K&W Children's Trust v. Estate Of William Fay

FILED
FEBRUARY 8, 2022
In the Office of the Clerk of Court
WA State Court of Appeals Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
K&W CHILDREN’S TRUST, )
) No. 38055-6-III
Appellant, )
)
v. ) PUBLISHED OPINION
)
ESTATE OF WILLIAM FAY, and )
Krystal J FAY, )
)
Respondents. )
FEARING, J. — We rule that plaintiff K&W Children’s Trust never existed because
an agreement to create a trust in the future does not create a trust. We also hold that, in
an action wherein the court may award reasonable attorney fees against a “party,” a
“party” includes the moving personality behind an ersatz plaintiff. Therefore, we affirm
the superior court’s dismissal of this action and award of reasonable attorney fees to both
defendants against Kasi Fay, the settlor of the nonexistent trust.
FACTS
This appeal concerns (1) Kasi Fay, the first wife of decedent William Fay, (2) a
trust purportedly established for Kasi and William’s two minor children, and (3) Kristal
Fay, the wife of William at the time of his premature death and the personal
representative of his intestate estate. Kasi created the trust, named the K&W Children’s
No. 38055-6-III
K&W Children’s Trust v. Estate of William Fay
Trust (children’s trust), after William’s death because of an unfulfilled promise by
William to create the trust and place forty acres of land therein.
During their marriage, Kasi and William Fay parented two children. On July 6,
2012, Kasi and William executed a separation agreement attendant to a dissolution of
marriage action. The agreement awarded William forty acres located at the corner of
Wallbridge and Hattery-Owens Roads in Stevens County. The agreement further
expressed:
Wife and husband will set up a trust naming their minor children
beneficiaries of said trust, which will include the 40 acres at the corner of
Wallbridge and Hattery-Owen[s] awarded herein to husband and which
shall also include any future and subsequent real property that in which
respondent acquires ownership interest.
Clerk’s Papers (CP) at 22. Neither party explains why the agreement first awarded the
forty acres to William Fay instead of commanding the direct transfer of both spouse’s
interest in the land to a trust.
After consummation of the separation agreement, Kasi Fay transferred her interest
in the forty acres to William. The parties have not shown this court the deed between
Kasi and William. Kasi does not claim that she transferred the property to William in
trust for the two children. Neither William nor Kasi took steps to create the contemplated
trust. William divided the forty acres into four separate parcels. William married Kristal
Fay, and they parented a child.
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On March 31, 2018, William Fay died unexpectedly. He died intestate. Kristal
filed a probate action, and the superior court granted her letters of administration as
personal representative of the William’s estate. She listed the four parcels at Wallbridge
and Hattery-Owens Roads for sale.
In December 2018, the superior court appointed a guardian ad litem to represent
William and Kasi Fay’s two children because of their underage status. Kristal Fay
thereafter sold two of the four parcels in the forty acres.
On May 1, 2019, Kasi Fay as trustor executed the K&W Fay Children’s Trust.
The irrevocable trust named her two children as beneficiaries and John McIntyre as
trustee. According to the trust instrument, the trustor placed, in the trust, the forty acres
at Wallbridge and Hattery-Owens Road:
The original trust estate shall include certain property and gifts made
to the beneficiaries, including any rights to property or proceeds therefrom
intended for the beneficiarys [sic] subsequent to the separation of Kasi Fay
and William Fay. Trustors/Settlers [sic] may add other property or rights to
the property at their discretion.
CP at 131. Kasi had no ownership interest over the forty acres at that time.
PROCEDURE
On May 10, 2019, K&W Children’s Trust filed suit against Kristal Fay and the
estate of William Fay, under Washington’s Trust and Estates Dispute Resolution Act
(TEDRA), chapter 11.96A RCW. The children’s trust alleged fraud, conversion of
proceeds from fraudulent sale of trust property, conversion of proceeds from sale of
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William Fay’s separate property, tortious interference with expectancy of inheritance or
gift, and breach of legal and ethical fiduciary duties by the personal representative of the
estate. The complaint indicated that Kasi Fay had provided funding to the trust sufficient
to commence the civil action. John Pierce, attorney for the trust, placed, under his
signature on the declarations of service for the summons and complaint, the title
“Attorney for Kasi Fay, Party of Interest.” CP at 3, 18.
