article III(D)
Georgia’s decision was controlling. Brenda also had the
advice of counsel in consenting to this transfer.
24. Thereafter, even if all the assets in Georgia’s Primary Trust
that were transferred from Nile’s Trust A were not used for
her health and maintenance, she had the right to amend
(or even revoke) her Trust pursuant to Article II(F).
Appellants’ App. Vol. II pp. 34-42. The Gittingses now appeal.
Analysis
[17] The Gittingses challenge the trial court’s judgment for William. Generally,
when, as here, a trial court enters findings of fact and conclusions thereon
pursuant to Indiana Trial Rule 52(A), we apply a two-tiered standard of review.
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Smith v. Smith, 938 N.E.2d 857, 860 (Ind. Ct. App. 2010). First, we determine
whether the evidence supports the findings, and second, whether the findings
support the judgment. Id. We disturb the judgment only where there is no
evidence supporting the findings or the findings fail to support the judgment.
Id. We do not reweigh the evidence. Id. Rather, we consider only the evidence
favorable to the trial court’s judgment. Id. Those appealing the trial court’s
judgment must establish that the findings are clearly erroneous. Id. Findings
are clearly erroneous when a review of the record leaves us firmly convinced
that a mistake has been made. Id. We do not defer to conclusions of law,
however, and evaluate them de novo. Id.
[18] The parties’ arguments require that we interpret the Trust Agreements, which
are written contracts. “‘The construction of a written contract is a pure
question of law.’” The Winterton, LLC v. Winterton Inv’rs, LLC, 900 N.E.2d 754,
759 (Ind. Ct. App. 2009) (quoting Four Seasons Mfg., Inc. v. 1001 Coliseum, LLC,
870 N.E.2d 494, 501 (Ind. Ct. App. 2007)), trans. denied. Our duty is to
interpret a contract to ascertain the intent of the parties. Id. “When interpreting
a contract, we attempt to determine the intent of the parties at the time the
contract was made by examining the language used in the instrument to express
their rights and duties.” Id. Where the language of the contract is
unambiguous, we determine the parties’ intent from the four corners of the
document. Id. The unambiguous language of a contract is conclusive upon the
parties to the contract as well as upon the court. Id. We will neither construe
unambiguous provisions nor add provisions not agreed upon by the parties. Id.
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[19] A contract is ambiguous when a reasonable person could find its terms
susceptible to more than one interpretation. Id. If a contract is ambiguous, its
meaning is to be determined by extrinsic evidence and its construction is a
matter for the fact finder. Id. When trying to ascertain the intent of the parties,
we will read the contract as a whole. Id. Additionally, we will make all
attempts to construe the language in a contract so as not to render any words,
phrases, or terms ineffective or meaningless. Id. We must accept an
interpretation of the contract that harmonizes its provisions rather than one that
causes the provisions to conflict. Id.
I. Statute of Limitations
[20] The Gittingses argue that the trial court erred when it determined that their
claims are barred by the statute of limitations. The Gittingses brought several
counterclaims, including breach of a mutual estate plan/implied trust, breach of
the trust agreement, self-dealing, breach of fiduciary duty, mismanagement of
trust assets, tortious interference with an expectancy interest,
fraud/misrepresentation by omission, negligent misrepresentation by omission,
conversion, and failure to provide an accounting. The Gittingses bear “‘the
burden of bringing suit against the proper party within the statute of
limitations.’” Huff v. Huff, 892 N.E.2d 1241, 1246 (Ind. Ct. App. 2008) (quoting
Beineke v. Chemical Waste Mgmt. of Ind., LLC, 868 N.E.2d 534, 539-540 (Ind. Ct.
App. 2007)), as revised on reh’g, 895 N.E.2d 407 (Ind. Ct. App. 2008).
