In Re Augusta C. Farmer Family Trust

10/11/2018
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
September 5, 2018 Session
IN RE AUGUSTA C. FARMER FAMILY TRUST
Appeal from the Chancery Court for Robertson County
No. CH 17-CV-516 Laurence M. McMillan, Jr., Chancellor
No. M2018-00121-COA-R3-CV
This appeal arises from an action to terminate a testamentary trust, the only assets of
which were non-income producing real estate. The trial court ruled that the trust
terminated by operation of law pursuant to the terms of the trust following the death of
the primary beneficiary, the father of the residuary beneficiaries, and it ordered the clerk
of the court to prepare a deed transferring the real estate to the seven beneficiaries. The
trustees appealed, contending they have the sole discretion to determine the manner of
distribution, which includes the option of selling the real estate to one of the trustees and
then distributing the net proceeds from the sale to the beneficiaries. We affirm the trial
court’s determination that the trust terminated by its own terms upon the death of the
primary beneficiary. Although we agree with the trustees’ argument that they had the
discretion to distribute the assets in kind or sell the assets and distribute the net proceeds
to the beneficiaries, the record reveals they failed to do so in a timely manner. Because
the trustees failed to “proceed expeditiously” to distribute the trust assets to the
beneficiaries, as Tenn. Code Ann. § 35-15-817(b) requires, we affirm the judgment of the
trial court.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
FRANK G. CLEMENT JR., P.J., M.S., delivered the opinion of the Court, in which ANDY D.
BENNETT and BRANDON O. GIBSON, JJ., joined.
James B. Johnson, Nashville, Tennessee, for the appellants, Mary F. Eden and John
Thomas Farmer.
B. Nathan Hunt and Hollie L. Smith, Springfield, Tennessee, for the appellees, Peggy Jo
Duffer, Michael S. Farmer, Rudolph Scott Farmer, Timothy Lee Farmer, and Barbara
Shelton.
OPINION
Augusta C. Farmer (“Mrs. Farmer”) died on August 29, 2009, leaving a will that
created a testamentary trust, the Augusta C. Farmer Family Trust (“the trust”). The will
provided that Mrs. Farmer’s interest in four parcels of real property would be transferred
to the trust.1 The primary beneficiary of the trust was her surviving spouse, John Rudolph
Farmer (“Mr. Farmer”), and the residuary beneficiaries were their seven children,
Barbara Ann Shelton, Rudolph Scott Farmer, Michael S. Farmer, Timothy Lee Farmer,
Peggy Jo Duffer, Mary F. Eden, and John Thomas Farmer. Two of the children, Mary F.
Eden and John Thomas Farmer, were named as trustees of the trust.
Acting pursuant to the will, an Executor’s Deed was recorded on July 29, 2010, in
Record Book 1379, Pages 489-496, Register’s Office for Robertson County, Tennessee,
whereby Mrs. Farmer’s interest was conveyed to Mary F. Eden and John Thomas Farmer
as trustees of the Augusta C. Farmer Family Trust.
The trust directed the trustees to “pay and distribute all of the net income” to Mr.
Farmer for as long as he shall live. Additionally, Article IX, paragraphs 6 and 6(i), titled
“Child’s Trust,” stated in pertinent part:
6. Following the subsequent death of my said husband, or following my
death if [he] shall not survive me, Trustee shall hold and administer one (1)
of such separate trusts for the use and benefit of each child of mine then
living. Trustee shall pay and distribute to such child, or expend on such
child’s behalf, so much of the net income attributable to such child’s
respective separate trust as Trustee, in the exercise of his discretion, may
deem advisable to provide for such child’s health, maintenance, education,
and support, until such separate trust shall terminate as hereinafter
provided. Any net income of such child’s respective separate trust not so
disbursed by Trustee shall be incorporated into the principal of such child’s
respective separate trust at least annually.
i. When any such child of mine shall have attained the age of
Twenty-five (25) years, such child may, by written notice to
Trustee at any time thereafter withdraw up to One-third (1/3)
of the principal of such child’s separate trust as of the
beginning of such period. When any such child of mine shall
have attained the age of Thirty (30) years, such child may, by
1
The estate assets to be conveyed to the trust were Mrs. Farmer’s 9/10 interest in four parcels of
real property; her husband owned the remaining 1/10 interest. The parcels consist of a 55.81 acre lot, a
13.81 acre lot, a 13.98 acre lot, and a five (5) acre lot.
