Cheryl Barron Doll v. Steven E. Post, Trustee, and Indiana Attorney General

FILED
Sep 03 2019, 8:41 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE –
Katherine Ridenour STEVEN E. POST
Benjamin S.J. Williams Karen T. Moses
Shambaugh, Kast, Beck, & Williams, Damian B. Gosheff
LLP Faegre Baker Daniels, LLP
Fort Wayne, Indiana Fort Wayne, Indiana
Jeffrey L. Turner
Auburn, Indiana
ATTORNEYS FOR APPELLEE –
INDIANA ATTORNEY GENERAL
Curtis T. Hill, Jr.
Attorney General of Indiana
Frances Barrow
Deputy Attorney General
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Cheryl Barron Doll, September 3, 2019
Appellant-Plaintiff, Court of Appeals Case No.
19A-TR-715
v. Appeal from the DeKalb Superior
Court
Steven E. Post, Trustee, and The Honorable Monte L. Brown,
Indiana Attorney General, Judge
Appellees-Defendants. Trial Court Cause No.
17D02-1810-TR-4
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Najam, Judge.
Statement of the Case
[1] This appeal asks us to consider the validity of the following residuary clause in
a revocable living trust:
The Trustee shall hold, distribute and pay the remaining
principal and undistributed income in perpetuity; subject,
however, to limitations imposed by law.
All the powers given by law and the provision[s] of the [T]rust
may be exercised in the sole discretion of the Trustee without
prior authority above or subsequent approval by any court.
Appellant’s App. Vol. II at 15. We hold that that language does not identify a
beneficiary with reasonable certainty, and, as such, it fails as a matter of law.
Accordingly, we conclude that the residue of the trust—$4,600,000—is to be
held by the trustee on behalf of the settlor’s estate. As the settlor died without a
will, the residue of the trust shall be distributed in accordance with the law of
intestate succession.
Facts and Procedural History
[2] On July 1, 2010, Ollie Waid, Jr. established a revocable living trust (“the
Trust”), which he subsequently amended on several occasions prior to his death
in 2018. The final version of the Trust provides as follows:
ARTICLE I
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The Settlor[, Waid,] has delivered to the Trustee the property
described in Schedule A, attached hereto . . . . That property and
any other property that may be received by the Trustee from the
Settlor as additions to this Trust shall be held and disposed of by
the Trustee . . . on the terms stated in this Agreement. . . .
***
ARTICLE III
During the life of the Settlor, the qualified and acting Trustee
shall pay all the net income of the Trust estate and such portions
of the principal as the Settlor may from time to time direct to the
Settlor.
Notwithstanding any other provisions of this Agreement, if at
any time a qualified and acting Trustee determines in good faith
that the Settlor, because of mental or physical incompetency, is
unable to properly administer his affairs, the qualified and acting
Trustee shall, within [his] sole discretion, use so much of the net
income and any portions or all of the principal for the support,
comfort, and welfare of the Settlor. . . .
ARTICLE IV
After the death of the Settlor, the Trustee shall administer the
[T]rust individually and shall continue to hold title to all assets in
the [T]rust until appropriate distribution can be lawfully made.
The Trustee may prepare or supervise the preparation of all tax
returns that are due as a result of the Settlor’s death. . . . After
the appropriate tax returns are filed and the taxes paid, then the
Trustee shall proceed to distribute the residuary trust estate as
outlined in Article VII.
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***
ARTICLE V
[The Trustee] shall have all powers enumerated under the
Indiana Code and[/]or State of Florida [sic] and any other power
that may be granted by law, to be exercised without the necessity
of Court approval, as the Trustee, in his sole discretion,
determines to be in the best interests of the beneficiaries. Said
powers are to be construed in the broadest possible manner . . . .
***
ARTICLE VII
Upon the death of the Settlor and upon receipt of final and
complete clearances showing payment in full and final
acceptance of all inheritance, estate, transfer or succession taxes,
the remainder of the [T]rust shall be held and disposed of as
follows:
Section 1. [Deleted.]
Section 2. I give, devise and bequeath to CHRISTINA
GAITAN DENGLER on the condition she survives me the sum
of Ten Thousand Dollars ($10,000.00).
Section 3. I give, devise and bequeath to MOLLY
MOCHAMER on the condition she survives me the sum of Ten
Thousand Dollars ($10,000.00).
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Section 4. I give, devise and bequeath to CHERYL BARRON
DOLL on the condition she survives me the sum of Ten
Thousand Dollars ($10,000.00).
