Paul Arthaud v. Gordon Arthaud ( 2020 )

In the Missouri Court of Appeals
Eastern District
NORTHERN DIVISION
PAUL ARTHAUD, ) No. ED107988
)
Respondent, )
) Appeal from the Circuit Court of
) Ralls County
vs. ) Cause No. 17RL-PR00050
)
GORDON ARTHAUD, ET AL., ) Honorable David C. Mobley
)
Appellants. ) Filed: May 5, 2020
OPINION
Gordon D. Arthaud (“Dean”) and Gordon Arthaud, II (“Gordon, II”) (collectively,
“Appellants”) appeal the trial court’s judgment on the action filed by Paul D. Arthaud (“Paul”)1
regarding the Gordon Arthaud (“Grantor”) (Dean and Paul’s father and Gordon, II’s grandfather)
Revocable Trust (the “Trust”). Appellants raise three points on appeal. In their first point,
Appellants argue that the trial court’s judgment was against the weight of the evidence “in that
neither Paul nor Dean have the right to demand a distribution of 5% of the principal of the Trust”
because Grantor intended Gordon, II to be the only primary beneficiary of the Trust. In their
second point, Appellants assert that the trial court’s judgment was “against the weight of the
evidence and includes errors of law in that, if Paul and Dean are Primary Beneficiaries, the
1
Because the parties have the same surname, we refer to them by their first or middle names to avoid confusion, but
intend no familiarity or disrespect.
1
Judgment orders distributions that would exceed 5% of the value of Paul’s GST Exempt Trust
because Paul already received cash distributions.” And in their third point, Appellants contend
that the trial court’s judgment was “against the weight of the evidence and includes errors of law
in that Paul should have been removed as trustee because Paul lacks sufficient skills and
experience to serve as trustee, refused to cooperate with Dean and is unable and unwilling to
effectively administer the trust[.]”
We affirm the trial court’s judgment in part and remand in part.
I. Factual and Procedural Background
On April 29, 1996, Grantor executed the indenture establishing the Trust, which was
created for the purpose of supporting Grantor’s wife, Wilma Arthaud (“Wilma”), and Grantor’s
children and descendants after Grantor’s death. The Trust provided for two factual situations:
one where Grantor was survived by Wilma (“Phase I”) and one where Wilma predeceased
Grantor (“Phase II”). Wilma predeceased Grantor, passing away on September 10, 2002. Grantor
thereafter died on June 18, 2008. Thus, Phase I of the Trust never took effect, and Phase II
became effective on June 18, 2008, when Grantor passed away.
Pursuant to the terms of the Trust indenture, Paul and Dean were named as trustees
during Phase II. Article V of the Trust indenture governed the administration and distribution of
the Trust after the occurrence of Phase II, and ordered the creation of two separate sub-trusts at
the beginning of Phase II: one for assets that could be claimed as tax-exempt under the
generation-skipping transfer tax exemption set by the Internal Revenue Service (the “GST
Trust”) and one for all assets that were not tax-exempt under the generation-skipping transfer tax
exemption (the “Non-GST Trust”).2 Article V(A) established that, at the beginning of Phase II,
2
The Trust indenture explicitly stated that Grantor contemplated and understood that the Non-GST Trust could
contain no assets if the total value of the Trust’s assets at the beginning of Phase II was less than the amount allowed
2
the Trust was also to be divided into shares among Grantor’s children and the descendants of
Grantor’s children if said child of Grantor predeceased Grantor—referred to by the Trust
indenture as “primary shares.”3 Each primary share was to be composed of two sub-shares: one
for the generation-skipping assets within the GST Trust allotted to each primary share (the “GST
Exempt Trust”) and one for the remaining assets within the Non-GST Trust for each primary
share (the “GST Non-Exempt Trust”). Article V(B) (entitled “Trusts for Grantor’s Children and
Certain Descendants of Grantor’s Children”) thereafter stated that “the term ‘Primary
Beneficiary’ for purposes of this ARTICLE V(B) shall refer to a particular individual descendant
of Grantor with respect to whom a GST Exempt Trust or GST Non-Exempt Trust ... was created
pursuant to ARTICLE V(A).”
