BETTY G. WELDON REVOCABLE TRUST BY LARRY M. VIVION AND RICHARD F. MCGONEGAL AS CO-SUCCESSOR TRUSTEES, ET AL., DEFENDANTS V. BETTY G. WELDON, BY AND THROUGH HER NEXT FRIEND, ET AL., PLAINTIFF; FRANK WELDON, APPELLANT-RESPONDENT; SALLY PROCTOR, APPELLANT-RESPONDENT; LENORE WELDON, RESPONDENT-APPELLANT
WD66078, WD66079, WD66113, and WD66114
Missouri Court of Appeals Western District
05/29/2007
Robert G. Ulrich, Judge
Aрpeal From: Circuit Court of Cole County, Hon. Richard G. Callahan, Judge. Counsel for Appellant: Anjali Gandhi, Charles W. Hatfield, Khristine A. Heisinger, Michael W. Bartolacci, Stephen E. Cupples, and Gilbert C. Sison. Counsel for Respondent: Dale C. Doerhoff, Matthew A. Clement, Timothy W. Van Ronzelen, Larry Vivion, and Richard McGonegal.
This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.
Opinion
Missouri Court of Appeals Western District
Case Style: Betty G. Weldon Revocable Trust by Larry M. Vivion and Richard F. McGonegal as Co-Successor Trustees, et al., Defendants v. Betty G. Weldon, by and through her next friend, et al., Plaintiff; Frank Weldon, Appellant-Respondent; Sally Proctor, Appellant-Respondent; Lenore Weldon, Respondent-Appellant
Case Number: WD66078, WD66079, WD66113, and WD66114
Handdown Date: 05/29/2007
Appeal From: Circuit Court of Cole County, Hon. Richard G. Callahan, Judge
Counsel for Appellant: Anjali Gandhi, Charles W. Hatfield, Khristine A. Heisinger, Michael W. Bartolacci, Stephen E. Cupples, and Gilbert C. Sison
Counsel for Respondent: Dale C. Doerhoff, Matthew A. Clement, Timothy W. Van Ronzelen, Larry Vivion, and Richard McGonegal
Opinion Summary:
Frank Weldon and Sally Proctor appeal the trial court‘s judgment construing the Betty G. Weldon Revocable Trust and removing and replacing the successor trustees. Lenore Weldon cross-appeals challenging the trial court‘s removal of her as a successor trustee.
AFFIRMED IN PART; REVERSED IN PART AND REMANDED.
Division Two holds:
(1) Where a judgment construes a trust and adversely affects the interests of trust residuary beneficiaries in the corpus of the trust they are aggrieved parties and have standing to appeal the judgment.
(2) Standards imposed under trust law, as opposed to those imposed under corporate law, are applicable in a case involving a dispute between co-successor trustees of a trust about the disposition of certain trust assets requiring the court to engage in construction of the trust.
(3) Where a trust is being construed, all trustees and beneficiaries of the trust being construed are necessary parties.
(4) Where a trust owns 100% of the outstanding voting common stock of a corporation: the co-successor trustees of a trust exercised control of the corporation through use of their voting power to elect the board of directors and, thus, control its business decisions and assets; the co-successor trustees had a duty to promote the interests of the trust beneficiaries, specifically by electing a board of directors who will manage the corporation in the best interests of the beneficiaries; and the trial court‘s mandate that the new successor trustees take control of the corporation merely synopsized this duty and was not error.
(5) It was not error for a trial court to construe а trust as prohibiting the sale of a particular asset during the primary beneficiary‘s life where the language of the trust demonstrates an intent to retain the particular asset until the primary beneficiary‘s death and no evidence was presented demonstrating that the sale of the particular asset was necessary to carry out the primary purpose of the trust, to appropriately provide for the primary beneficiary.
(6) To the extent the trial court found relevant certain evidence concerning the trust grantor‘s intent, such findings were harmless because they did not contradict what the trust document showed.
(7) To the extent the trial court relied on extrinsic evidence in concluding that the trust showed an intent not showed in the trust document, the trial court erred because extrinsic evidence of intent is not permitted to enlarge the terms of an unambiguous trust.
(8) The trial court did not err in removing two co-successor trustees of a trust based on a serious breach of trust where the trustees paid a large salary to two people solely because they will one day be beneficiaries of the trust and at the same time the trustees maintained that certain trust assets must be sold in violation of the intent of the trust in order to maximize profit and minimize losses.
(9) Removal of a co-successor trustee was error where no evidence was presented of misconduct by the trustee relative to the trust or its assets or that called into question the trustee‘s capacity or fidelity to the trust or its assets.