On May 23, 2019, Kristal Fay, both on her own behalf and as the personal
representative of the estate of William Fay, moved to dismiss the children’s trust’s
complaint under CR 12(b)(6). Under his signature on the declaration of service of the
children’s trust’s response to the motion to dismiss, John Pierce listed himself as
“Attorney for Kasi Fay, Party of Interest.” CP at 54.
On June 25, 2019, parties to the estate of William Fay probate engaged in
mediation. Kasi Fay and her counsel initially participated in the mediation, but departed
early and did not sign the resulting agreement. Other parties, including William and Kasi
Fay’s two children through their guardian ad litem, and Kristal Fay entered a TEDRA
agreement at mediation. The agreement read, in part:
Mutual Release. In consideration of the mutual undertakings set
forth in this Agreement, the Parties agree that they shall each mutually
release, acquit and forever discharge each other and each of their current or
former agents, employees, representatives, attorneys, successors, heirs,
executors, administrators, assigns, affiliates, and successors in interest from
any and all claims, demands, damages, costs, or causes of action that they
may have now, known or unknown against the other. The Agreement shall
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not release or discharge the Parties from their performance of the terms of
this Agreement or the Trust terms not amended herein.
CP at 66-67.
On February 5, 2020, Kasi Fay petitioned the superior court, under
RCW 11.96A.250, to appoint John Pierce as the special representative for her two
children in this pending TEDRA action. In the pleadings, Kasi referred to herself as the
petitioner. The superior court so ordered.
On February 11, 2020, the children’s trust filed a motion to confirm the validity of
the trust. John Pierce listed himself as “Attorney for Kasi Fay, Party of Interest.” CP at
128.
On the same day, Kristal Fay submitted a declaration and memorandum in support
of a motion for summary judgment. She only filed a motion to dismiss, however. The
memorandum in support of summary judgment argued:
The Estate has filed a Motion to Dismiss based upon CR 12b(6)
[sic]. Evidence other than the pleadings on file has been presented in
support of the motion to dismiss. This effectively converts the pending
motion into a motion for summary judgment.
CP at 98. The memorandum asked for dismissal of the children’s trust’s lawsuit and for
an award of reasonable attorney fees against Kasi Fay under a TEDRA statute,
RCW 11.96A.150.
Also on February 11, 2020, K&W Children’s Trust moved to revoke Kristal Fay’s
nonintervention powers over William Fay’s estate and for an order confirming the
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validity of the children’s trust. Under the signature lines on the motions’ declarations of
service, attorney John Pierce listed himself as “Attorney for Kasi Fay, Party of Interest.”
CP at 112, 128. The children’s trust subsequently filed a response to Kristal Fay’s
motion for summary judgment. The signature line on the declaration of service again
listed Pierce as “Attorney for Kasi Fay, Party of Interest.” CP at 149.
After hearing argument, the superior court granted summary judgment dismissing
the action. The superior court noted that Kasi Fay could have, but failed, to establish the
trust before William Fay’s death. The trust currently held no property. The summary
judgment order granted Kristal Fay and the estate of William Fay reasonable attorney
fees and costs in an amount to be determined in a future hearing. The court later awarded
fees and costs of $58,632.77 against Kasi Fay and the children’s trust jointly.
LAW AND ANALYSIS
On appeal, the K&W Children’s Trust asks this court to declare the trust to exist as
of the time of the separation agreement. In turn, the trust requests a remedy against
Kristal Fay and the estate of William Fay for the wrongful disposition of trust assets.
The children’s trust also requests that this court order the superior court to revoke
the nonintervention powers of Kristal Fay in the estate of William Fay. The children’s
trust asks this court to direct the superior court to comply with the ninety-day ruling rule
under RCW 2.08.240. Finally, the children’s trust seeks an award of fees and costs on
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appeal. Kasi Fay asks that we reverse the judgment against her for reasonable attorney
fees since she was not a party to this suit.
In addition to resisting the rulings sought by the children’s trust and Kasi Fay,
defendants Kristal Fay and the estate of William Fay argue that the statute of limitations
bars this suit. Kristal and the estate deny that the trust holds standing to bring this suit.