Article V(B)(1) instructed Paul and Dean, in their sole discretion as trustees, to expend
the net income and/or principal of a primary beneficiary’s individual trust for the support and
maintenance of the subject beneficiary’s comfort, health, and education, and further allowed Paul
and Dean, as trustees, to distribute the net income that was not expended to the subject
beneficiary or to add it to the principal of the subject individual trust. Article V(B)(2) thereafter
stated that, after a primary beneficiary attained 35 years of age, he had:
the absolute right and power each calendar year during which such Primary
Beneficiary is living at all times during the calendar year and from time to time
during such calendar year, to demand and receive a distribution to himself or herself
... from and only from the GST Exempt Trust created with respect to such Primary
Beneficiary, provided that in any given calendar year, the aggregate of all
distributions made to such Primary Beneficiary and the right to demand such
distribution pursuant to this ARTICLE V(B)(2) shall not exceed five percent (5%)
of the aggregate value of such GST Exempt Trust as of December 31 of such year
in which a demand has been made, valued without reduction for the principal
payment(s) made to such Primary Beneficiary from such GST Exempt Trust
pursuant to this right to demand and receive of such year.
by the generation-skipping transfer tax exemption—causing all of the Trust’s assets to be allocated to the GST
Trust.
3
Paul and Dean were Grantor’s only children at the time of Grantor’s death.
3
Article V(B)(2) went on to state that, if 5% of the aggregate value of the GST Exempt Trust at
issue was less than $5,000.00, the primary beneficiary could make an additional non-cumulative
demand from his GST Exempt Trust so that the total amount of all demands equaled $5,000.00.
Article VII, which appointed the trustees, went on to provide that “[n]otwithstanding the
foregoing appointments of Trustees and Successor Trustees, each descendant of Grantor shall,
upon attaining twenty-one (21) years of age, become the sole Trustee of the GST Exempt Trust
created with respect to such descendant.”
Paul filed his petition asserting claims against Dean on August 28, 2017, and filed an
amended petition on March 9, 2018. In his amended petition, Paul asserted four counts arguing
that: he was entitled to an annual distribution equaling 5% of the aggregate value of the GST
Exempt Trust for 2016 and 2017 because he made such demands for those respective years
(Count I); the trial court order an accounting of the Trust (Count II); the trial court should declare
what the rights and duties of the parties were as trustees and beneficiaries of the Trust (Count
III); and the court should remove Dean as co-trustee of the Trust (Count IV). Dean subsequently
filed his answer to Paul’s petition, and also asserted counterclaims arguing that the trial court
should enter declaratory judgment that Paul and Dean were not entitled to annual distributions
from the GST Exempt Trust not to exceed 5% of the GST Exempt Trust’s aggregate value
(Counterclaim I) and that the trial court should remove Paul as trustee of the Trust (Counterclaim
II).
A bench trial was held on the matter on November 5, 2018. At trial, the parties presented
exhibits, including the Trust indenture, documents detailing the Trust assets, and documents
detailing distributions that the Trust had made, and testimony by Paul, Dean, the attorney who
prepared the Trust indenture, and the accountant who prepared the tax returns for the Trust. The
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evidence showed that, when Grantor (who was predeceased by Wilma) died, the combined value
of all of the Trust’s assets (three parcels of real property) was less than $2 million—the amount
that could be claimed under the generation-skipping transfer tax exemption set by the Internal
Revenue Service. Two of the three parcels of real estate that composed the Trust assets were sold
and the funds from which were invested pursuant to the terms of the Trust. The investment
account funded by the sale of those two parcels was managed by Dean as co-trustee of the Trust,
because Dean was experienced in the investment business; shortly before the time of trial, the
investment account had a value of $2,669,490.22. The third parcel of real estate, Grantor’s and
Wilma’s residence (the “Arthaud Place”), had not been sold at the time of trial and had been
maintained by Paul (who was also residing at the Arthaud Place), as co-trustee of the Trust, since
Grantor’s death. The Trust assets were managed in such way by Paul and Dean respectively until
the two began to disagree as to how the Trust assets should be managed, which led to the present
litigation. The evidence also showed that Paul had made demands in both 2016 and 2017 that the
Trust distribute amounts to him equaling 5% of his GST Exempt Trust’s aggregate value or
$5,000 if said amount was less than $5,000, and that the Trust had made distributions to Paul and
Dean in the amounts of $13,456 in 2016 and $15,146 in 2017. Further, evidence was also
presented showing that the Arthaud Place was appraised at $544,500 at the time of Grantor’s
death in 2008, but had not been appraised since.