(10) Where one co-successor trustee remained in office, it was not error for the court to appoint additional trustees where the court considered the appointment necessary to alleviate future problems in the administration of the trust, to facilitate an orderly
Citation:
Opinion Author: Robert G. Ulrich, Judge
Opinion Vote: AFFIRMED AND REVERSED IN PART; REMANDED. Hardwick, P.J. and Newton, J. concur.
Opinion:
Frank Weldon and Sally Proctor appeal the judgment of the trial court construing the Betty G. Weldon Revocable Trust and removing and replacing the successor trustees. Lenore Weldon cross-appeals challenging the trial court‘s removal of her as a successor trustee. The judgment of the trial court is affirmed in part and reversed in part, and the case is remanded for entry of judgment consistent with this opinion.1
Facts
Betty G. Weldon, as Grantor, established the Betty G. Weldon Revocable Trust (“Trust“) in September 1998. The Trust was amended in September 1999 and again in December 2000. The second amendment revoked the first amendment in its entirety so that the only two оperative documents at the time of trial were the original 1998 trust agreement and the second amendment.
The beneficiaries of the Trust are Mrs. Weldon and her three children, Frank G. Weldon (“Gifford“), Sally Proctor (“Sally), and Lenore T. Weldon (“Tony“)2. The Trust provides that while Mrs. Weldon is alive, she is entitled to receive all trust income and to withdraw principal. Should Mrs. Weldon become incapacitated, the co-successor trustees may apply net income and principal they deem appropriate for Mrs. Weldon‘s comfort, health, and general welfare. After Mrs. Weldon‘s death, the remaining Trust assets (after payment of debts, expenses, and taxes) shall be distributed
Mrs. Weldon initially served as trustee of the Trust. She became incapacitated in 2001. Consequently, as provided in the Trust, Larry M. Vivion, Richard F. McGonegal, and Tony became co-successor trustees of the Trust.
Weldon Holding Company (“WHC“) is an S-Corporation that owns 100 percent of various subsidiary corporations, News Tribune Company, California Democrat, Inc., and the Fulton Sun Gazette, Inc. Callaway Hills Stables, Inc. is a wholly owned subsidiary of the News Tribune. WHC has 100,000 outstanding shares of stock. The Trust owns all of the class A voting common stock—15,970 shares.3 The two trusts of Mrs. Weldon‘s pаrents, the R.C. Goshorn Trust and the Lenore R. Goshorn Trust, own 84,030 shares of the WHC class B non-voting common stock. Mrs. Weldon holds a life estate in net income derived from her parents’ trusts. After her death, her parents’ trusts terminate, and all of the assets are to be distributed equally to her living lineal descendants, i.e., Gifford, Sally, and Tony. Consequently, all income of WHC is solely attributed to Mrs. Weldon and reported by her on her individual tax return. The board of directors of both WHC and the News Tribune consists of Gifford, Sally, Tony, Larry Vivion, Richard McGonegal, Robert Blosser, and Roman Patten.
The underlying lawsuit arose out of a dispute concerning the nature and scope of the future operations of Callaway Hills Stables. Callaway Hills is an American Saddlebred horse breeding and training farm located near New Bloomfield, Callaway County, Missouri, and founded by Mrs. Weldon in the 1940s. Mrs. Weldon achieved great success with the stallion, Will Shriver, born in 1966. Will Shriver won the World Championship in 1976 and soon after retired from the show ring. He then became a successful breeding stallion at Callaway Hills Stables, siring numerous other champions. He died in 1991 but his sons, Blue Northern and Caramac, are still standing at stud on the farm, as well as some grandsons, and his lineage has made Callaway Hills Stables the most renowned American Saddlebred breeding farm in the United States, if not the world. Although making а profit of over $200,000 in 2004, Callaway Hills Stables sustained aggregate losses of over $26.5 million in the previous twenty-seven years despite its reputation.
Tony has lived at Callaway Hills farm for approximately twenty years, first in the farmhouse and later in a new house she built on land Mrs. Weldon transferred to her, which is surrounded by the farm. She has been around the farm all of her life and involved in all phases of its operation for the past twenty years. She is interested in maintaining the farm while her mother is still alive and after her death. Besides managing the farm, Tony is also the manager and publisher of the Fulton Sun Gazette newspaper.
On May 31, 2005, a majority of the board of directors of WHC decided to promptly close the breeding and training operations of Callaway Hills Stables and sell most of the horses at two dispersal sales in July 2005 and October 2005. The resolutions to close Callaway Hills Stables and sell the horses were proposed by Gifford due to his concern over the financial drain that he believed Callaway Hills Stables
Procedural History
Thereafter, Tony and Mrs. Weldon, by her next friend, filed suit against Mr. Vivion and Mr. McGonegal, individually and as co-successor trustees of the Trust, seeking a permanent injunction to enjoin the dispersal sale of the horses on July 13-15, 2005, and to enjoin the closing of operations and dissolution of Callaway Hills Stables. Mr. Vivion and Mr. McGonegal, as co-successor trustees of the Trust, and WHC subsequently filed their petition for declaratory judgment, naming Mrs. Weldon, Tony, Sally, and Gifford as parties, requesting the court to declare that they are charged with the obligation to preserve the Trust corpus and maximize the profitability of the Trust for the benefit of all of the beneficiaries and, consistent with that obligation, they may exercise their power to sell or dispose of any property or businesses owned by the Trust. The cases were consolidated.
