Matter of Sunray Holdings Trust , 2013 S.D. 89 ( 2013 )

#26722-a-SLZ
2013 S.D. 89
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
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IN THE MATTER OF
SUNRAY HOLDINGS TRUST.
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APPEAL FROM THE CIRCUIT COURT OF
THE SIXTH JUDICIAL CIRCUIT
SULLY COUNTY, SOUTH DAKOTA
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THE HONORABLE JOHN L. BROWN
Judge
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ROBERT M. RONAYNE
THOMAS J. COGLEY of
Ronayne & Wein, LLP
Aberdeen, South Dakota Attorneys for appellants
Lee and Linda Shoup.
WILLIAM M. VAN CAMP, JR. of
Olinger, Lovald, McCahren
& Reimers, PC
Pierre, South Dakota Attorneys for appellee
Gregory Shoup.
PAUL E. BACHAND of
Schmidt, Schroyer, Moreno,
Lee & Bachand, PC
Pierre, South Dakota Attorneys for appellee
Larry Shoup.
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CONSIDERED ON BRIEFS
NOVEMBER 4, 2013
OPINION FILED 12/11/13
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ZINTER, Justice
[¶1.] Lester and Harriet Shoup created an inter vivos trust. After their
deaths, their only children, Gregory and Larry Shoup, moved to terminate the trust.
They argued that the trust only provided for Lester and Harriet during their lives
and there was no trust provision directing disposition of the remaining trust assets.
Therefore, they contended that the trust had fulfilled its purpose. Lee and Linda
Shoup, Gregory’s children, objected. They argued that the trust had not fulfilled its
purpose. They contended that two letters found with the original trust document
instructed on the disposition of trust assets. Following a non-evidentiary hearing,
the circuit court terminated the trust. We affirm.
Facts and Procedural History
[¶2.] Lester and Harriet had two children, Gregory and Larry. In 1993,
without the assistance of a lawyer, Lester drafted a trust document titled, “Sunray
Holdings.” The trust named Lester and Harriet as the “Trustor.” It named Lester,
Harriet, Gregory, and Larry as “Co-Trustees.”
[¶3.] Lester died in 2008, and Harriet died in 2012. After Harriet’s death,
Gregory opened a safe-deposit box rented by the trust. The safe-deposit box
contained a manila envelope, which contained the original trust document and a
smaller sealed envelope. The smaller envelope had the following handwritten note
on the front: “Instructions for Sunray Holding Trust to be opened on death of
grantors [sic] Lester Shoup & Harriet Shoup 4/22/94.”
[¶4.] The smaller envelope contained a two-page handwritten letter (“1994
letter”) signed by Lester and Harriet. The letter instructed the trustees on a variety
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of matters, including compensation for Gregory for managing the trust and cash
payments for Gregory, Larry, Lee, and Linda. The 1994 letter also indicated: “After
eight years the trust can be divided if it is the best business decision at that time.
Larry 1/3 Greg 1/3 Lee 1/6 and Linda 1/6.”
[¶5.] The manila envelope also contained a one-page handwritten letter
titled, “Sunray Holdings Trust Instructions 11/05/07” (“2007 letter”). The 2007
letter stated that the distribution of trust income should be as follows: “Greg 30% –
Larry 30%[,] the remaining 30% will be divided between Linda and Lee.” The 2007
letter also directed certain lump-sum payments and referred to Lee and Linda as
“co-trustees.” There were no signatures on the 2007 letter. The words “Signed by”
were written at the bottom but were crossed out. The 2007 letter did not mention
the ultimate disposition of trust property.
[¶6.] Gregory, as trustee, petitioned the circuit court to interpret, construe,
and issue instructions directing the trustees on proper administration and
distribution of the trust. Gregory also sought the court’s instructions regarding the
letters.