The trial court entered its judgment on March 6, 2019. Relevantly, the trial court found
that, pursuant to the terms of the Trust indenture, Phase II began at the time of Grantor’s death,
and all of the Trust’s assets were distributed to the GST Trust (and the GST Trust was the only
trust in existence) at the time of Grantor’s death because said assets were valued at less than $2
million (the generation-skipping transfer tax exemption amount). The trial court concluded that,
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per Article V(B) of the Trust indenture, Paul and Dean were “primary beneficiaries” of the Trust
and, pursuant to Article V(B)(2), were entitled to annual distributions not to exceed 5% of the
aggregate value of the Trust assets or $5,000 if 5% of the aggregate value was less than $5,000,
as argued by Paul in Count I of his amended petition. Relatedly, the trial court found that Paul
had made such demands pursuant to Article V(B)(2) in both 2016 and 2017. The trial court
further found that, since Grantor’s death, Paul and Dean had been acting as co-trustees with “a
rather delineated assignment of duties,” as Paul had maintained the Arthaud Place and Dean had
managed the investment account containing the Trust’s funds and helped prepare the Trust’s tax
returns. However, the court concluded that, pursuant to Article VII of the Trust indenture, Paul
and Dean were to become the sole trustees of their own respective GST Exempt Trusts at the
time they turned 21 years old. The trial court therefore ordered that Paul and Dean (as co-trustees
of the Trust) pay Paul 5% of the aggregate value of the Trust’s assets (including the appraised
value of the Arthaud Place) for both 2016 and 2017 and pay Dean 5% of the aggregate value of
the Trust’s assets for 2017; that “[a]s soon as reasonably possible after the payment of the
proceeds [(from 2016 and 2017)], [Paul] and [Dean], as co-trustees, shall divide the remaining
trust assets into two separate trusts” to create a GST Exempt Trust for each primary beneficiary;
and that Paul and Dean would each be the sole trustees of their own respective GST Exempt
Trusts.
Subsequent to the trial court entering its judgment, Dean filed his motion for a new trial
and, in the alternative, motion to amend and modify the judgment. The trial court thereafter
entered its order amending judgment and entering final judgment on June 11, 2019, in which the
court denied Dean’s motion for a new trial, but amended its findings and conclusions regarding
the annual distributions that it ordered Paul and Dean, as trustees, to make to them individually
6
as beneficiaries of the Trust. Specifically, the court clarified that the annual distributions to
which Paul and Dean were entitled under Article V(B)(2) were not to exceed 5% of the
aggregate values of their respective GST Exempt Trusts for the years that Paul and Dean made
such demands, as opposed to 5% of the aggregate value of the entire Trust. The court also
amended its orders to instruct Paul and Dean, as trustees, to: “immediately pay to [Paul] 5% of
the aggregate value of [Paul’s] separate Trust as of December 31, 2016”; “immediately pay to
[Paul] 5% of the aggregate value of [Paul’s] separate Trust as of December 31, 2017”; and
“immediately pay to [Dean] 5% of the aggregate value of [Dean’s] separate Trust as of
December 31, 2017.”
This appeal follows.
II. Standard of Review
In reviewing a court-tried case, we will affirm the trial court’s judgment “if it is
supported by substantial evidence, is not against the weight of the evidence, and does not
erroneously declare or apply the law.” Brown v. Brown, 530 S.W.3d 35, 40 (Mo. App. E.D.
2017) (citing In Estate of McKenna, 500 S.W.3d 850, 855 (Mo. App. E.D. 2016)); see also
Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). We review de novo questions of law,
such as the interpretation of a trust instrument. Labantschnig v. Bohlmann, 439 S.W.3d 269, 273
(Mo. App. E.D. 2014).
III. Discussion
Appellants raise three points on appeal. In their first point, Appellants argue that the trial
court’s judgment was against the weight of the evidence “in that neither Paul nor Dean have the
right to demand a distribution of 5% of the principal of the Trust” because Grantor intended
Gordon, II to be the only primary beneficiary of the Trust. In their second point, Appellants
7
assert that the trial court’s judgment was “against the weight of the evidence and includes errors
of law in that, if Paul and Dean are Primary Beneficiaries, the Judgment orders distributions that
would exceed 5% of the value of Paul’s GST Exempt Trust because Paul already received cash
distributions.” And in their third point, Appellants contend that the trial court’s judgment was
“against the weight of the evidence and includes errors of law in that Paul should have been
removed as trustee because Paul lacks sufficient skills and experience to serve as trustee, refused
to cooperate with Dean and is unable and unwilling to effectively administer the trust[.]”