Tony filed her answer to the petition for declaratory judgment and a counterclaim requesting the court to declare that Callaway Hills Stables not be sold or liquidated during Mrs. Weldon‘s life and that the three co-successor trustees are to manage the Trust in a manner that will fund the operations of Callaway Hills Stables for as long as Mrs. Weldon shall live as per Mrs. Weldon‘s and her parents’ intentions as evidenced by their respective trusts. She then filed a first amended petition, which essentially mirrored her counterclaim and which sued Mr. Vivion and Mr. McGonegal only in their capacities as co-successor trustees of the Trust.
Trial was held on Mr. Vivion and Mr. McGonegal‘s petition for declaratory judgment, Tony‘s counterclaim, and Tony‘s first amended petition. Following trial, the trial court entered its judgment concluding that Betty‘s intent under the Trust was that “‘Callaway Hills Stables’ would remain intact and in operation for as long as she lived” and that it “would be available for distribution to one or more of her children upon the final distribution and termination of the Trust.” Consequently, the trial court enjoined the proposed sale in October 2005 and enjoined Mr. Vivion, Mr. McGonegal, Gifford, and Sally from injecting themselves into the ongoing operations of Callaway Hills Stables to preserve the Trust assets until new co-successor trustees could effectively take charge. The court further removed Mr. Vivion, Mr. McGonegal, and Tony as co-successor trustees of the Trust. One reason cited for the removal of Mr. Vivion and Mr. McGonegal was their decision to pay Gifford and Sally each $150,000 per year to “mаtch” the salary being paid to Tony. Next, the court appointed Eddie Barnett, the Honorable Byron L. Kinder, and Linda McAnany to serve in the vacancies. It ordered,
If the Co-Successor Trustees, after being fully advised, determine that there is a reasonable risk of financial difficulties due to the increased obligations resulting from the new press and the new building, the Co-Successor Trustees are directed to present a plan to the Court of austerity measures for all the business operations of the Trust designed to alleviate any such risk of financial distress, which plan will take into account
Mrs. Weldon‘s intention that the training and breeding operations of ‘Callaway Hills Stables’ be preserved.
Finally, the court ordered the new co-successor trustees to take all actions necessary to bring all the assets of WHC and its subsidiaries within their effective control including the removal of any employee or director of WHC or its various subsidiaries.
Gifford, Sally, Tony, WHC, and Mr. Vivion and Mr. McGonegal, as co-successor trustees of the Trust, filed their respective notices of appeal. Mrs. Weldon, through her next friend, did not appeal. WHC‘s appeal and Mr. Vivion and Mr. McGonegal‘s appeal were dismissed. Thus, the only appeals remaining are those of Gifford, Sally, and Tony. Gifford and Sally are the designated appellants-respondents, and Tony is the designated respondent-appellant.
Points on Appeal
Together, Gifford and Sally raise nine points on appeal4. First, they contend that the trial court lacked subject matter jurisdiction because necessary and indispensable parties were not named in the action, namely the trustees of the other trusts that own WHC stock. They also contend that the trial court erred in holding that Mrs. Weldon‘s intent alone, as expressed in the Trust, controlled the resolution of disputes concerning the business operations of WHC and Callaway Hills Stables because (1) the trial court ignored the interests of other shareholders of WHC and (2) the co-successor trustees’ votes as members of the board of directors of WHC were protected by the business judgment rule. Additionally, they assert that the trial court exceeded its jurisdiction and authority in instructing the new successor trustees to take control of WHC.
Next, Gifford and Sally claim that the trial court erred in construing the Trust by (1) finding that the Trust prohibited the sale of Callaway Hills Stables rather than allowing the co-successor trustees to exercise their power and discretion to sell or dispose of trust assets and (2) relying on extrinsic evidence where the Trust was unambiguous.
In their next three points on appeal, Gifford and Sally contend that the trial court erred in removing and replacing the co-successor trustees of the Trust because (1) no party requested such action, (2) insufficient evidence to support their removal was presented, and (3) the court failed to follow statutory procedure for such action. Finally, they contend that the trial court erred in finding that the director‘s fees paid to them served no legitimate business purpose.
In her cross-appeal, Tony challenges only the trial court‘s removal of her as a co-successor trustee and its replacing Mr. Vivion and Mr. McGonegal instead of permitting her to serve as sole trustee.