***
Section 9. I give, devise and bequeath to MASONIC LODGE
#214, Auburn, Indiana, the sum of Ten Thousand Dollars
($10,000.00).
Section 10. I give, devise and bequeath to SHRINERS
HOSPITAL FOR CRIPPLED CHILDREN the sum of Ten
Thousand Dollars ($10,000.00).
* * *[ 1]
Residue of Trust Property[ 2]
The Trustee shall hold, distribute and pay the remaining
principal and undistributed income in perpetuity; subject,
however, to limitations imposed by law.
All the powers given by law and the provision[s] of the [T]rust
may be exercised in the sole discretion of the Trustee without
prior authority above or subsequent approval by any court.
1
Sections 5 through 8 and 11 through 17 of Article VII also bequeathed gifts to specifically identified
beneficiaries.
2
The residuary clause of the Trust appears to be within Article VIII, and Waid subsequently repealed Article
VIII in its entirety. See Appellant’s App. Vol. II at 17. However, the parties on appeal do not dispute that the
residuary clause was in fact intended to be a freestanding, unrepealed provision of the Trust, and the trial
court lamented that the Trust was poorly drafted. Accordingly, we proceed in accordance with the parties’
shared understanding that the residuary clause of the Trust remains in effect.
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Appellant’s App. Vol. II at 9-30.
[3] Steven E. Post became the successor Trustee (“the Trustee”) over the Trust and,
following Waid’s death, filed a petition to docket the trust with the trial court.
In that petition, the Trustee stated as follows:
7. The Trust makes provision for several specific distributions
of cash to various individuals, which distributions have been
made by the Trust, with the exception of the specific distribution
of $10,000.00 to Christina Gaitan Dengler. The Trustee has been
unable to locate this beneficiary and will continue to make
reasonable efforts to do so.
***
9. The remaining balance of the Trust Estate consists of cash
and investments that are readily convertible to cash[] in an
approximate amount of $4,600,000.
10. The remaining balance . . . is to be distributed pursuant to
the residue clause . . . of the Trust Agreement . . . .
11. The [Trustee] has reviewed the Trust Agreement and was
told by [Waid’s prior] attorney that [Waid] intended the Trust’s
residuary share [to] be distributed to or for the benefit of tax
exempt charities strictly for charitable purposes, within the sole
discretion of the Trustee.
12. The [Trustee] requests docketing the Trust because there is
a lack of specific direction on the face of the Trust Agreement as
to the intended purpose of the residuary share of the Trust Estate.
The [Trustee] seeks Court interpretation of the Trust and a
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determination that the purpose of the [T]rust was solely
charitable.
Id. at 7.
[4] Thereafter, Doll moved to intervene. In her motion and accompanying
memorandum, Doll asserted that the Trust’s residuary clause failed as a matter
of law because it did not identify a beneficiary with reasonable certainty. She
further asserted that, without a reasonably certain residual beneficiary, the
Trust’s residue would pass to her at least in part through intestate succession.
After a hearing, the trial court concluded that the residuary clause of the Trust
was ambiguous; that extrinsic evidence, namely, various affidavits, established
that Waid’s intent in establishing the Trust was for the Trust to be a charitable
trust as defined by Indiana law; and that, as a charitable trust, the residuary
clause lawfully empowered the Trustee to distribute the residue to a charity or
charities to be identified by the Trustee in the Trustee’s sole discretion. The
court thus concluded that no property could pass to Doll, and it denied her
motion to intervene accordingly. This appeal ensued.
Discussion and Decision
[5] Doll appeals the trial court’s denial of her motion to intervene. The dispositive
issue in this appeal is whether the trial court erred when it interpreted the
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residuary clause of the Trust.3 We review such issues de novo. Gittings v. Deal,
109 N.E.3d 963, 970 (Ind. 2018). As our Supreme Court has explained:
Our primary purpose in construing a trust instrument is to
ascertain and give effect to the settlor’s intention. We look at the
trust as a whole and cannot take individual clauses out of
context. If the trust is capable of clear and unambiguous
construction, we must give effect to the trust’s clear meaning.
Finally, after interpreting the terms of the Trust, we must ensure
that its application does not violate the Trust Code.
Fulp v. Gilliland, 998 N.E.2d 204, 207 (Ind. 2013) (citations and quotation
marks omitted).
[6] The Indiana Code provides that:
(a) A trust in either real or personal property is enforceable only
if there is written evidence of the terms of the trust bearing the
signature of the settlor or the settlor’s authorized agent.