“In determining the meaning of trust provisions, the paramount rule of construction is
that the grantor’s intent is controlling and such intention must be ascertained primarily from the
trust instrument as a whole.” Brown, 530 S.W.3d at 41 (quoting O’Riley v. U.S. Bank, N.A., 412
S.W.3d 400, 406 (Mo. App. W.D. 2013)). Unless the trust instrument is ambiguous, the grantor’s
intent is determined from the four corners of the trust document. Thompson v. Koenen, 396
S.W.3d 429, 437 (Mo. App. W.D. 2013); In Matter of Edwin Meissner Testamentary Trust, 497
S.W.3d 860, 863 (Mo. App. E.D. 2016). “A grantor is presumed to know and intend the legal
effect of the language he uses in the trust.” Brown, 530 S.W.3d at 41; see also Simon v. Myers,
570 S.W.3d 103, 108 (Mo. App. W.D. 2018). Where the language of a trust instrument is clear, it
must stand as written. Brown, 530 S.W.3d at 41; In Matter of Edwin Meissner Testamentary
Trust, 497 S.W.3d at 863.
In this case, the Trust indenture clearly establishes that Paul and Dean are the only
primary beneficiaries of the Trust during Phase II, which began when both Grantor and Wilma
were deceased. First, it should be noted that Article V(B) is entitled “Trusts for Grantor’s
Children and Certain Descendants of Grantor’s Children,” and thereafter makes numerous
references to “Child’s Trust” that clearly indicate that the sub-trusts created under that article are
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specifically for the benefit of Grantor’s children. Article V(B) of the Trust indenture goes on to
explain that “the term ‘Primary Beneficiary’ for purposes of this ARTICLE V(B) shall refer to a
particular individual descendant of Grantor with respect to whom a GST Exempt Trust or GST
Non-Exempt Trust ... was created pursuant to ARTICLE V(A).” Article V(A) of the Trust
indenture established that, at the beginning of Phase II, the Trust was to be divided into primary
shares “so that each child of Grantor who is living at the beginning of Phase II shall have one
share created with respect to each such living child, and each child of Grantor who is not living
at the beginning of Phase II but who has descendant(s) living at the beginning of Phase II shall
have one share created with respect to each such deceased child,” and that each primary share
would be composed of a GST Exempt Trust and a GST Non-Exempt Trust (if needed). The plain
language of the Trust indenture unambiguously defines who constitutes a “primary beneficiary”
and clearly states that Grantor’s children were to be the only primary beneficiaries of the Trust in
Phase II, unless a child of Grantor predeceased him, in which case that child’s descendants
would be primary beneficiaries. Thus, as Paul and Dean were Grantor’s only children at the time
of Grantor’s death and both survived Grantor, they were the only primary beneficiaries under the
terms of the Trust indenture at the beginning of Phase II. Because we are able to determine from
the four corners of the Trust indenture, see In Matter of Edwin Meissner Testamentary Trust, 497
S.W.3d at 863, that only Paul and Dean were “primary beneficiaries” at the beginning of Phase
II, Appellants’ argument that Gordon, II was intended to be the only primary beneficiary of the
Trust such that neither Paul nor Dean is entitled to an annual distribution under Article V(B)(2)
is unavailing. Appellants’ Point I is therefore denied.
Further, we find that Appellants’ argument raised in their Point III has been disposed of
by the part of the trial court’s judgment that we affirm. Appellants assert in their Point III that
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Paul should have been removed as trustee of the Trust for various reasons. In its judgment, the
trial court specifically ordered that, after paying the aforementioned annual distributions to the
parties that they demanded and were entitled to under Article V(B)(2) for 2016 and 2017, Paul
and Dean, as trustees, “shall divide the remaining trust assets into two separate trusts named the
Paul D. Arthaud GST Exempt Trust and the Gordon D. Arthaud GST Exempt Trust,
respectively, and the Trustees shall convey an undivided one-half interest in the Trust real estate
to each such trusts and that the Trustees further transfer 50% of the remaining Trust assets to
each of such Trusts,” and “[t]he Trustee of the Paul D. Arthaud GST Exempt Trust shall be Paul
D. Arthaud and the Trustee of the Gordon D. Arthaud GST Exempt Trust shall be Gordon D.
Arthaud.” The trial court correctly ordered that the remaining Trust assets (all of which fell under
the generation-skipping transfer tax exemption at the time of Grantor’s death) be divided into
respective GST Exempt Trusts for Paul and Dean, pursuant to Article V of the Trust indenture,
and correctly ordered that Paul and Dean would individually serve as trustees of their own
respective GST Exempt Trusts, pursuant to Article VII. Thus, per the trial court’s judgment and
order, Paul was not to serve as trustee of Dean’s GST Exempt Trust. As Appellants’ argument
has been disposed of by the portion of the trial court’s judgment that we affirm, Appellants’
Point III is denied.