I. Jurisdiction — section 512.020 aggrieved Parties
Initially, Tony asserts that this court does not have jurisdiction over Gifford and Sally‘s appeals because they are not aggrieved parties under
To assert an appeal from a trial court‘s judgment, the appellant must have been a party to a suit and aggrieved by the judgment.
Tony cites Columbia Union National Bank & Trust v. Bundschu, 641 S.W.2d 864 (Mo. App. W.D. 1982), in arguing that Gifford and Sally have no standing to appeal the trial court‘s judgment construing the Trust because they are, at best, only potential beneficiaries and not entitled to any present income from the Trust. In Bundschu, the trial court approved a settlement agreement between trust beneficiaries of a dispute concerning the construction of a trust created as a component of a will. Id. at 872. A nephew and heir of the decedent appealed the judgment, and the beneficiaries of the trust argued that he was not an aggrieved party and moved for the dismissal of his appeal. Id. This court found that where the heir did not contest the validity of the trust, was not a beneficiary of the trust, and could not receive any benefits from the trust under any interpretation of it, he was not aggrieved by the judgment approving the settlement agreement between the beneficiaries. Id. at 873-75. Tony relies on this court‘s explanation in Bundschu, “A residuary legatee, heir, or other person has no status to appeal the construction of a testamentary trust where the terms, even if adjudicated in favor of contention, сonfer no pecuniary benefit on the litigant.” Id. at 873.
The facts of Bundschu are, however, distinguishable from this case. The heir in Bundschu was not a beneficiary under the trust in that case. The appellants, Gifford and Sally, on the other hand, are beneficiaries under the Trust here. Generally, beneficiaries are necessary parties in suits involving trust property because they have a beneficial or equitable interest in the trust. Roth v. Lehmann, 741 S.W.2d 860, 862 (Mo. App. E.D. 1987). Where a petition presents issues of conduct of the trustees, their handling of the trust, or the removal of a trustee, the beneficiaries have an interest in those determinations and are, thus, necessary parties in the suit. Id. Where a judgment adversely affects the interests of the beneficiaries, they are aggrieved and have standing to appeal the judgment. Specifically, Missouri cases have held that beneficiaries of a trust are parties aggrieved by an award of attorney fees against the trust and a fee award to the guardian to be paid from the estate in final settlement. St. Louis Union Trust Co. v. Fitch, 190 S.W.2d 215, 217 (Mo. 1945); Houston, 683 S.W.2d at 282. If such issues involving trust property or trustee conduct not only affect the income-producing potential of the trust but the residuary corpus thereof, the residuary beneficiaries are also necessary parties to the litigation as well as the income beneficiaries. Roth, 741 S.W.2d at 862. It follows that where a judgment adversely affects the rеsiduary beneficiaries’ interests in the corpus of the trust, they too are aggrieved parties with standing to appeal.
The Missouri Uniform Trust Code,
a beneficiary who, on the date the beneficiary‘s qualification is determined:
(a) is a permissible distributee;
(b) would be a permissible distributee if the interests of the permissible distributees described in paragraph (a) of this subdivision terminated on that date; or
(c) would be a permissible distributee if the trust terminated on that date.
“Qualified beneficiary” is a new term added to Missouri trust law with the adoption of the MUTC. Qualified beneficiaries consist of the beneficiaries currently eligible to receive a distribution from the trust as well as what the Uniform Trust Code comment refers to as first-line remaindermen. 4C Francis M. Hanna, Missouri Practice, Trust Code and Law Manual
The MUTC creates certain rights in qualified beneficiaries and corresponding duties and potential liabilities for the trustee. Id. For instance, qualified beneficiaries must be kept “reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.”
The Trust in this case provides that, during her life, Mrs. Weldon is entitled to receive all trust income and to withdraw principal. Mrs. Weldon is a permissible distributee and, thus, a qualified beneficiary under the MUTC. After Mrs. Weldon‘s death, the remaining Trust assets shall be distributed to her three named children in equal shares. Although they are residuary beneficiaries, Gifford, Sally, and Tony are first-line remaindermen under the Trust and, thus, are also qualified beneficiaries under
II. TRUST LAW v. CORPORATE LAW
Four of Gifford‘s and Sally‘s points on appeal raise the issue of whether trust law or corporate law applies in this case. First, they contend that the trial court lacked subject matter jurisdiction to resolve the dispute in this case because necessary and indispensable parties were not named in the action. Specifically, they argue that the other shareholders of WHC, namely the trustees of the William H. Weldon Trust, the Robert C. Goshorn Trust, and the Lenore R. Goshorn Trust, whose collective ownership of WHC stock is 90.28%, were necessary and indispensable parties. They also contend that the trial court erred in holding that Mrs. Weldon‘s intent alone, as expressed in the Trust, controlled the resolution of disputes concerning the business operations of WHC and, specifically, Callaway Hills Stables, because (1) the court ignored the interests of the other shareholders of WHC and (2) the co-successor trustees’ votes as members as the WHC board of directors were protected by the business judgment rule. Finally, Gifford and Sally assert that the trial court exceeded its jurisdiction and authority in instructing the new co-successor trustees to take control of WHC. In its judgment, the trial court ordered that:
the new Co-Successor Trustees are empowered to take all actions necessary to bring all assets of Weldon Holding Company and its subsidiaries within their effective control, including the removal of any or all employees of the Weldon Holding Company or its various subsidiaries, and any or all children of Mrs. Weldon from the Board of Directors of Weldon Holding Company and its various subsidiaries.
