Mead v. Small ( 2021 )

NOT DESIGNATED FOR PUBLICATION
No. 122,511
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
MICHELLE A. MEAD, TAMMARA K. DE LA ROSA, and SHANNON R. PISHNY,
Appellees,
v.
BOB JOE SMALL, Trustee of the HERLINDA SMALL REVOCABLE LIVING TRUST,
Appellant,
v.
The ESTATE OF SHIRLEY WILLIAM,
Defendant.
MEMORANDUM OPINION
Appeal from Finney District Court; MICHAEL L. QUINT, judge. Opinion filed May 21, 2021.
Affirmed.
Lane L. Frymire, of Yoxall, Antrim & Frymire, LLP, of Liberal, for appellant.
Zachary D. Schultz, of Schultz Law Office, P.A., of Garden City, for appellees.
Before ARNOLD-BURGER, C.J., POWELL and CLINE, JJ.
PER CURIAM: "Family members often fight over the estates of their departed
loved ones. It is a safe guess, however, that many of these decedents had confidently
assumed that their own families would not fight." McMullen, Keeping Peace in the
Family While You Are Resting in Peace: Making Sense of and Preventing Will Contests,
8 Marq. Elder's Advisor 61 (2006). This case involves a family dispute among a mother's
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children and grandchildren over transferring ownership of her home to her daughter while
the mother was alive, but incapacitated.
The district court granted summary judgment in a quiet title action over property
in Garden City, Kansas, once held in a revocable living trust executed by the parties'
mother and grandmother. In March 2018, Michelle A. Mead, Tammara K. De La Rosa,
and Shannon R. Pishny—the settlor's grandchildren (Plaintiffs) sued Bob Joe Small—the
settlor's son, in his capacity as trustee. After stipulating to the relevant facts, the parties
filed dueling motions for summary judgment. The district court granted summary
judgment for the Plaintiffs, finding that the language of the trust allowed the distribution
of a gift of the settlor's house to her daughter before the settlor's death. Because we agree
with the district court's interpretation of the trust agreement, we affirm.
FACTUAL AND PROCEDURAL HISTORY
In August 2009, Herlinda Small created the Herlinda Small Trust (Trust) and
conveyed to it, among other assets, all her right, title, and interest in her home located in
Garden City, Kansas (House). Herlinda designated herself as the trustee, her daughter
Shirley William as the successor trustee, and her son, Bob Joe Small as the next
successor trustee. The Trust contained a provision gifting the House to William. Herlinda
became unable to manage her financial and legal affairs due to dementia, so William
assumed the position of successor trustee. A few years later, William became ill and
shortly before her death, executed a deed (William Deed) conveying the House from the
Trust to herself and Plaintiffs—her daughters—as joint tenants with rights of
survivorship. In December 2017, the Plaintiffs recorded the William Deed with the local
Register of Deeds. A month later, William died, and Herlinda's son Bob Joe Small
(Defendant) ascended to the position of successor trustee.
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Soon after their mother's death, Plaintiffs entered an agreement through which a
third party would purchase the House. Upon learning about the William Deed and the
purchase agreement, Defendant (Plaintiffs' uncle) filed an affidavit of equitable interest in
his capacity as trustee with the Finney County Register of Deeds.
In March 2018, Plaintiffs filed a quiet title action against Defendant, in his
capacity as trustee of the Trust. Plaintiffs sought to quiet title as to House. By agreement
of the parties, the House was sold and the Plaintiffs deposited the proceeds of
$205,121.33 with the Clerk of the District Court pending further order of the court.
The parties each moved for summary judgment.
After agreeing that there was no factual dispute, the parties filed competing
summary judgment motions. The central issue was whether the language of the Trust
allowed the gift of the House to William to be transferred to William before Herlinda's
death.