[21] Indiana Code Section 34-11-5-1 provides: “If a person liable to an action
conceals the fact from the knowledge of the person entitled to bring the action,
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the action may be brought at any time within the period of limitation after the
discovery of the cause of action.” “[T]o invoke the protection provided by this
statute, the wrongdoer must have actively concealed the cause of action and the
plaintiff is charged with the responsibility of exercising due diligence to discover
the claims.” Malachowski v. Bank One, Indianapolis, 590 N.E.2d 559, 563 (Ind.
1992). “However, where the parties are in a fiduciary relationship, such as
trustee/beneficiary, the concealment of the claim need not be active.” Id. “A
mere failure to disclose, when there is a duty to disclose, may be sufficient to
toll the statute.” Id.
[22] It is undisputed that the Gittingses did not become aware of Georgia’s actions
until July 1997, when Brenda discovered that Georgia had amended the GLR
Trust Agreement to eliminate the Gittingses as beneficiaries. The trial court
concluded that the Gittingses’ “causes of action, if any, accrued” at this time.
Appellants’ App. Vol. II p. 38. The Gittingses argue that their causes of action
did not accrue until 2011, when Brenda learned that William had
misrepresented in 1997 that all of the GLR Trust assets had been used to pay
for Georgia’s support. According to the Gittingses, Brenda did not know that
she was “damaged until 2011 when she learned that William Deal had
transferred to himself the West Virginia properties and that they were not used
for proper trust purposes.” Appellants’ Reply Br. p. 9.
[23] “Under Indiana’s discovery rule, ‘a cause of action accrues and the statute of
limitations begins to run when the plaintiff knew or, in the exercise of ordinary
diligence, could have discovered that an injury had been sustained as a result of
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the tortious act of another.’” Custom Radio Corp. v. Actuaries & Benefit
Consultants, Inc., 998 N.E.2d 263, 268 (Ind. Ct. App. 2013) (quoting Wehling v.
Citizens Nat. Bank, 586 N.E.2d 840, 843 (Ind. 1992)); see also Malachowski, 590
N.E.2d at 564. “For a wrongful act to give rise to a cause of action and thus to
commence the running of the statute of limitations, it is not necessary that the
extent of the damage be known or ascertainable but only that damage has
occurred.” Custom Radio, 998 N.E.2d at 268 (quoting Shideler v. Dwyer, 275 Ind.
270, 282, 417 N.E.2d 281, 289 (1981)).
[24] We have no trouble holding that the statute of limitations was tolled until July
1997, when Brenda became aware that Georgia had eliminated the Gittingses
as beneficiaries. See, e.g., Huff, 892 N.E.2d at 1246-48 (holding that genuine
issues of material fact existed regarding whether the trustee properly disclosed
to the beneficiaries the material facts of the conveyance in accordance with his
duty as trustee and that summary judgment on the expiration of the statute of
limitations was inappropriate). At that point, however, Brenda was well aware
that the properties had been transferred to a trust in which she was not a
beneficiary and that she had been damaged. Although she may not have
understood the extent of the damage until 2011, it was not necessary that the
full extent of the damage be evident before the cause of action accrued. We
conclude that, under any of the Gittingses’ counterclaims, the statute of
limitations would have run well before their claims were filed in 2013. While
the result here is extremely regrettable and the behavior concerning these trust
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assets is disturbing, we simply cannot say that the trial court’s findings and
conclusions regarding the statute of limitations are clearly erroneous.
II. Transfers of Property
[25] Although the statute of limitations issue is dispositive here, we have significant
concerns regarding the conduct of the trustees in this case. Consequently, we
will address Georgia’s transfers of property for guidance to future trustees. The
Gittingses argue that Georgia’s transfers of property from the NDR Primary
Trust to NDR Trust A and from NDR Trust A to the GLR Trust were
improper. We begin by addressing Georgia’s transfer of assets from the NDR
Primary Trust to Trust A. The trial court concluded that, at that time, Georgia
was the sole trustee and had the discretion to allocate the funds as she wished.
We disagree.