They argue that such order ignores corporate formalities and viоlates Missouri corporate law.
Contrary to Gifford and Sally‘s contentions, however, the standards imposed under trust law are applicable in this case rather than standards under corporate law or the business judgment rule. This case involves a dispute among the co-successor trustees of the Trust about the disposition of certain Trust assets, namely Callaway Hills Stables. Mrs. Weldon, by her next friend, and Tony, one of the three co-successor trustees, sued Mr. Vivion and Mr. McGonegal, the other two co-successor trustees, seeking a permanent injunction to enjoin the dispersal sale of horses and the closing of operations and dissolution of Callaway Hills Stables. Mr. Vivion and Mr. McGonegal subsequently filed their petition for declaratory judgment against Mrs. Weldon, Tony, Sally, and Gifford requesting the court to declare that they may exercise their power to sell or dispose of any property or business owned by the Trust. Tony then counterclaimed asking the court to declare that Callaway Hills Stables not be sold during Mrs. Weldon‘s life and that the three co-successors are to manage the Trust in a manner that will fund the operations of Callaway Hills for as long as Mrs. Weldon lives as per her intentions under the Trust. All pleading in this case framed the issue involved as a dispute among the three co-successor trustees regarding the future of Callaway Hills Stables. Mr. Vivion and Mr. McGonegal
An action to construe a trust is, in essence, a declaratory judgment action. Commerce Bank, N.A. v. Blasdel, 141 S.W.3d 434, 456 (Mo. App. W.D. 2004).
As previously mentioned, in a casе construing a trust, all trustees and beneficiaries are necessary parties. Roth, 741 S.W.2d at 862. All of the trustees of the Trust, Mr. Vivion, Mr. McGonegal, and Tony, and all of the beneficiaries of the Trust, Mrs. Weldon, Gifford, Sally, and Tony, were necessary parties and participated in the underlying action. The trustees of the trusts of Mrs. Weldon‘s parents were not necessary and indispensable parties in this case.
Furthermore, Gifford and Sally‘s contention that the co-successor trustees’ votes as members of the board of directors were protected by the business judgment rule is without merit. “The business judgment rule protects the directors and officers of a corporation from liability for intra vires decisions within their authority made in good faith, uninfluenced by any other consideration than the honest belief that the action subserves the best interests of the corporation.” Nixon v. Lichtenstein, 959 S.W.2d 854, 858 (Mo. App. E.D. 1997) (quoting McKnight v. Midwest Eye Inst. of Kansas City, Inc., 799 S.W.2d 909, 913 (Mo. App. W.D. 1990)). Where a corporate director or officer‘s decision falls within the business judgment rule, the court will not interfere with that decision. Id.
Again, trust law is applicable in this case rather than the business judgment rule. Upon incorporation of trust assets, the corporation becomes the alter ego of the trustees and as such, the propriety of the trustee‘s acts must be determined in the light of the trust and must be controlled by the provisions of the trust. Hillyard v. Leonard, 391 S.W.2d 211, 223 (Mo. 1965); Nixon, 959 S.W.2d at 858. Consistent with this principle,
In voting shares of stock or in exercising powers of control over similar interests in other forms of enterprise, the trustee shall act in the best interests of the
beneficiaries. If the trust is the sole owner of a corporation or other form of enterprise, the trustee shall elect or appoint directors or other managers who will manage the corporation or enterprise in the best interests of the beneficiaries.
It is the duty of the trustee in voting shares of stock to use proper care to promote the interest of the beneficiary... Where the trustee holds as trustee such a large proportion of the shares of a corporation that he is in control or substantially in control of the corporation, his responsibility with respect to the voting of the shares is heаvier that it is where he holds only a small fraction of the shares.
Restatement (Second) of Trusts Section 193 cmt. a (1959).