Defendant argued he was entitled to judgment as a matter of law because William
breached her fiduciary duty as trustee when she conveyed the House to herself and her
descendants in violation of terms of the Trust and the Kansas Uniform Trust Code. He
asserted that the purported conveyance "deprived the [Trust] of a principal asset that was
to be held, managed, and used exclusively for the benefit of Herlinda Small," in violation
of K.S.A. 58a-801. He also asserted that William placed her own interests above that of
the purpose of the Trust, which was to use and distribute the trust assets exclusively for
Herlinda's benefit during her lifetime. Thus, Defendant contended the purported
conveyance was void and asked the district court to quiet title to the $205,121.33
proceeds to the Trust.
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Plaintiffs responded to Defendant's motion, refuting his assertion that William
breached her fiduciary duty as trustee. According to Plaintiffs, "William was carrying out
her fiduciary duty by enacting the wishes of Herlinda Small as evidenced by the clear
language of the Trust Agreement." Plaintiffs also asserted that Defendant's proposed
remedy went against the "clear intent" of the Trust, which was that William would
receive the House.
In their motion for summary judgment, Plaintiffs argued that the clear intent of the
Trust was for William to receive the House and the Trust contained no limiting provision
that the distribution of the express gift of the House to William must only occur after
Herlinda's death. Plaintiffs also asserted that the anti-lapse provisions of the Trust applied
to the distribution of the House to William, meaning that even if the House remained
within the Trust until Herlinda's death, the trustee would be required to distribute the
House to Plaintiffs upon Herlinda's death.
Defendant responded that Plaintiffs' interpretation of the Trust directly conflicted
with its express purpose, which was to use the trust assets exclusively for Herlinda's use
and benefit. According to Defendant, allowing William to convey a "principal asset"
benefited herself as acting trustee, rather than Herlinda as the primary beneficiary.
Ultimately, the district court issued a journal entry of summary judgment in
Plaintiffs' favor. In the order, the court made these pertinent findings of fact and
conclusions of law regarding the Trust:
"10. The Distribution of Property is found in Article IV [of the Trust] which is
titled (somewhat erroneously) as Disposition Provisions After Death of
Grantor. The sections are set out with specificity to reflect as follows:
"'A. Payment of expenses of Grantor's Estate. On the death of the Grantor
...'
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"'B. Payment of expenses of Administration. Upon the death of Grantor
. . .'
"'D. Distribution of remainder of Trust Estate. Upon the death of Grantor
. . .'
"'E. Distribution of deceased Beneficiary Share. In the event . . .'
"11. Paragraph C of the same section exclusively leaves off the instruction that
this one paragraph, the death of the grantor, is not a prerequisite. It reads as
follows:
"'C. Distribution of Gifts. The Trustee shall distribute gifts of Trust
property, subject to the provisions of Article IV paragraph F herein below,
to beneficiaries as follows: Shirley William Grantor's residence.'
"12. The Courts are obligated to try to decipher and apply the expressed wishes
of the Grantor. The order of the use of the estate funds runs in this order:
"1. Payment of expenses of Grantor's Estate.
"2. Payment of expenses of Administration.
"3. Distribution of Gifts.
"13. The sole 'Gift' designated is the House and should go to Shirley William. All
other bequest or distribution is subject to those first three steps.
"14. If there is insufficient assets, Shirley William as well as the three boys will
receive nothing else from the estate.
....
"Judgement is entered for the Plaintiffs and the Clerk of the Court is authorized
to pay out the money being held by it, at the conclusion of the appeal time to run from
this written order.
"Attorney fee request is denied."
Defendant timely appealed. The parties later advised this court that Herlinda died
on January 6, 2020—after the filing of this appeal.
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ANALYSIS
Defendant argues the district court erred in granting Plaintiffs' motion for
summary judgment based on its interpretation of the Trust. Defendant contends the court
incorrectly concluded that the terms of the Trust allowed William to distribute the House
to herself while acting as trustee, while Herlinda was still alive, and that doing so
breached her fiduciary duties. Defendant, thus, asks this court to reverse the summary
judgment ruling and remand with directions to quiet title as to the proceeds from the sale
of the House to the Trust. We decline the invitation.
The standard of review for reviewing a summary judgment ruling is well known.