[¶7.] After filing the petition, Gregory and Larry, acting individually, moved
to terminate the trust under SDCL 55-3-23(2). They contended that the trust only
provided for Lester and Harriet during their lives and there was no trust provision
disposing of trust property upon their deaths. Therefore, Gregory and Larry
contended that the trust had fulfilled its purpose and should be terminated, leaving
the assets to pass by will or intestate succession.
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[¶8.] Lee and Linda, however, argued that “the Trust was not silent as to
what [was] to occur upon the death[s] of Lester and Harriet[.]” Lee and Linda relied
on one phrase in one sentence of trust Article I(D). That phrase gave the trustees
certain powers to “hold, invest, disburse, deliver, or otherwise dispose of trust
property and proceeds according to written instructions.” Lee and Linda argued
that this language “clearly indicate[d] that Lester and Harriet contemplated the
need for further instruction[,]” and the 1994 and 2007 letters constituted such
instructions. Because Lee and Linda claimed that the letters were contemplated by
the trust, they also argued that the letters were not amendments or substantial
changes to the trust.
[¶9.] Gregory and Larry disagreed, arguing that the letters substantially
changed the trust. According to Gregory and Larry, Article I(D) only empowered
the trustees to make investment dispositions upon written instructions, and it did
not authorize the final disposition of trust property by written instructions upon the
deaths of Lester and Harriet. Therefore, Gregory and Larry contended that, if given
effect, the letters amended or changed the trust. They also pointed out that the
trust explicitly prohibited “substantial changes” without the written consent of all
trustees, and they had not consented. They relied on Article I(A), which provided:
“This Trust Agreement, and the duties and liabilities of the Co-Trustees shall not be
substantially changed without the Co-Trustees written consent.”
[¶10.] The circuit court agreed with Gregory and Larry. The court noted that
the trust did “not contain any language relating to the . . . disposition of the trust
asset[s] upon the death[s] of both [Lester and Harriet].” Therefore, the court
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concluded that the letters substantially changed the trust, “and absent written
consent of the Co-Trustees, any modifications of the Trust pursuant to the [letters
were] not enforceable.” Because Gregory and Larry did not consent to the letters,
the court ruled that: the letters had no effect, the trust had served its purpose, and
the trust terminated upon Harriet’s death.
[¶11.] Lee and Linda appeal, arguing that the circuit court misinterpreted
the trust. Trust interpretation is a question of law reviewed de novo. In re Schwan
1992 Great, Great Grandchildren’s Trust, 2006 S.D. 9, ¶ 11, 709 N.W.2d 849, 852
(citations omitted).
Decision
[¶12.] Lee and Linda first argue that the letters did not change the trust.
They contend that the letters were part of the trust because they were authorized
by the phrase in the second sentence of Article I(D) that referred to certain
dispositions by written instructions of the trustors. They claim that the letters
“flow naturally from Article I(D) and are a recognition that the Trust was never
meant to terminate upon the second death.”
[¶13.] Gregory and Larry acknowledge the phrase in the second sentence of
Article I(D). But they contend that the phrase, interpreted in context, only related
to trustee investment powers. Because there is no trust provision directing the
disposition of assets after the deaths of the trustors, Gregory and Larry contend
that Lee and Linda are seeking to change the trust by extrinsic evidence (the
letters) in violation of Article I(A).
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[¶14.] When presented with a trust instrument, our “task is to ensure that
the intentions and wishes of the [trustor] are honored.” In re Florence Y. Wallbaum
Revocable Living Trust, 2012 S.D. 18, ¶ 20, 813 N.W.2d 111, 117 (quoting Luke v.