A majority of the assets of the Trust in this case consist of class A common stock of WHC. WHC has 100,000 outstanding shares of stock. The Trust owns all of the class A voting common stock—15,970 shares.6 The two trusts of Mrs. Weldon‘s parents, the R.C. Goshorn Trust and the Lenore R. Goshorn Trust, own 84,030 shares of the WHC class B non-voting common stock. While the Trust did not own 100% of the outstanding common stock of WHC, it did own 100% of the outstanding voting common stock of the company. With such stock ownership, the co-successor trustees of the Trust exercised control of WHC through use of their voting power to elect the board of directors and, thus, control its business decisions and assets. Thus, the co-successor trustees had a duty under
III. CONSTRUCTION OF TRUST
Next, Gifford and Sally challenge the trial court‘s construction of the Trust. They contend that the trial court erred in construing the Trust as prohibiting the sale of Callaway Hills Stables rather than allowing the co-successor trustees to exercise their power and discretion to sell or dispose of trust assets. They also claim that the trial court erred in relying on extrinsic evidence where the Trust was unambiguous.
A judicial proceeding involving a trust may relate to any matter involving the trust‘s administration, including, but not limited to a proceeding to:
(1) request instructions or declare rights;
...
(3) interpret or construe the terms of the trust;
...
(6) direct a trustee to refrain from performing a particular act or grant to a trustee any necessary or desirable power;
(7) review the actions of a trustee, including the exercise or a discretionary power;
...
(9) appoint or remove a trustee;
...
(16) determine the propriety of investments or of principal and income allocations.
STANDARD OF REVIEW
The standard of review in a case seeking declaratory judgment is the same as in any other court-tried case. Blasdel, 141 S.W.3d at 442 (quoting Kerperien v. Lumberman‘s Mut. Cas. Co., 100 S.W.3d 778, 780 (Mo. banc 2003)). Thus, an appellate court will affirm the judgment of the trial court unless no substantial evidence supports it, it is against the weight of the evidence, or it erroneously declares or applies the law. Id. (quoting Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976)). An appellate court will conduct de novo review of questions of law, which includes determination of the meaning of a trust instrument, and give no deference to the trial court‘s judgment in such matters. Id. (quoting H&B Masonry Co. v. Davis, 32 S.W.3d 120, 124 (Mo. App. E.D. 2000)); In re Nelson, 926 S.W.2d 707, 709 (Mo. App. S.D. 1996).
Generally, the rules concerning the construction of wills apply to the construction of trusts. Id. at 443 n.9. The paramount rule of construction in determining the meaning of a trust provision is that the grantor‘s intent is controlling. Id. at 443 (quoting First Nat‘l Bank of Kansas City v. Hyde, 363 S.W.2d 647, 652 (Mo. 1962)); Feinberg v. Adolph K. Feinberg Hotel Trust, 922 S.W.2d 21, 25 (Mo. App. E.D. 1996). The court must endeavor to ascertain the grantor‘s intent at the time of the creation of the trust. Blasdel, 141 S.W.3d at 443. Furthermore, the grantor‘s intention must be ascertained primarily from the trust instrument as a whole, and no clause in the trust is given undue preference. Id.; Nelson, 926 S.W.2d at 709. A grantor is presumed to know and intend the legal effect of the
The unambiguous terms of a trust will be given effect, and extrinsic evidence as to the grantor‘s intent will not be permitted to qualify, explain, enlarge, or contrаdict the terms of the instrument. Blasdel, 141 S.W.3d at 444 (quoting Hyde, 363 S.W.2d at 653). And a court will not attempt to rewrite an unambiguous trust under the guise of construction. Id.
ANALYSIS
As discussed previously, Mr. Vivion and Mr. McGonegal‘s contention at trial was that they had an obligation to preserve the Trust corpus and to maximize the profitability of the Trust for the benefit of all the beneficiaries. On appeal, Gifford and Sally argue that the Trust instrument unambiguously grants the co-successor trustees the power and discretion to sell or dispose of trust assets. On the other hand, Tony maintained at trial, and on appeal, that under the Trust, the horse breeding business should remain in operation for as long as Mrs. Weldon lived.