This court's standard of review on appeal from a district court's grant of summary
judgment is well known. The moving party must show, based on the "pleadings, the
discovery and disclosure materials on file, and any affidavits or declarations" that there
are no genuine disputes of material fact and that they are entitled to judgment as a matter
of law. K.S.A. 2020 Supp. 60-256(c)(2); Montgomery v. Saleh, 311 Kan. 649, 652, 466
P.3d 902 (2020). Since the parties here stipulated to the relevant facts, this court conducts
de novo review of the district court's legal conclusions. GFTLenexa, LLC v. City of
Lenexa, 310 Kan. 976, 981-82, 453 P.3d 304 (2019).
When resolving any issues involving statutory interpretation or the interpretation
of a written instrument, this court exercises unlimited review. Nauheim v. City of Topeka,
309 Kan. 145, 149, 432 P.3d 647 (2019) (statutory interpretation); Hamel v. Hamel, 296
Kan. 1060, 1068, 299 P.3d 278 (2013) ("The interpretation and legal effect of a written
instrument is a matter of law over which we exercise unlimited review.").
The parties agree that the issues presented in this appeal are purely legal. But the
parties disagree on three main points. First, they disagree whether the terms of the Trust
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authorized the distribution of the House before Herlinda's death. Second, they disagree
whether William violated any fiduciary duties owed as trustee when she conveyed the
House to herself and her children. Finally, because of Herlinda's death, the parties
disagree as to whether the case is now moot since the trustee must distribute the House to
the Plaintiffs anyway under the Trust.
The gift distribution provisions did not require the grantor's death as a prerequisite.
Plaintiffs' primary contention is that the terms of the Trust did not explicitly
require the distribution of the House to occur after Herlinda's death. Defendant responds
by arguing that such an interpretation contradicted the express purpose of the Trust,
which was to provide for Herlinda's use and benefit during her lifetime.
When interpreting a trust, the court's primary duty is to determine the settlor's
intent by reading the trust as a whole. If that intent can be established from the express
terms of the trust, the court must carry out those terms unless they go against law or
public policy. Hamel, 296 Kan. at 1068. The test for determining whether a trust is
ambiguous is whether the testator's intention can be determined from the instrument's
four corners. In re Estate of Oswald, 45 Kan. App. 2d 106, 112, 244 P.3d 698 (2010).
There are three sections of the Trust that govern division and distribution of trust
property: Article III covers "DISPOSITIVE PROVISIONS DURING GRANTOR'S
LIFETIME"; Article IV covers "DISPOSITIVE PROVISIONS AFTER DEATH OF
GRANTOR"; and Article V covers "ADDITIONAL DISPOSITIVE PROVISIONS."
Although these are the headings in the trust for each section, Article XV, paragraph E
specifically provides that "[t]he headings, titles and subtitles used herein are for the
convenience of reference only and do not form a part hereof and in no way modify,
interpret or construe the meanings of the provisions contained herein and shall not affect
the construction hereof."
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The parties direct this court's attention to the provisions in Article IV that deal
with the trustee's responsibilities related to distribution of the trust estate that are mostly
triggered "[o]n" or "[u]pon the death of the Grantor." The lone exception is Paragraph
IV(C), which merely provides: "The Trustee shall distribute gifts of trust property,
subject to the provisions of ARTICLE IV PARAGRAPH F hereinbelow, to beneficiaries
as follows: Shirley William: Grantor's Residence."
The district court correctly noted that Paragraph IV(C) "exclusively leaves off the
instruction that this one paragraph, the death of the grantor, is not a prerequisite." Based
on the order of Paragraphs IV(A), (B), and (C), the court then found that the "expressed
wishes" of Herlinda were that the estate funds be used in a particular order: (1) "Payment
of expenses of Grantor's Estate"; (2) "Payment of expenses of Administration"; and
(3) "Distribution of Gifts." Even so, the court concluded that Trust allowed the trustee to
gift the House to William and Plaintiffs were entitled to the proceeds of the sale of the
House.
The court's findings, at first blush, seem contradictory, because it would not be
possible for a trustee to distribute the House before Herlinda's death if payment of
expenses related to the estate and administration of the trust must occur first and those are
only triggered "[o]n" or "[u]pon" the grantor's death. Yet, because the Trust specifically
says that a reader is not to draw any conclusions from the titles used, we agree with the
district court's ultimate conclusion.