(b) Except as required in the applicable probate law for the
execution of wills, no formal language is required to create a
trust, but the terms of the trust must be sufficiently definite so
that the trust property, the identity of the trustee, the nature of
the trustee’s interest, the identity of the beneficiary, the nature of
3
The Indiana Attorney General has also filed a brief in this appeal. That brief states:
The trust in this case has both charitable and non-charitable beneficiaries[] and is thus a
split-interest trust, which is within the statutory definition of a trust for a benevolent
public purpose. Ind. Code § 30-4-1-2(2[4]).
The Attorney General’s role in this case concerns only the nature of the trust . . . . The
Attorney General does not take a position with respect to the validity of the residuary
clause of the Waid Trust.
Ind. Attorney General’s Br. at 4. We thank the Attorney General for his submission of a brief.
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the beneficiary’s interest and the purpose of the trust may be
ascertained with reasonable certainty.
***
(e) A trust has a beneficiary if the beneficiary can be presently
ascertained or ascertained in the future, subject to any applicable
rule against perpetuities.
(f) A power of a trustee to select a beneficiary from an indefinite
class is valid. . . .
Ind. Code § 30-4-2-1 (2019). Further:
“A trust beneficiary is the person named, or a member of the
class designated, in the terms of the trust for whose benefit the
title to the trust property is held and for whom the trust is to be
administered.” See Ind. Code §§ 30-2-14-2, 30-4-1-2(3); 28 ILE
Trusts § 15 (1999). The designation of beneficiaries as a class
may be sufficiently certain to uphold the trust. 28 ILE Trusts §
27 (1999). Moreover, that the trustee is given complete
discretion in the selection of beneficiaries from the class named will
not invalidate the trust. Hulet v. Crawfordsville Trust Co., 117 Ind.
App. 125, 69 N.E.2d 823, 825 (1946).
Hays v. Harmon, 809 N.E.2d 460, 468 (Ind. Ct. App. 2004) (emphasis added),
trans. denied.
[7] On appeal, Doll asserts that the residuary clause of the Trust, which is the only
provision left for the Trustee to apply, unambiguously fails to identify a
beneficiary with reasonable certainty. We agree. Again, the residuary clause
states as follows:
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The Trustee shall hold, distribute and pay the remaining
principal and undistributed income in perpetuity; subject,
however, to limitations imposed by law.
All the powers given by law and the provision[s] of the [T]rust
may be exercised in the sole discretion of the Trustee without
prior authority above or subsequent approval by any court.
Appellant’s App. Vol. II at 15. The residuary clause does not confer unfettered
authority on the Trustee to distribute the residue “in the sole discretion of the
Trustee.” Rather, the residuary clause is circumscribed by the “limitations
imposed by law.” And, here, the limitation imposed by our Trust Code is the
requirement that a settlor identify a beneficiary with reasonable certainty.
[8] A trustee is the legal title holder of trust property. I.C. § 30-4-2-6. The
beneficiaries are the equitable title holders. I.C. § 30-4-2-7. While the settlor
need not identify a beneficiary with exact precision, the settlor must give the
trustee the ability to determine an intended beneficiary. Specifically, Indiana
Code Section 30-4-2-1(b) directs the settlor to identify a beneficiary with
“reasonable certainty.” Indiana Code Section 30-4-2-1(e) states that a
beneficiary must be capable of being “ascertained.” And Indiana Code Section
30-4-2-1(f) states that a trustee can select a beneficiary “from an indefinite
class,” which itself requires that the settlor first limit the trustee’s discretion by
identifying an indefinite class.
[9] Nothing close to such an identification even broadly exists here. The residuary
clause instead simply directs the Trustee to do with the residue as he sees fit.
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There is no reasonably certain, ascertainable, or even an indefinite class of
beneficiary identified. There is no beneficiary at all. There is no equitable title
holder for whom the Trustee can hold legal title. 4
[10] Nonetheless, the Trustee asserts that we should disregard the unambiguous
language of the residuary clause on the ground that the Trust is a charitable
trust, which rationale the trial court found persuasive. But the Trustee is
incorrect. A “charitable trust” under our Trust Code is defined as “a trust in
which all the beneficiaries are the general public or organizations . . . operated
wholly for religious, charitable, scientific, public safety testing, literary, or
educational purposes.” I.C. § 30-4-1-2(5) (emphasis added). The term
expressly excludes trusts, such as Waid’s, that are “of split-interest” with “at
least one (1) noncharitable beneficiary.” Id. Accordingly, the Trust is not a
charitable trust.