Kristal and the estate also contend William and Kasi Fay’s two children released any
claims in the TEDRA mediation agreement and, since the children are the only
beneficiaries of the trust, the release bars the claims asserted in this suit. Kristal and the
estate seek an award of reasonable attorney fees on appeal against Kristal Fay.
Existence of the K&W Children’s Trust
We first resolve an existential question about K&W Children’s Trust. If the
children’s trust does not exist, then the lawsuit may not proceed because its only plaintiff
does not exist. This resolution raises at least three questions. Does a pledge to create a
trust in the future result in the trust coming into being at the time of the pledge? Does the
promise to transfer an asset to the trust in the indefinite future transfer that asset to the
trust at the time of the promise? Must a trust hold property to exist?
The children’s trust contends that, whenever the trustor expresses an intent to
create a trust and holds capacity to create a trust, the trust rises into existence. According
to the children’s trust, no writing or form need be used to create the trust. The logical
extension of the trust’s argument would be that the Kasi and William Fay created the
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trust immediately on signing the dissolution settlement agreement. Nevertheless, the
children’s trust contends that the trust arose, after the dissolution settlement agreement,
when Kasi Fay transferred her interest in the forty acres to William Fay. According to
the children’s trust, William Fay by default became the trustee. The children’s trust also
argues that a trust does not fail for the lack of a trustee.
Chapter 11.98 RCW governs trust formation in Washington.
A trust may be created by:
(1) Transfer of property to another person as trustee during the
trustor’s lifetime or by will or other disposition taking effect upon the
trustor’s death;
(2) Declaration by the owner of property that the owner holds
identifiable property as trustee; or
(3) Exercise of a power of appointment in favor of a trustee.
RCW 11.98.008. Additionally:
(1) A trust is created only if:
(a) The trustor has capacity to create a trust;
(b) The trustor indicates an intention to create the trust;
(c) The trust has a definite beneficiary . . .
(d) The trustee has duties to perform; and
(e) The same person is not the sole trustee and sole beneficiary.
RCW 11.98.011.
K&W Children’s Trust did not meet the formation requirements of
RCW 11.98.008. William Fay did not transfer the forty acres to a trustee. By the time
Kasi signed the trust instrument in May 2019, she no longer possessed an interest in the
land. William never declared that he held the forty acres as trustee.
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American courts universally hold that a declaration or promise to create a trust in
the future does not create a trust. Courts employ various language to express this
principle. A statement of intent to transfer property in trust in the future does not create a
trust and is simply a nullity. Rouner v. Wise, 446 S.W.3d 242, 250 n.6 (Mo. 2014). Even
when the intent to create a trust is “‘clear and unmistakable,’” the trust is incomplete
until executed and effectuated by bringing property within the trust. Acuity, A Mutual
Insurance Co. v. Planters Bank, Inc., 362 F. Supp. 2d 885, 892 (W.D. Ky. 2005)
(applying Kentucky law). To merely identify a future trust asset or res does not create a
trust corpus. Acuity, A Mutual Insurance Co. v. Planters Bank, Inc., 362 F. Supp. 2d 885,
892 (W.D. Ky. 2005) (applying Kentucky law). The mere intention to create a trust in
the future is insufficient as a matter of law to create a trust. In re Alithochrome Corp., 53
B.R. 906, 910-11 (Bankr. S.D.N.Y. 1985) (applying New York law); Pizel v. Pizel, 7
Kan. App. 2d 388, 393, 643 P.2d 1094, 1098 (1982); Lewis v. Jackson & Squire, Inc., 86
F. Supp. 354, 359 (W.D. Ark. 1949) (applying Arkansas law); In re Williams’ Estate, 349
Pa. 568, 569, 37 A.2d 584, 584 (1944); McClendon v. Dean, 1941-NMSC-047, 45 N.M.
496, 117 P.2d 250, 255. When the settlor promises to create a trust at some time in the
future, the trust arises only at the time of the delivery of the asset into the trust. In re
Alithochrome Corp., 53 B.R. 906, 910-11 (Bankr. S.D.N.Y. 1985) (applying New York
law). In order for the trustor to create a valid trust, he must have a present intention to do
so at the time the trust is alleged to have been created. Carpenter v. United States, 4 Cl.