The Defendant does not disagree with the Trust language, but he contends that
transferring the House prior to Herlinda's death contradicts the express purpose of the
Trust. This argument leads to the second area of dispute—Defendant's claim that William
breached her fiduciary duties and, as a result, the transfer of the House to William is void.
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Defendant has failed to establish that William violated her fiduciary responsibilities as
trustee.
Defendant argues that William breached several fiduciary duties owed as trustee
when she conveyed the House to herself and her children. Plaintiffs respond to this
argument by asserting that the "clear intent" of the settlor was that William and Plaintiffs
would receive the house, so William could not have breached any fiduciary duties by
enacting that clear intent.
A trustee holds several fiduciary obligations to beneficiaries of the trust.
The Kansas Uniform Trust Code, found in K.S.A. 58a-101 et seq., imposes several
fiduciary obligations on trustees. Defendant asserts that William violated two of those
duties in this case—good faith and loyalty. First, she breached the duty to administer the
trust in good faith when she distributed trust property before Herlinda's death. Second,
she breached the duty of loyalty by conveying the property to herself and her children.
a. Duty to administer in good faith
First, Defendant asserts that William violated a duty owed under K.S.A. 58a-801,
which requires a trustee to "administer the trust in good faith, in accordance with its
terms and purposes and the interests of the beneficiaries, and in accordance with this
code." According to Defendant, William transferring the House to herself "deprived the
[Trust] of a principal asset that was to be held, managed, and used exclusively for the
benefit of Herlinda Small." Thus, Defendant suggests that William acted in bad faith by
conveying the house prematurely—while Herlinda was still alive.
The Trust is specifically set up as a "revocable living trust," which this court has
defined as
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"a trust established during the settlor's lifetime in which the settlor reserves the right to
alter, amend, or revoke the trust and may retain the right during his or her lifetime to
direct the disposition of principal and income. At the death of the settlor, the trust assets
are disposed of in accordance with the terms of the trust document." Commerce Bank,
N.A. v. Bolander, 44 Kan. App. 2d 1, 13, 239 P.3d 83 (2007).
But as mentioned, the terms of the trust control when courts are trying to determine the
settlor's intent, so the disposition of trust property is ultimately subject to the language in
it. See Hamel, 296 Kan. at 1068.
Again, there are three sections of the Trust that govern division and distribution of
trust property: Article III covers "Dispositive Provisions During Grantor's Lifetime";
Article IV covers "Dispositive Provisions After Death of Grantor"; and Article V covers
"Additional Dispositive Provisions." Article XV, Paragraph E specifically provides that
"[t]he headings, titles and subtitles used herein are for the convenience of reference only
and do not form a part hereof and in no way modify, interpret or construe the meanings of
the provisions contained herein and shall not affect the construction hereof."
Defendant directs this court's attention to the distribution provisions contained
Article III, which all deal with the trustee's responsibilities in administering the trust
during Herlinda's life. Paragraph III(A) requires the trustee to pay expenses related to
"the establishment, management and administration of the trust estate" from either the
income or principal of the trust estate, with the remainder treated as "'net income.'"
Paragraph III(B) then requires the trustee to make payments "[d]uring the lifetime of the
Grantor . . . to the Grantor" from the net income "in quarter-annual or more frequent
intervals." But "[i]f the Trustee considers the net income insufficient," the Trustee may
"invade principal in a liberal manner" to provide "for the proper health, education,
support, maintenance and comfort of the Grantor." So in other words, the primary role of
the trustee during Herlinda's life appears to be distributing trust income to Herlinda as
specified in the agreement, with broad discretion to invade the principal of the trust
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estate, if necessary, for Herlinda's benefit. See K.S.A. 2020 Supp. 58a-603(a) ("While a
trust is revocable, the duties of the trustee are owed exclusively to the settlor.").