However, Appellants’ argument asserted in their Point II requires that we remand the
case to the trial court for correction of the court’s judgment. The trial court correctly determined
(and clarified in its amended judgment) that, pursuant to Article V(B)(2), “if either or both [Paul]
or [Dean], individually, demanded before the end of a calendar year that they receive 5% of the
aggregate value of the subject GST Exempt Trust as of December 31st of said year, said
individual is entitled to receive 5% of the value of such individual’s separate Trust as of
10
December 31st….” But, as Appellants contend, the trial court’s judgment orders Paul and Dean,
as trustees, to distribute amounts equaling 5% of the aggregate values of Paul’s GST Exempt
Trust to Paul for 2016 and 2017 and 5% of the aggregate value of Dean’s GST Exempt Trust to
Dean for 2017 in addition to the amounts already distributed to them for those years.
Specifically, the trial court ordered Paul and Dean, as trustees, to: “immediately pay to [Paul] 5%
of the aggregate value of [Paul’s] separate Trust as of December 31, 2016”; “immediately pay to
[Paul] 5% of the aggregate value of [Paul’s] separate Trust as of December 31, 2017”; and
“immediately pay to [Dean] 5% of the aggregate value of [Dean’s] separate Trust as of
December 31, 2017.”4
Article V(B)(2) of the Trust indenture limits the aggregate of annual distributions made
to a primary beneficiary to 5% of the aggregate value of the individual beneficiary’s GST
Exempt Trust as of December 31st of the subject year. Specifically, Article V(B)(2) states that
“the aggregate of all distributions made to such Primary Beneficiary and the right to demand
such distribution pursuant to this ARTICLE V(B)(2) shall not exceed five percent (5%) of the
aggregate value of such GST Exempt Trust as of December 31 of such year in which a demand
has been made” (emphasis added). As we find that the annual 5% limit applies to all distributions
made to a primary beneficiary, and not just to those made pursuant to demands made under
Article V(B)(2), we find that the trial court’s judgment erroneously orders Paul and Dean, as
trustees, to distribute 5% of the aggregate values of their subject individual GST Exempt Trusts
for the years at issue in addition to the amounts already distributed during those years. At trial,
evidence was presented that significant distributions were made to Paul and Dean in both 2016
and 2017, but the trial court’s orders do not reflect that those amounts already distributed should
4
The trial court did not order Paul and Dean, as trustees, to make a distribution to Dean for 2016, and Dean does not
raise that issue on appeal.
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be included in the calculation of the ordered amounts totaling 5% of the aggregate values of the
respective GST Exempt Trusts for the years at issue.
Thus, Appellants’ Point II is granted. On remand, we instruct the trial court to correct its
June 11, 2019 order amending judgment and entering final judgment (specifically, paragraph 5
on page 2 of the amended judgment) to order Paul and Dean, as trustees, to: immediately pay
amounts to Paul equaling 5% of the aggregate value of his individual GST Exempt Trust as of
December 31, 2016, less the amounts already distributed to Paul during that year; immediately
pay amounts to Paul equaling 5% of the aggregate value of his individual GST Exempt Trust as
of December 31, 2017, less the amounts already distributed to Paul during that year; and
immediately pay amounts to Dean equaling 5% of the aggregate value of his individual GST
Exempt Trust as of December 31, 2017, less the amounts already distributed to Dean during that
year.
IV. Conclusion
Based on the foregoing, we affirm the judgment of the trial court in all regards, except for
the portions of the judgment that order Paul and Dean, as trustees, to distribute amounts equaling
5% of the aggregate values of Paul’s GST Exempt Trust to Paul for 2016 and 2017 and 5% of
the aggregate value of Dean’s GST Exempt Trust to Dean for 2017 in addition to the amounts
already distributed to them for those years. We remand the case to the trial court with
instructions to correct its judgment to reflect that amounts should be distributed to Paul for 2016
and 2017 and to Dean for 2017 such that the aggregate annual distributions paid to them for
those years equal 5% of the aggregate values of their respective GST Exempt Trusts as of
December 31st of those respective years.
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_______________________________
Colleen Dolan, Chief Judge
Gary M. Gaertner, Jr., J., concurs.
Philip M. Hess, J., concurs.
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