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written notice to Trustee at any time thereafter withdraw up to
One-half (1/2) of the principal of such child’s separate trust as
of the beginning of such period. The remainder of the
principal of such separate trust shall be retained in trust until
such child shall have attained the age of Thirty-five (35)
years, at which time, such separate trust shall terminate and
Trustee shall then pay and distribute the entire remaining
principal of such child’s separate trust to such child.
Mr. Farmer died on October 29, 2015,2 and it is undisputed that all seven children
had attained the age of 35 prior to the death of Mr. Farmer. Over the next two years, the
trustees refused requests of the other five beneficiaries to make any distributions to the
beneficiaries. As a consequence, on October 23, 2017, beneficiaries, Barbara Ann
Shelton, Rudolph Scott Farmer, Michael S. Farmer, Timothy Lee Farmer, and Peggy Jo
Duffer (collectively “Petitioners”) commenced this action by filing a petition to remove
the trustees.3 In an amended petition, Petitioners contended that the trust had terminated
by its own terms on the death of Mr. Farmer and sought an order compelling the
distribution of the assets.
Petitioners argued the trust terminated by operation of law pursuant to Article IX,
paragraphs 6 and 6(i), which mandated distribution of all trust assets to the beneficiaries,
because all residuary beneficiaries had attained the age of 35 prior to Mr. Farmer’s death.
The trustees filed a response contending, in pertinent part, that they had broad discretion
to continue to administer the trust after the death of Mr. Farmer and that “Article IX,
paragraphs 4, 5 and 6 provides specific instruction, based upon certain conditions, of how
the Trust is to be managed and the assets distributed before the Trust can be terminated.
Because the [Petitioners] continue to act in bad faith, those conditions have not been
satisfied.” The trustees also contended the trust granted them discretionary powers to
determine how the trust assets should be distributed to all seven children following the
death of Mr. Farmer.
2
Following the death of Mr. Farmer, Mary F. Eden and John Thomas Farmer were appointed co-
executors of the Estate of John Rudolph Farmer. Due to certain actions of the co-executors, including an
alleged breach of a power of attorney they had over their father during his lifetime, the other five
beneficiaries of the estate filed a motion to have the co-executors removed. The motion was granted by
order entered on November 7, 2016, and Phyllis D. Morriss was appointed administrator ad litem.
3
This action was commenced with the filing of a “motion” under the docket number of the
probate estate of Augusta C. Farmer. Shortly thereafter, the trial court properly identified this civil action
as separate and distinct from the administration of Mrs. Farmer’s probate estate and, by order entered on
November 20, 2017, transferred and assigned this case a new case number, Case No. 74CH1-2017-CV-
516, and required that all future matters involving the Augusta C. Farmer Family Trust be filed under the
caption of In Re: Augusta C. Farmer Family Trust with the new case number.
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Following a hearing, the trial court ruled, in pertinent part:
8. Article IX (“Family Trust Disposition”) of the trust states that upon the
death of the decedent’s husband any of the trust assets may be sold to pay
any inheritance taxes resulting from inclusion of the property or trust in Mr.
Farmer’s estate and that the remaining balance of the trust assets were to be
distributed to each of the decedent’s children in equal shares upon each
child attaining the age of thirty-five (35). All of the decedent’s children
were over the age of thirty-five (35) at the time of John Rudolph Farmer’s
death and were therefore each entitled to their shares of the trust upon the
death of Mr. Farmer.
9. That the Trustees, Mary F. Eden and John Thomas Farmer, have failed,
since the death of John Rudolph Farmer on October 29, 2015, to transfer or
distribute the assets of the trust equally to Ms. Farmer’s seven (7) children
as set forth in Article IX above.
Based upon the foregoing and other findings and conclusions of law stated in its
final order, the trial court ruled that “the Augusta C. Farmer Family Trust terminated by
operation of law upon the death of John Rudolph Farmer pursuant to Article IX of said
trust” and ordered the Clerk of the Court to execute a deed pursuant to Rule 70,
Tennessee Rules of Civil Procedure, transferring the 9/10 interest in the real property
held by the trust to the beneficiaries. This appeal by the trustees followed.
ISSUE
The trustees contend the trial court erred by determining that the trust terminated
as a matter of law upon the death of Mr. Farmer. They also contend the court erred “when
it terminated the trust on the grounds that the [trustees] failed to transfer and distribute
the trust assets to the seven beneficiaries in accordance with Article IX, paragraph 6(i).”