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Ct. 705, 714 (1984). The intention of the settlor to presently create a declaration of trust
is essential. Kavanaugh v. Estate of Dobrowski, 86 Ill. App. 3d 33, 39, 407 N.E.2d 856,
41 Ill. Dec. 358 (1980). The creation of a trust is a present disposition of property and
not an undertaking to make a disposition in the future. Baxter v. Jones, 14 N.C. App.
296, 307, 188 S.E.2d 622, 628 (1972). For the present creation of a trust, there must be a
present unequivocal declaration of trust. Riegel v. Central Hanover Bank & Trust Co.,
266 A.D. 586, 590, 42 N.Y.S.2d 657 (App. Div. 1943). The present establishment is a
necessary element to the creation of a trust just as it is with the consummation of a gift.
In re Estate of Alberts, 38 Cal. App. 2d 42, 46, 100 P.2d 538, 540 (1940).
We agree with Kasi Fay that William should have taken steps to create a trust that
named their two children as beneficiaries. In turn, William should have transferred the
forty acres into the trust. But Kasi also could have taken steps to create a trust and filed
suit before William’s death if he refused to cooperate in its creation. Also, Kasi or the
two children, as third party beneficiaries to the dissolution settlement agreement, may
have possessed a contract claim against William or his estate for breaching the marriage
dissolution agreement. McClendon v. Dean, 1941-NMSC-047, 45 N.M. 496, 117 P.2d
250, 255. Finally, the children’s trust has not asserted in its pleadings or briefing that
Kasi and William Fay’s conduct or separation agreement created a constructive or
resulting trust.
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An action brought under the name of a nonexistent entity is a nullity. Blackwood
v. Spartanburg Commandery No. 3, Knights Templar, 185 S.C. 56, 193 S.E. 195, 198
(1937), overruled in part on other grounds by Scovill v. Johnson, 190 S.C. 457, 3 S.E.2d
543 (1939); Kelley v. Eidam, 32 Wyo. 271, 231 P. 678, 681 (1924). Thus, any suit
brought by a nonexisting entity must be dismissed. Because of the dismissal of the
children’s trust’s suit, we do not address the many defenses of Kristal Fay and the estate
of William Fay. We also do not address Kasi Fay’s request for removal of
nonintervention powers and her complaint of a late trial court ruling.
Attorney Fees
The superior court granted Kristal Fay and the estate of William Fay reasonable
attorney fees against K&W Children’s Trust and Kasi Fay. The court based the award on
a TEDRA provision, RCW 11.96A.150, which declares:
(1) Either the superior court or any court on an appeal may, in its
discretion, order costs, including reasonable attorneys’ fees, to be awarded
to any party: (a) From any party to the proceedings; (b) from the assets of
the estate or trust involved in the proceedings; or (c) from any nonprobate
asset that is the subject of the proceedings.
The children’s trust and Kasi Fay challenge the superior court’s award to Kristal
Fay and the estate of William Fay. Since the trust does not exist, any purported judgment
against it is irrelevant. Thus, we only ask if the superior court correctly granted an award
of attorney fees against Kasi Fay.
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Kasi Fay requests reversal of the attorney fees award for two reason. First, neither
the estate of William Fay nor Kristal Fay filed a motion for an award of fees. Second,
RCW 11.96A.150 only allows an award against one who is a party to the action, and Kasi
was not a party.
Need for Motion
Kasi Fay relies on CR 7 when arguing that Kristal Fay and the estate needed to file
a motion in order to recover reasonable attorney fees. CR 7 governs motions before a
superior court and reads:
An application to the court for an order shall be by motion which,
unless made during a hearing or trial, shall be made in writing, shall state
with particularity the grounds therefor, and shall set forth the relief or order
sought. The requirement of writing is fulfilled if the motion is stated in a
written notice of the hearing of the motion.
CR 7(b)(1). The rule does not expressly require a party to file a motion for all relief
sought, let alone for an award of reasonable attorney fees. Kasi cites no law that
demands a motion be filed in order to receive an award of fees.
The purpose behind CR 7(b)(1) is to give the other party notice of any relief
sought. Pamelin Industries, Inc. v. Sheen-U.S.A., Inc., 95 Wn.2d 398, 402, 622 P.2d
1270 (1981). Kristal Fay and the estate gave Kasi adequate notice of a request for
reasonable attorney fees in their memorandum in support of a summary judgment motion.