In contrast, most of the provisions in Article IV deal with the trustee's
responsibilities related to distribution of the trust estate that are only triggered "[o]n" or
"[u]pon the death of the Grantor." The lone exception is Paragraph IV(C), which merely
provides that "[t]he Trustee shall distribute gifts of trust property, subject to the
provisions of ARTICLE IV PARAGRAPH F hereinbelow, to beneficiaries as follows:
Shirley William . . . Grantor's Residence." The district court interpreted the omission of
that language in Paragraph IV(C) to mean that the "the death of the grantor, is not a
prerequisite" for distribution and thus approved the December 2017 conveyance of the
House by William to herself and Plaintiffs. But the Defendant argues that these
provisions are only part of the Trust and we should not view them in isolation. See
Hamel, 296 Kan. at 1068 ("[T]he court's primary function is to ascertain the intent of the
settlor by reading the trust in its entirety.").
As Defendant points out, the trustee's powers are also defined in other provisions.
The preamble to Article VI grants expansive powers to the trustee, providing that "the
Trustee shall have full power to do everything it deems to be in the best interests of the
beneficiaries of the trust, including, but not limited to, the following powers and
discretion." Relevant to this appeal, Paragraph VI(B) specifically authorizes the trustee
"[t]o manage, control, sell, [or] convey [such trust property] as the Trustee may deem
advisable."
Even so, the trust also explicitly limits the trustee's powers associated with
managing trust property. Paragraph VII(A) provides:
"No powers, enumerated herein or accorded to Trustee generally by law, shall be
construed to enable any person appointed as Trustee or otherwise, or any other person, to
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purchase, exchange or otherwise deal with or dispose of the principal or income of this
trust for less than an adequate consideration in money or money's worth . . . . This
limitation shall not apply to a Grantor acting as Trustee."
Similarly, Paragraph VII(C) provides: "No Trustee or Co-Trustee who is also a
beneficiary of an irrevocable trust share hereunder shall have the power to invade the
trust principal for his or her benefit prior to the termination of the trust, except pursuant
to the ascertainable standards set forth in this Trust Agreement."
Considering all of these provisions together, the Defendant suggests that the
distribution of the House could only occur during Herlinda's lifetime in certain
circumstances. One way would have been Herlinda herself conveying the House while
she was trustee under Paragraph VII(A) "for less than an adequate consideration in
money or money's worth." This does not apply because the parties stipulated that William
was the acting trustee when she conveyed the House to herself and her daughters.
Another would be after Herlinda was no longer acting as trustee, which occurred at some
point between the establishment of the Trust in August 2009 and December 2017 when
William ascended to the role. The key difference between these situations appears to be
that only Herlinda acting as trustee could convey trust property without receiving some
form of adequate consideration in return during her lifetime.
As Defendant also points out, the Trust was irrevocable once Herlinda no longer
had capacity to act as trustee—i.e., once William began serving that role. Because
William was also a beneficiary while serving as trustee, under Paragraph VII(C) she
could not "invade the trust principal for . . . her benefit prior to the termination of the
trust, except pursuant to the ascertainable standards set forth in this Trust Agreement."
Under Paragraph III(C), William's power as trustee to invade the principal "in a liberal
manner" was conditional. The trustee could only invade the principal "as is necessary"
and "for the proper health, education, support, maintenance and comfort of the Grantor."
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(Emphasis added.) In other words—ignoring the gift provision for purposes of this
argument—the terms of the Trust permitted William to convey the House before
Herlinda's death, but only upon adequate consideration and directed at benefiting
Herlinda during her lifetime.
Unfortunately, there is no evidence available in the record on whether William and
Plaintiffs received the House in 2017 after providing some form of adequate
consideration to the Trust. The only fact known about the conveyance itself is that
William executed the deed on December 21, 2017. In addition, there is no evidence in the
record about the other assets in the Trust. There may have been more than adequate funds
available to provide for Herlinda during her lifetime, excluding the House. Defendant
makes only a general assertion that William must have breached her duty of good faith
because the House was no longer available to liquidate and provide for Herlinda's
expenses if needed. Without information about the status of the assets in the Trust when
William conveyed the property or whether the Trust received any consideration for the
conveyance of the House, we simply cannot conclude that William acted in bad faith—
even if we disregard the explicit gift provision. For these reasons, there is no factual basis
to find that William breached a duty of good faith by conveying away a trust asset while
acting as trustee.