[11] That said, the Trust is fairly labeled as a “[t]rust for a benevolent public
purpose,” which includes “a split-interest trust . . . that has both charitable and
noncharitable beneficiaries.” I.C. § 30-4-1-2(24). As a trust for a benevolent
purpose, the cy pres doctrine might apply to the residue. The cy pres doctrine is
an “equitable doctrine under which a court reforms a written instrument with a
gift to charity as closely to the donor’s intention as possible, so that the gift does
4
In his brief on appeal, the Trustee asserts that he is the “ascertainable residuary beneficiary” under the
Trust. Appellee’s Br. at 10. We reject that assertion. Had Waid intended to have the residue of the Trust
revert to the Trustee as his own property, the residuary clause would have more plainly stated as much.
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not fail.” Black’s Law Dictionary 470 (10th ed. 2014). According to Indiana
Code Section 30-4-3-27(a):
If property is given to a trust for a benevolent public purpose and
the property is to be applied to a particular charitable purpose,
and it is or becomes impossible, impracticable, wasteful, or illegal
to carry out the particular purpose, and if the settlor manifested a
more general intention to devote the property to charitable purposes, the
trust need not fail, but the court may direct the application of the
property to some charitable purpose which falls within the general
charitable intention of the settlor.
(Emphases added.)
[12] The cy pres doctrine does not apply to the residue of the Trust. Again, the
residuary clause here lacks any requirement that the residue “is to be applied to
a particular charitable purpose” and also lacks any manifestation that Waid had
“a more general intention” to devote the residue to charitable purposes. See id.
Accordingly, the residuary clause offers no basis from which the court “may
direct the application of the [residue] to some charitable purpose which falls
within the general charitable intention of the settlor.” See id. Moreover, the
benevolent public purposes for which the Trust exists have already been fulfilled
by the distributions to the specifically named charities in Article VII of the
Trust.
[13] Accordingly, while in an ordinary sense of the word the residuary clause may
appear “ambiguous”—that is, uncertain—on its face, in fact it unambiguously
fails to designate a beneficiary with reasonable certainty or a beneficiary
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capable of being ascertained and thus fails as a matter of law. See Pavy v. Peoples
Bank & Trust Co., 135 Ind. App. 647, 655, 195 N.E.2d 862, 866 (1964) (“Any
attempt to create an express trust . . . that omits these essential [statutory]
elements automatically fails.”). The trial court’s denial of Doll’s motion to
intervene based on the court’s interpretation of the residuary clause is reversed.
[14] We thus turn to the consequence of the failure of the residuary clause. Where,
as here, the express terms of a trust are fully performed but there remains a
residue and no valid residuary clause, a resulting trust is created by operation of
law over the residue. See Melloh v. Gladis, 261 Ind. 647, 655, 309 N.E.2d 433,
438 (1974) (recognizing that “a resulting trust” arises “where an express trust
fails in whole or in part” or “where an express trust is fully performed without
exhausting the trust estate,” among other circumstances). As our Supreme
Court has made clear: “If there is no provision in the terms of the trust . . . as to
who shall receive the trust property on the termination of the trust, the trustee
will ordinarily hold the trust property upon a resulting trust for the settlor or his
successors in interest.” Colbo v. Buyer, 235 Ind. 518, 530, 134 N.E.2d 45, 51
(1956) (quotation marks omitted). Likewise, as we stated in Pavy:
It is an elementary rule of law that[,] when a person attempts to
create an express trust and fails to for any reason, a resulting trust
arises in favor of [the settlor] and[,] if he be deceased, then in
favor of his estate, and the trust property . . . reverts to the settlor
or his estate, as the case may be.
195 N.E.2d at 867.
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[15] Accordingly, on remand the trial court is instructed to grant Doll’s motion to
intervene and to direct the Trustee to hold the residue of the Trust for Waid’s
estate. As Waid died intestate, the court is further instructed to direct the
Trustee to distribute the residue to Waid’s heirs at law pursuant to our intestate
succession statutes. See I.C. §§ 29-1-2-0.1 to -15. In sum, the trial court’s
judgment denying Doll’s motion to intervene based on the court’s interpretation
of the residuary clause is reversed, and we remand with instructions as stated in
this opinion.
[16] Reversed and remanded with instructions.
Bailey, J., and May, J., concur.
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