This notice came weeks before the hearing on the dismissal motion. Thus, we hold that a
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party seeking fees need not file a formal motion separate from other pleadings in order to
benefit from an award.
In Hamilton v. Huggins, 70 Wn. App. 842, 855 P.2d 1216 (1993), the court denied
the prevailing party an award of reasonable attorney fees under the frivolous claims
statute, RCW 4.84.185, because the party failed to file a formal motion. Nevertheless,
RCW 4.84.185 reads that the “determination [of an award] shall be made upon motion by
the prevailing party.” This appeal’s controlling statute, RCW 11.96A.150, requires no
motion. Absent a statute, the party seeking fees need not file a formal motion.
Boomershine v. Lifetime Capital, Inc., 182 Ohio App. 3d 495, 2009-Ohio-2736, 913
N.E.2d 520, 522; In re the Marriage of Johnson v. Johnson, 199 Wis. 2d 367, 377, 545
N.W.2d 239, 243 (Ct. App. 1996); National Bank of Alaska v. J.B.L. & K. of Alaska, Inc.,
546 P.2d 579, 591 (Alaska 1976); Urban Development Co. v. Dekreon, 526 P.2d 325,
329 (Alaska 1974).
Party to the Proceedings
To repeat, RCW 11.96A.150(1) declares in part:
(1) Either the superior court or any court on an appeal may, in its
discretion, order costs, including reasonable attorneys’ fees, to be awarded
to any party: (a) From any party to the proceedings; (b) from the assets of
the estate or trust involved in the proceedings; or (c) from any nonprobate
asset that is the subject of the proceedings.
(Emphasis added.) Kasi Fay contends the award against her must be reversed because
she was not a party to the proceeding.
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We recognize the general rule that a court may not award attorney fees against a
non-party to the underlying action. Interest of Z.O.M., 613 S.W.3d 638, 642-43 (Tex. Ct.
App. 2020). But unique circumstances come before this court. The losing plaintiff does
not exist. Kasi Fay created the nonexistent plaintiff as purported settlor of the children’s
trust. The record shows Kasi Fay to be the force and funder behind this suit. The
nonexistent children’s trust’s attorney often signed declarations of service as “Attorney
for Kasi Fay, Party in Interest.” Most importantly, Kasi Fay filed a petition for John
Pierce to become special representatives of the children. She thus inserted herself as a
party in addition to being the moving force behind the fictional children’s trust.
When a person not a party of record has been the “moving party,” although she
lacks standing, she renders herself liable for the costs which she has caused to be
incurred. Schor v. Becker, 437 Pa. 409, 263 A.2d 324, 326 n.5 (1970). Parties in interest
who sue or defend in the names of others should be adjudged to pay costs. Waring v.
Barret, 2 Cow. 460 (N.Y. Sup. Ct. 1824).
We deem Zweibach v. Gordimer, 884 So.2d 244 (Fla. Dist. Ct. App. 2004)
illustrative. LZD, a dissolved corporation, filed suit against Richard Gordimer. The
court dismissed the suit because a dissolved corporation lacks standing to sue. The court
then granted reasonable attorney fees to Gordimer against Stephen Zweibach. The
appellate court affirmed the award despite Zweibach not being named as a party to
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action. The trial court found that Zweibach was “the moving personality” behind the
action taken by LZD. 884 So.2d at 247.
Attorney Fees on Appeal
Kristal Fay and the estate of William Fay seek attorney fees and costs on appeal
pursuant to RCW 11.96A.150. The statute permits an award on appeal. Because of our
ruling in favor of Kristal and the estate, we grant them reasonable attorney fees incurred
on appeal against Kasi Fay.
CONCLUSIONS
We affirm the superior court’s dismissal of the lawsuit brought by the nonexistent
trust, the K&W Children’s Trust. We also affirm the superior court’s grant of fees and
costs against Kasi Fay. We award the estate of William Fay and Kristal Fay reasonable
attorney fees on appeal also against Kasi Fay.
_________________________________
Fearing, J.
WE CONCUR:
______________________________
Siddoway, A.C.J.
______________________________
Staab, J.
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