b. Duty of loyalty
Defendant also asserts William breached a duty of loyalty under K.S.A. 2020
Supp. 58a-802(a), which requires a trustee to "administer the trust consistent with the
terms of the trust and solely in the interests of the beneficiaries." Under the duty of
loyalty, a transaction involving trust property is "presumed to be affected by a conflict
between personal and fiduciary interests if it is entered into by the trustee with . . . the
trustee's descendants." K.S.A. 2020 Supp. 58a-802(c)(2). Such a transaction "is voidable
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by a beneficiary affected by the transaction unless . . . [t]he transaction was authorized by
the terms of the trust." (Emphasis added.) K.S.A. 2020 Supp. 58a-802(b)(1).
In short, since Herlinda specifically named William as the first successor trustee
with no regard for the fact that she was a named beneficiary who stood to receive the
House, this court cannot presume that the 2017 conveyance was affected by a conflict
under K.S.A. 2020 Supp. 58a-802(c)(2). Defendant cannot reasonably claim that the
conveyance should be void simply because William was the then-acting trustee because
the terms of the trust authorized distribution of the House to her. See K.S.A. 2020 Supp.
58a-802(b)(1). By executing the conveyance to herself, William was not seeking to
invade the principal, but rather sought to administer the Trust consistent with its terms.
See K.S.A. 58a-1006 ("A trustee who acts in reasonable reliance on the terms of the trust
as expressed in the trust instrument is not liable to a beneficiary for a breach of trust to
the extent the breach resulted from the reliance."). So Defendant also fails to present
evidence to support a claim of breach of the duty of loyalty.
In sum, the Defendant has failed to establish that William violated her fiduciary
duties as trustee by conveyance of a trust asset, the House, to herself.
Herlinda's death probably renders this case moot, but we elect not to dismiss the case for
mootness.
According to Plaintiffs, the case is now moot because Herlinda died during the
pendency of this appeal and, under the terms of the Trust, the House would have passed
to Plaintiffs upon her death anyway. Although Herlinda was still alive when the district
court granted Plaintiffs' summary judgment motion, Plaintiffs still addressed the current
situation as a possibility before the district court. Plaintiffs argued that "even if the
subject property remained in the name of the trust," the distribution of the House as a gift
to William was subject to an anti-lapse provision. Unfortunately, the district court's
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summary judgment ruling did not mention this argument as a part of the rationale for its
decision to quiet title in Plaintiffs.
Defendant challenges Plaintiffs' conclusions regarding the application of the anti-
lapse provision in the Trust. Defendant asserts that William's death in 2018 caused the
gift to lapse and fall into the remainder of the trust estate, so Herlinda's death does not
influence the dispositive issues. To understand the party's conflicting positions a brief
background on anti-lapse provisions is necessary.
At common law a gift to a devisee who died before the testator lapsed and would
be transferred into the remainder estate, which is the result the Defendant seeks here.
Anti-lapse statutes and trust provisions soon evolved to temper application of the
common-law rule. However, in the absence of a statute or other provisions which show
the settlor intends the gift to go to some other designated person when the beneficiary
predeceases the settlor, the gift lapses. See In re Estate of Thompson, 213 Kan. 704, 705-
06, 518 P.2d 393 (1974). Plaintiffs argue that such an anti-lapse provision is contained in
the Trust to prevent its inclusion in the remainder estate. Accordingly, the issue is now
moot.
As a general rule, Kansas appellate courts do not decide moot questions or render
advisory opinions. State v. Montgomery, 295 Kan. 837, 840, 286 P.3d 866 (2012). The
mootness doctrine is one of court policy, under which the court is to "'determine real
controversies relative to the legal rights of persons and properties which are actually
involved in the particular case properly brought before it and to adjudicate those rights in
such manner that the determination will be operative, final, and conclusive.' [Citations
omitted.]" Stano v. Pryor, 52 Kan. App. 2d 679, 682-83, 372 P.3d 427 (2016) (quoting
State v. Hilton, 295 Kan. 845, 849, 286 P.3d 871 [2012]).Appellate review of whether a
case should be dismissed for mootness is unlimited. Hilton, 295 Kan. at 849.