[26] Initially, the NDR Trust Agreement provided that Nile and Georgia were the
Trustees. The Trust Agreement then provided:
As to the primary trust during the life of the Settlor, either of the
initial Trustees may resign by giving ten (10) days written notice
to the other Co-Trustee. Upon such event or if either initial Co-
Trustee otherwise ceased to continue to be qualified during the
life of Settlor, then the remaining Trustee shall be the sole
Trustee. If both the initial Co-Trustees cease to be qualified, then
William H. Deal and Brenda Sue Gittings, or the survivor
thereof, shall be the Co-Trustee. Sandra Deal shall be the next
alternate successor Trustee.
Upon the death of the Settlor, if he is survived by his spouse, then
she along with William B. Deal and Brenda Sue Gittings, shall
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serve as Co-Trustees of Trust A and Trust B. If William H. Deal
and Brenda Sue Gittings decline to act or are unable to act,
Sandra Deal shall be the alternate Co-Trustee of Trust A and
Trust B.
Upon the death of Settlor’s spouse, or upon the death of Settlor if
his spouse predeceased him, William H. Deal and Brenda Sue
Gittings, or the survivor therof, shall be the Co-Trustees of Trust
A and Trust B. Sandra Deal shall be the alternate Trustee. In no
event shall the surviving spouse serve as sole Trustee after the
death of Settlor.
Id. at 32-33. The Trust also provided: “Upon the death of the Settlor, the
Trustees shall divide the trust estate of the Primary Trust . . . into separate trust
estates [Trust A and Trust B].” Id. at 22.
[27] The trial court determined that, upon Nile’s death, Georgia was the sole trustee
of the NDR Primary Trust. According to William, he and Brenda were only
trustees of Trust A and Trust B, not the Primary Trust. However, this
conclusion and argument conflict with the provision of the Trust Agreement
that specifically provides: “In no event shall the surviving spouse serve as sole
Trustee after the death of Settlor.” Exhibits Vol. IV p. 32-33. Further, the Trust
Agreement requires the “Trustees” to reallocate the assets from the Primary
Trust to Trust A and Trust B and provides: “If the Settlor’s spouse survives the
Settlor, then upon the death of the Settlor, the Trustees shall initially divide the
trust estate of the Primary Trust into two separate trusts, namely Trust A and
Trust B, as hereinafter described, and shall distribute the trust estate as
hereinafter described.” Id. at 22, 23 (emphasis added). If it was intended that
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Georgia be the sole trustee of the Primary Trust after Nile’s death, the Trust
Agreement could have provided so. The Trust Agreement, however,
specifically required that Georgia not serve as the sole Trustee after Nile’s
death. Given these provisions, it is clear that, after Nile’s death, Georgia,
Brenda, and William were co-trustees of the NDR Primary Trust. Georgia
acted improperly when she solely determined the distributions to Trust A and
Trust B.
[28] Next, the Gittingses argue that Georgia’s transfer of the West Virginia
Properties from NDR Trust A to the GLR Primary Trust was improper. The
trial court concluded that Georgia had the discretion under the Trust
Agreements to transfer assets from NDR Trust A to her own trust for her
support, maintenance, and health.
[29] The Gittingses point out that, at the time of the transfers in 1995, Indiana Code
Section 30-4-3-5 provided:
(a) If the duty of the trustee in the exercise of any power conflicts
with his individual interest or his interest as trustee of another
trust, the power may be exercised only with court authorization.
(b) For the purposes of subsection (a) of this section, the interest
of an affiliate of the trustee will be deemed to be the interest of
the trustee.
Further, Indiana Code Section 30-4-3-7(d) provided:
Unless the terms of the trust provide otherwise, the trustee may
sell, exchange, or participate in the sale or exchange of trust
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property from one (1) trust to himself as trustee of another trust,
provided the sale or exchange is fair and reasonable with respect
to the beneficiaries of both trusts and the trustee discloses to the
beneficiaries of both trusts all material facts related to the sale or
exchange which the trustee knows or should know.