In addition, one of the trustees, John Thomas Farmer, argues he has the right to buy the
56-acre tract “for its appraised value,” and the trial court’s ruling erroneously deprives
him of that right.
For their part, Petitioners contend this is a frivolous appeal and ask us to award
attorney’s fees pursuant to Tenn. Code Ann. § 27-1-122.
STANDARD OF REVIEW
The issues present questions of law, and we review a trial court’s conclusions of
law de novo with no presumption of correctness. Harvey ex rel. Gladden v. Cumberland
Tr. & Inv. Co., 532 S.W.3d 243, 252 (Tenn. 2017).
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ANALYSIS
“We interpret a trust instrument in the same manner as a contract, deed, or will.”
Breen v. Sharp, No. M2016-02415-COA-R3-CV, 2017 WL 5462189, at *4 (Tenn. Ct.
App. Nov. 14, 2017), appeal denied (Mar. 15, 2018) (citing In re Estate of Marks, 187
S.W.3d 21, 28 (Tenn. Ct. App. 2005)). The overriding purpose of trust interpretation is to
determine the intent of the grantor. Id. A court ascertains the grantor’s intention from
examining the particular words used and their context, as well as from the general scope
and purpose of the instrument. Daugherty v. Daugherty, 784 S.W.2d 650, 653 (Tenn.
1990).
“Unless the trust instrument is ambiguous or allegations of fraud, accident or
mistake have been made, parol evidence or evidence of surrounding facts and
circumstances that contradicts or varies the terms of a written instrument may not be
considered.” In re Estate of Marks, 187 S.W.3d at 28 (citing HMF Trust v. Bankers Trust
Co., 827 S.W.2d 296, 299 (Tenn. Ct. App. 1991); Brown v. Brown, 320 S.W.2d 721, 728
(Tenn. Ct. App. 1959)). Here, the relevant provisions at issue are unambiguous, and there
are no allegations of fraud, accident, or mistake.
I. TERMINATION AND DISTRIBUTION OF THE TRUST
The intent of Mrs. Farmer was clearly and unequivocally expressed in Article IX,
paragraphs 6 and 6(i) of the written trust instrument:
Following the subsequent death of my said husband . . . [t]he remainder of
the principal of such separate trust shall be retained in trust until such child
shall have attained the age of Thirty-five (35) years, at which time, such
separate trust shall terminate and Trustee shall then pay and distribute the
entire remaining principal of such child’s separate trust to such child.
Because all of the beneficiaries were 35 years of age or older when Mr. Farmer died in
October 2015, it became the affirmative duty of the trustees to wind down the affairs of
the trust, pay taxes, and distribute the remaining assets pursuant to the trust.
Article VIII, paragraph 1 of the trust granted the trustees the discretionary powers
listed in Tenn. Code Ann. § 35-50-110(5)-(33), which enabled the trustees to distribute
capital assets within the trust “in kind or in cash, or partially in kind and partially in cash,
as the fiduciary finds to be most practicable and for the best interests of the distributees . .
.” unless the terms of the trust provided otherwise. Tenn. Code Ann. § 35-50-110(31).
Because paragraphs 6 and 6(i) of the trust did not specify the manner of distribution upon
termination, the trustees could, in their discretion and in accordance with Tenn. Code
Ann. § 35-50-110(31), sell the real estate and distribute the net proceeds in equal shares
to the beneficiaries. However, after accomplishing little over more than two years
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following the death of Mr. Farmer, the trustees attempted to justify their acts and
omissions by arguing that the trust had not yet terminated and “conditions” requiring the
distribution of the trust assets have not been satisfied “[b]ecause the [Petitioners]
continue to act in bad faith.” Based on our review of the record, we find no acts of bad
faith attributable to Petitioners. More significantly, we find no legal relevance under the
provisions of the trust or law concerning whether one or more of the beneficiaries had or
had not acted in bad faith following the termination of the trust pursuant to its own
provisions.
Although the trust instrument did not specify a time within which the trustees were
to wind up the affairs of the trust following the death of Mr. Farmer, the Tennessee
Uniform Trust Code provides default provisions. Harvey, 532 S.W.3d at 257. While most
provisions in the Trust Code serve as defaults, some provisions are mandatory. Tenn.