Gifford and Sally rely on two provisions of the Trust in arguing that Mrs. Weldon intended to provide the broadest possible power and discretion to the co-successor trustees in the administration of the Trust, specifically to sell Callaway Hills Stables. Item 7C gives the trustee the power and discretion “[t]o sell, exchange, assign, transfer, lease (for terms extending beyond the termination of the trust or otherwise), pledge, mortgage, rent, option and otherwise deal with or dispose of any property.” Item 7K gives the trustee the power and discretion “[t]o participate in any way in the organization, continuation, operation, discontinuance or dissolution оf businesses in corporate or other form.” These provisions are conferred upon the co-successor trustees as discretionary powers. Tony relies on Paragraph 2 of Item 4C of the Second Amendment to Trust Agreement regarding distribution of the remaining estate after Mrs. Weldon‘s death in arguing that Mrs. Weldon intended that Callaway Hills Stables remain in operation for as long as she lived. That paragraph provides:
Distribution of the Residue of the Trust Estate. The remaining Trust estate shall be distributed to the Grantor‘s three children, in equal shares, per stirpes when it is practicable to do so, after winding up the affairs of the Grantor and the Trust. Prior to making any significant distributions, or terminating this Trust, the Successor Trustees must make adequate arrangements for the horses at Callaway Hills. Adequate arrangements include, but are not limited to, making provisions for all horses so that none are slaughtered. The Successor Trustees should consult with Bob Bryson and Kenda Benn in making such arrangements provided they are employed at Callaway Hills at the time. Once such arrangements have been made and the other affairs of the Grantor and this Trust have been concluded, then the Successor Trustees shall distribute the remainder of the trust estate, and this Trust shall then terminate. The decision of when the Grantor‘s affairs and the affairs of this Trust have been finally concluded, including the aforesaid arrangement for the horses at Callaway Hills, so that distribution may be made, shall vest in the sole and absolute discretion of the Successor Trustees.
Generally, where a grantor vests sole discretion of a matter in a trustee, a court will not interfere in the exercise of that discretion unless the trustee willfully abuses his discretion or acts arbitrarily,
Additionally, a trust may contain a general power of sale and except particular property from that power. Id. at 873. In other words, a trust asset may not be sold pursuant to a general power of sale contained in a trust when such sale would defeat an express purpose of the trust. Id. at 872-73.7 Such was the case in St. Louis Union Trust Co. v. Brug, 558 S.W.2d 375 (Mo. App. 1977). In Brug, a testamentary trustee sought court approval to sell three tracts of real estate described in the will. Id. at 376. Two tracts were producing no income, and the third tract was producing only minimal income; therefore, the trustee believed that sale of the real estate and investment of the procеeds in income producing property would be in the best interest of the trust. Id. The testatrix, however, had made specific provisions for distribution of the net income produced by the tracts and for the ultimate disposition of the property upon the death of specified beneficiaries. Id. at 377. The court ruled that inasmuch as the testatrix made specific provision for this property, she did not intend to grant the trustee the power to sell the property under the general powers of sale provisions of the trust even though such sale might be economically wise. Id. at 377-78.
The case sub judice is very similar to In re Heisserer, 797 S.W.2d 864 (Mo. App. S.D. 1990). In Heisserer, the grantor established a revocable inter vivos trust in 1983 nominating herself as the trustee and naming a bank and two individuals as co-successor trustees should she become incapacitated. Id. at 865. The grantor and her fifty-five-year-old disabled daughter were the primary beneficiaries of the trust. Id. at 870. Specifically, the trust directed the trustee to distribute so much of the income and principal of the trust as is desirable for the maintenance, support, general welfare, and health of the grantor and her daughter. Id. at 871. The grantor was declared incapacitated in 1987, and the bank and individuals named in the trust became the co-successor trustees. Id. at 866-67.
One of the assets of the trust in Heisserer was a 180-acre farm, which was the subject of the controvеrsy and which constituted one-fourth of the corpus of the trust. Id. at 867. The farm was leased to Harl Friedrich from 1973 to 1988, and he farmed it under a sharecropper agreement. Id. Mr. Friedrich was one of the co-successor trustees. Id. at 866. The evidence revealed that the farm operation was inherently risky because the farm was located in close proximity to the Mississippi River and was subject to flooding. Id. at 867. During periods of high water, the landlord and tenant were subjected to a total loss of their crop. Id. Mr. Friedrich nonetheless operated the farm quite successfully from 1983 to 1988, despite flooding in 1982, 1983, 1985, and 1986. Id. But because of the inherent risk involved in the farm‘s operation, the bank and other individual co-successor trustee decided to sell
1Id. at 868. Mr. Friedrich objected to the sale of the farm because the trust provided that after the deaths of the grantor and her daughter, Mr. Friedrich shall have the right, provided he is farming the farm, to purchase it at two-thirds of the fair market value. Id. at 866. The trial court found that the grantor‘s intent under the terms of the trust prohibited the sale of the farm and that Mr. Friedrich be allowed to continue to rent the farm either as a sharecropper or a cash tenant. Id. at 869, 873.
On appeal, the bank and other co-successor trustee argued that the overriding purpose of the trust was to provide for the needs of the grantor and her daughter, and they were authorized and empowered by the trust to do whatever was necessary to provide for their needs. Id. at 870. The Southern District found that the trust provision regarding providing for the grantor and her daughter limited the co-successor trustees’ discretion under the general power of sale provision to that of reasonable necessity. Id. at 871. Additionally, the court found that the grantor‘s intent to give Mr. Friedrich the right to purchase the farm after her and her daughter‘s deaths further limited the co-successor trustees’ discretion under the general power of sale provision unless sale of the farm were reasonably necessary to carry out the primary purpose of the trust. Id. at 872-73. Because the evidence demonstrated no necessity to sell the farm to produce income to provide for the grantor and her daughter, the court affirmed the trial court‘s judgment prohibiting the sale of the farm. Id. at 873.