[30] Finally, Indiana Code Section 30-4-3-19(b) provided:
The consent, acquiescence, agreement to release or discharge,
affirmance, or participation by a beneficiary will not relieve the
trustee from liability if:
(1) at the time it was given the beneficiary was under an
incapacity;
(2) at the time it was given the beneficiary did not know of his
rights or all of the material facts which the trustee knew or should
have known;
(3) it was induced by the trustee’s improper conduct;
(4) the trustee had an adverse interest in the transaction and the
transaction was not fair and reasonable; or
(5) the trustee pays or delivers a beneficiary’s interest to that
beneficiary contrary to the terms of a trust with protective
provisions.
[31] We also note that “[t]here is a broad rule of equity grounded upon the high duty
of a trustee or fiduciary to his beneficiary or correlate which does not permit
him to acquire an interest in the subject-matter of the trust to the prejudice and
detriment of his beneficiary or correlate.” Washington Theatre Co. v. Marion
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Theatre Corp., 119 Ind. App. 114, 125, 81 N.E.2d 688, 692 (1948). “Bad faith is
presumed where a fiduciary acquires a conflicting interest to his beneficiary
without such beneficiary’s knowledge and consent. It is of no consequence
whether fraud is intended under such circumstances.” Id. at 132, 81 N.E.2d at
695.
[32] The transfer of property from NDR Trust A to the GLR Primary Trust was not
done with the beneficiaries of both trusts having all material facts related to the
transfer. Specifically, although Brenda signed the deeds at Georgia’s request,
Brenda was unaware that she had been eliminated as a beneficiary of the GLR
Trust Agreement. Brenda, thus, was unaware that the properties were being
moved to a trust in which that she had no interest. Further, because Georgia
had eliminated other beneficiaries of the GLR Trust Agreement in favor of her
son, Georgia’s duty as a trustee of the NDR Trust Agreement conflicted with
her interest as trustee of the GLR Trust Agreement. Consequently, we
conclude that, under the statutes in effect at the time, court authorization was
required to complete the transfer. See, e.g., Huff, 892 N.E.2d at 1246-48 (holding
that a trustee’s conveyance of property from the trust to himself was a conflict
of interest that required court approval and that the trustee had a duty to
disclose the material facts of the conveyance to the beneficiaries).
[33] William argues that court authorization was not required because of the
“exceptionally broad authority” given to Georgia under the NDR Trust
Agreement. Appellee’s Br. p. 39. In discussing NDR Trust A, the Trust
Agreement provides: “In the event there is any disagreement between the
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Trustees regarding the distribution of principal from Trust A, the decisions of
the Settlor’s spouse shall, in all events, control.” Exhibits Vol. IV p. 24. We
must disagree.
[34] Despite the broad authority given to Georgia in the trust agreement, she was
not given the authority to breach her fiduciary duties and transfer property in
violation of statutory authority, and the discretion given to her under the
agreement does not excuse her improper conduct. William cites no relevant
authority that would excuse Georgia’s conduct.1 We conclude that the transfer
of the properties from NDR Trust A to the GLR Primary Trust without court
authorization and without the beneficiaries’ knowledge of material facts was
improper.
Conclusion
[35] The trial court’s finding and conclusion that the Gittingses’ claims were barred
by the statute of limitations is not clearly erroneous. Consequently, despite our
reservations concerning the transfer of trust assets here, we affirm.
[36] Affirmed.
1
William argues that Indiana Code Section 30-4-3-5 was later amended and does not require court approval
if the power is authorized by the terms of the trust. William contends that amendments to the trust code
should be applied “retroactively unless doing so would adversely affect beneficiary rights or relieve a person
from a duty of liability imposed by the terms of the trust or under prior law.” Appellee’s Br. p. 42. Clearly,
Georgia’s conduct adversely affected the Gittingses’ rights. We decline William’s invitation to apply the
amended statutes retroactively.
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Baker, J., and Crone, J., concur.
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