Code Ann. § 35-15-105(a). Pertinent here are two statutory provisions. Tennessee Code
Annotated § 35-15-105(b)(2) requires the trustee to “act in accordance with the terms and
purposes of the trust and the interests of the beneficiaries.” The Trust Code also provides
that, unless the trust states otherwise, “[u]pon the occurrence of an event terminating or
partially terminating a trust, the trustee shall proceed expeditiously to distribute the trust
property to the persons entitled to it….” Tenn. Code Ann. § 35-15-817(b) (emphasis
added).
Therefore, the trustees were under a mandatory obligation to, inter alia, “distribute
the remaining principal of such child’s separate trust to such child,” when the terminating
event or events occurred. See Tenn. Code Ann. § 35-15-105(b)(2). Because the trust did
not provide otherwise, the trustees were to perform this task “expeditiously.” See Tenn.
Code Ann. § 35-15-817(b). Here, the trustees failed to act expeditiously. To make
matters worse, they endeavored to act in a self-serving manner by attempting to sell the
56-acre tract to John Thomas Farmer based on a provision in their father’s will, which
has no relevance to the trust. Although the trust did not prohibit John Thomas Farmer, or
any beneficiary, from buying assets of the trust, the trust did not afford him the express or
implied right to buy a trust asset for its appraised value. Thus, John Thomas Farmer’s
self-serving attempts to buy the 56-acre tract provide no justification for a two-year delay
in distributing the trust assets to the beneficiaries.
As for the trustees’ objection to the clerk executing a deed to convey the assets to
the beneficiaries, even when a trust gives the trustee broad discretion in making
distributions, a court may intervene with a trustee’s “distribution discretion” when a
trustee “fails to act if under a duty to do so.” Tenn. Code Ann. § 35-15-814(b)(2).
Because the trustees failed to take the appropriate actions for two years following the
termination of the trust, the trial court was justified in ordering the Clerk of the Court to
prepare a deed to transfer the real estate to the seven beneficiaries.
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II. FRIVOLOUS APPEAL
Contending that the filing of this appeal was merely an attempt “to prolong this
matter and cause the Appellees to expend further time and resources to defend the same,”
Petitioners seek to recover the expenses and attorney’s fees incurred in this appeal
pursuant to Tenn. Code Ann. § 27-1-122.
“A frivolous appeal is one that is ‘devoid of merit,’ or one in which there is little
prospect that it can ever succeed.” Barnett v. Tennessee Orthopaedic All., 391 S.W.3d 74,
84 (Tenn. Ct. App. 2012) (citing Indus. Dev. Bd. of Tullahoma v. Hancock, 901 S.W.2d
382, 385 (Tenn. Ct. App. 1995) (quoting Combustion Eng’g, Inc. v. Kennedy, 562
S.W.2d 202 (Tenn.1978)) (other internal citations omitted). The remedy for one
aggrieved by a frivolous appeal is set forth in Tenn. Code Ann. § 27-1-122, which
provides:
When it appears to any reviewing court that the appeal from any court of
record was frivolous or taken solely for delay, the court may, either upon
motion of a party or of its own motion, award just damages against the
appellant, which may include but need not be limited to, costs, interest on
judgment and expenses incurred by the appellee as a result of the appeal.
As this court previously stated,
[t]he mere fact a party is successful in an appeal does not entitle that party
to recover damages under Tennessee Code Annotated § 27-1-122; however,
a successful litigant should not have to bear the expense of a “groundless”
appeal. To discourage such appeals and to avoid burdening this Court with
meritless appeals, the Tennessee General Assembly enacted the so-called
frivolous appeals statute, Tennessee Code Annotated § 27-1-122.
Barnette, 391 S.W.3d at 84 (internal citations omitted). Nevertheless, we recognize that
the statute is to be strictly interpreted so as not to discourage legitimate appeals. Id.
In this appeal, the trustees argued that certain provisions in the trust gave them the
sole discretion to determine the manner of distribution when the trust terminated. While
the trustees did not prevail, we have determined that their argument was not completely
without merit. Therefore, we decline to award attorney’s fees for a frivolous appeal.
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IN CONCLUSION
The judgment of the trial court is affirmed, and this matter is remanded with costs
of appeal assessed against Mary F. Eden and John Thomas Farmer.
________________________________
FRANK G. CLEMENT JR., P.J., M.S.
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