Stevenson, 2005 S.D. 51, ¶ 8, 696 N.W.2d 553, 557). To carry out a trustor’s
intentions and wishes, we first “look to the language of the trust instrument.” In re
Schwan, 2006 S.D. 9, ¶ 12, 709 N.W.2d at 852 (citation omitted). “If the language of
the trust instrument makes the intention of the [trustor] clear, it is our duty ‘to
declare and enforce it.’” In re Florence Y. Wallbaum Revocable Living Trust, 2012
S.D. 18, ¶ 20, 813 N.W.2d at 117 (emphasis added) (quoting Luke, 2005 S.D. 51, ¶ 8,
696 N.W.2d at 557).
[¶15.] To determine whether the letters constituted a substantial change
requiring trustee approval under Article I(A), we must first determine whether the
second sentence of Article I(D) authorized the final disposition of trust assets by
letters. Article I(D) provided:
For so long as Trustor remains physically and mentally
competent to make decisions in respect to investment of the
trust estate or until Trustor directs otherwise, Trustor shall
retain all rights, options and privileges to vote any stock and to
withdraw, sell, convert, invest, reinvest, deal in and deal with
any property as security for loans; and this Trust shall include
at any time only that property and the proceeds thereof placed
in said Trust and then remaining therein. Co-Trustees shall
hold, invest, disburse, deliver, or otherwise dispose of trust
property and proceeds according to written instructions. All
written notices and communications received by Co-Trustees
shall be delivered forthwith to Trustor. All securities not in
bearer form shall be registered in name of nominee, as Trustor
may direct in writing.
(Emphasis added.)
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[¶16.] When read in context, Lee and Linda’s reliance on the second sentence
of Article I(D) is misplaced. The topic sentence of Article I(D) reflects that the
paragraph was intended to deal with the allocation of power between the trustors
and trustees regarding “investment of the trust estate.” Consistent with that
sentence, the third and fourth sentences addressed the management of investments.
Concededly, one phrase in the second sentence, if read in isolation, stated that the
trustees could “dispose” of assets according to written instructions. But the rest of
the second sentence dealt with the management of investments; i.e., the holding,
investing, disbursing, and delivering of trust property. Therefore, when considered
in context of the entire paragraph, the disposition phrase in the second sentence
must be read to have only contemplated the trustors’ written instructions regarding
investment dispositions of the trust estate. The second sentence did not
contemplate the ultimate disposition of trust assets upon the trustors’ deaths.
[¶17.] The purposes of Article I and Article II further support this conclusion.
Article II was the only article that addressed the disposition of trust assets. The
article was titled: “Disposition Provisions.” But Article II was limited to directing
the disposition of trust property during Lester’s and Harriet’s lifetimes. It
contained no provision directing the disposition of trust property upon their deaths.
[¶18.] Similarly, no part of Article I provided for the disposition of trust
assets upon the trustors’ deaths. The title of Article I reflects that it only dealt with
“Powers Reserved by Trustor.” It specified various powers reserved by the trustors
and indicated the events upon which those powers could be exercised by the
trustees. Consistent with the other provisions of Article I, Article I(D) directed that
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the trustors retained the power to manage the trust’s investments until incapacity
or until they elected to transfer that power to the trustees. And if the trustors
elected to transfer the investment power, the second sentence then empowered the
trustees to invest and manage the trust estate according to the trustors’ written
instructions.
[¶19.] Considering the second sentence of Article I(D) in context, the circuit
court correctly concluded that the trust did “not contain any language relating to
the . . . disposition of the trust asset[s] upon the death[s] of both [Lester and
Harriet].” Because the trust contained no disposition provision that took effect
upon their deaths, the court correctly concluded that the letters, if given effect,
would substantially change the trust.
[¶20.] Lee and Linda, however, cite In re Estate of Kirk, 907 P.2d 794 (Idaho
1995), to support their claim that the trust and letters should be construed together
as one trust document. The Idaho Supreme Court explained: “Idaho has . . .
recognized the general rule of construction that when two or more instruments are
being considered, they should be construed as a whole in order to determine the
intent of the parties.” Id. at 804 (citations omitted).
[¶21.] We have recognized a similar rule of construction, but we disagree
with its application in this case.* Before we resort to rules of construction, we must
* See Baker v. Wilburn, 456 N.W.2d 304, 306 (S.D. 1990) (“[W]hen two or more
instruments are executed at the same time by the same parties, for the same
purpose and as part of the same transaction, the court must consider and
construe the instruments as one contract.” (alteration in original) (citation
omitted)); id. (“[I]t is not critical whether the documents were executed at
exactly the same time or whether the parties to each agreement were
(continued . . .)