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An issue on appeal will only be dismissed as moot if the parties can show clearly
and convincingly that the actual controversy has ended, the only judgment that the court
could enter would be ineffectual for any purpose, and the judgment would not impact any
of the parties' rights. Wiechman v. Huddleston, 304 Kan. 80, 84, 370 P.3d 1194 (2016).
Here, the parties seem to agree that whether Herlinda's death makes the issues presented
in this appeal moot depends on an interpretation of the anti-lapse provisions of the Trust.
As mentioned, when resolving any issues requires the interpretation of a written
instrument, our review is unlimited. Hamel, 296 Kan. at 1068 ("The interpretation and
legal effect of a written instrument is a matter of law over which we exercise unlimited
review.").
As the starting point for this inquiry, Plaintiffs direct this court's attention to
Paragraph IV(C), which provides that the distribution of gifts is "subject to the provisions
of ARTICLE IV, PARAGRAPH F hereinbelow." In particular, Plaintiffs refer to
Paragraph IV(F)(4), which provides:
"Upon the death of a beneficiary for whom a trust is then held prior to final
distribution to such beneficiary, if said decedent is survived by issue, that portion of such
trust (including both principal and any accrued or undistributed income) . . . shall be
distributed to such one or more persons or entities . . . as the decedent shall have
appointed by the last dated instrument delivered to the Trustee, including a Will (whether
or not admitted to probate), specifically referring to and exercising this power of
appointment. Any of such portion of the trust as is not appointed . . . shall be distributed
according to the terms of ARTICLE IV PARAGRAPH E hereinabove as though said
beneficiary had predeceased the Grantor."
Defendant argues that Paragraph IV(F)(4) only applies when the beneficiary is
under the age of 21 because other provisions in Article IV(F) contain that requirement.
But unlike those other provisions, Paragraph IV(F)(4) specifically omits an age
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requirement, and by express reference, applies to the gift distribution provision in
Paragraph IV(C).
That said, the death of a beneficiary before "final distribution to such beneficiary"
triggers the anti-lapse provision in Paragraph IV(F)(4) and first priority goes to "such one
or more persons or entities" designated by the beneficiary to receive the distribution. In
other words, upon William's death, the persons designated in a will or other instrument
would receive the House. Although there is no evidence in the record to suggest William
designated Plaintiffs as the recipients of the House by appointment in a will, the William
Deed qualifies as such an instrument since it purported to name William and Plaintiffs as
joint tenants with rights of survivorship. But even if no such appointment by will existed,
then the Trust still required the trustee to distribute the House "according to the terms of
ARTICLE IV PARAGRAPH E hereinabove as though said beneficiary had predeceased
the Grantor."
Under Paragraph E: "In the event a beneficiary named in Paragraph D of this
Article IV is not then living, the share of such deceased beneficiary shall be distributed
equally among the living children, by birth or adoption, of such beneficiary." (Emphasis
added.) Defendant emphasizes that this particular paragraph seemingly excludes the
distribution of gifts by only referring to "a beneficiary named in Paragraph D of this
Article IV," but the cross-references mentioned above contradict that interpretation.
Simply put, the terms of the Trust require that Plaintiffs would end up receiving the
House, even if William predeceased Herlinda. For that reason, resolving whether
Herlinda's death was a prerequisite for distribution of the House would now be moot
since Herlinda is no longer living.
But as indicated above, mootness is a doctrine of court policy. Here, the Plaintiffs
raised the inevitable application of the anti-lapse provision in the district court, although
the district court did not address it. Plaintiffs did not cross-appeal the district court's lack
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of findings on the effect of the anti-lapse provision. Accordingly, we elect not to dismiss
the case on that basis and instead stand on our findings on the merits of the case that the
plain language of the Trust allowed William to transfer the House to herself and her
children while Herlinda was still alive and that the Defendant has failed to establish that
by doing so William breached any fiduciary duty owed to the Trust.
Affirmed.
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