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first find that the trust’s language is ambiguous. See Luke, 2005 S.D. 51, ¶ 10, 696
N.W.2d at 557. In this case, neither party argues that the trust’s language is
ambiguous. Furthermore, in In re Estate of Kirk, handwritten notes were given
effect in part because an amendment to the trust allowed for changes by such notes.
907 P.2d at 804. In this case, there was no trust provision that allowed for
dispositions by letters. Lee and Linda’s reliance on In re Estate of Kirk is
inapposite.
[¶22.] Lee and Linda alternatively argue that, even if the letters would
substantially change the trust, Gregory’s and Larry’s consent as trustees was
unnecessary. Lee and Linda argue that, at the time the letters were written,
Gregory and Larry were not yet empowered to act as trustees. Linda and Lee
contend that under Article I(F), Gregory’s and Larry’s authority to act as trustees
did not come into effect until Harriet’s death. We disagree.
[¶23.] As is relevant here, Article I(F) provided:
The Co-Trustees shall assume full and complete investment
control and responsibility with respect to the trust estate or any
portion thereof so directed in writing by the Trustor or upon the
happening of one of the following events:
....
3. Upon the date of Trustor’s death.
________________________
(. . . continued)
identical.”); Kramer v. William F. Murphy Self-Declaration of Trust, 2012
S.D. 53, ¶ 14, 816 N.W.2d 813, 816 (“Where several writings are connected by
internal references to each other, even if they were executed on different
dates and were not among all of the same parties, they will constitute a
single contract as long as they involve the same subject matter and prove to
be parts of an entire transaction.” (citation omitted)).
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Lee and Linda correctly point out that under this provision, certain trustee powers
did not come into effect until the trustors’ written direction or until the deaths of
the trustors. But their argument fails to recognize that this limitation on powers
applied only to the trustees’ power of “investment control and responsibility with
respect to the trust estate[.]” Article I(F) did not limit any other power or
responsibility of the trustees. Therefore, Article I(F) did not deprive the trustees of
their non-financial management powers—e.g., the power to consent to substantial
changes to the trust in accordance with Article I(A).
[¶24.] We acknowledge that this poorly drafted trust was written by Lester
without the assistance of counsel. But Lester and Harriet, as trustors, are deemed
to have selected the trust’s language for a reason and understood its effect. See In
re Trust of Cross, 551 N.W.2d 344, 347 (Iowa Ct. App. 1996) (applying this principle
to a will) (“We . . . assume the testator selected the language adopted to express his
meaning and he knew and appreciated the effect of the language used[.]” (citations
omitted)). Therefore, we interpret the words used by Lester and Harriet in the
trust, and we do not consider extrinsic evidence or rules of construction unless the
trust’s language is ambiguous. See Luke, 2005 S.D. 51, ¶¶ 10-11, 696 N.W.2d at
557-58 (citations omitted). Because the trust is not ambiguous, we only “declare
and enforce it” without reference to rules of construction or the extrinsic evidence of
the letters. See id. ¶ 8 (quoting In re Estate of Stevenson, 2000 S.D. 24, ¶ 14, 605
N.W.2d 818, 821).
[¶25.] The Sunray Holdings trust document contained no language directing
the disposition of trust assets upon Lester’s and Harriet’s deaths. Further, the
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trust’s language did not authorize the final disposition of trust assets through
letters. Therefore, the circuit court correctly determined that the letters, if given
effect, would substantially change the trust, but that change was prohibited because
the trustees did not consent in writing. Accordingly, the circuit court correctly
concluded that the trust had fulfilled its purpose and should be terminated.
[¶26.] GILBERTSON, Chief Justice, and KONENKAMP, SEVERSON, and
WILBUR, Justices, concur.
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