In this case, Mrs. Weldon is the primary beneficiary under the Trust, which provides that while Mrs. Weldon is alive, she is entitled to receive all trust income and to withdraw principle. Like in Heisserer, upon Mrs. Weldon‘s incapacitation, the primary purpose of the Trust is to provide for her needs. Such purpose is evinced by Item 2D of the Trust. Item 2D provides, in pertinent part:
During any period in which the Grantor is under legal disability or is, in the judgment of the Co-Successor Trustees, incapacitated, the Co-Successor Trustees may use and apply such amounts of net income and principal as they consider appropriate:
- For the comfort, health and general welfare of the Grantor and children dependent upon the Grantor for support.
The co-successor trustees’ general power to sell trust assets is limited by this primary purpose of the trust and the standard outlined in it—to apply such amounts of income and principal as considered appropriate for Mrs. Weldon‘s comfort, health, and general welfare. The general power of sale is further limited by the excеption of particular property, namely Callaway Hills Stables, from that power in Paragraph 2 of Item 4C. The language in such provision concerning the making of adequate arrangements for the horses at Callaway Hills before making any significant distributions or terminating the Trust after her death demonstrates Mrs. Weldon‘s intent that Callaway Hills Stables would be in operation and an asset of the trust upon her death. A sale of Callaway Hills Stable during Mrs. Weldon‘s life might be authorized, however, if such sale were necessary to enable to the co-successor trustees to carry out the primary purpose of the Trust, to appropriately provide for Mrs. Weldon. See Id. No such necessity was demonstrated in this case.
23Undisputed evidence was offered that it costs approximately $300,000 per year to appropriately provide for Mrs. Weldon‘s comfort, health, and general welfare. The
The trial court further found that the Trust, specifically Paragraph 2 of Item 4C, also shows Mrs. Weldon‘s intent that Tony carry on the operation of Callaway Hills Stables after her death. While the language of such provision doеs demonstrate Mrs. Weldon‘s intent that the horse breeding operation remains intact during her life, it does not compel distribution of Callaway Hills Stables to a beneficiary upon final distribution of Trust assets. Obviously, if Callaway Hills Stables is in operation upon Mrs. Weldon‘s death, it might be available for distribution to a beneficiary; however, the Trust document does not specifically provide for such action.
In the judgment, the trial court makes several findings regarding extrinsic evidence and Mrs. Weldon‘s intent, which Gifford and Sally argue was error because the Trust was unambiguous. In its findings of fact in the judgment, the trial court found the following facts:
Mrs. Betty G. Weldon told Red Crabtree that she hoped Tony Weldon (Lenore T. Weldon) would carry on “Callaway Hills Stables” after she was gone. Red Crabtree testimony.
When Fred Sarver was interviewing with Mrs. Weldon for the job of farm manager at “Callaway Hills Stables,” and expressed his concerns to her about his future with the farm in case something happened to her, she told him she was sure that Tony Weldon would keep the farm going. Fred Sarver testimony.
The trial court also noted in a conclusion of law:
Considerable weight should be given to Betty G. Weldon‘s pattern of spending on the farm. Her willingness to use money from News Tribune profits to underwrite the operating losses at the farm is beyond dispute. The fact that she continued to do this after she established the Weldоn Trust and served as sole Trustee shows that her generous intentions toward the horses did not change because of any terms of the Trust Agreement.
IV. REMOVAL AND REPLACEMENT OF CO-SUCCESSOR TRUSTEES
4In their next three points on appeal, Gifford and Sally contend that the trial court erred in removing and replacing the co-successor trustees of the Trust because (1) no party requested such action, (2) insufficient evidence to support their removal was presented, and (3) the court failed to follow statutory procedure for filling a vacancy in a trusteeship. Finally, they contend that the trial court erred in finding that the director‘s fees paid to them served no legitimate business purpose. In her cross-appeal, Tony challenges only the trial court‘s removal of her as a co-successor trustee and its replacing Mr. Vivion and Mr. McGonegal instead of permitting her to serve as sole trustee.
The power of a court to remove a trustee should be used sparingly. Williams, 55 S.W.3d at 902 (quoting Guirl v. Guirl, 708 S.W.2d 239, 244 (Mo. App. E.D. 1986)). Before such power is exercised, misconduct showing want of capacity or of fidelity jeopardizing the trust must be еvident. Shelton v. McHaney, 119 S.W.2d 951, 954 (Mo. banc 1938) (quoting 1 Perry on Trusts Section 276 notes 93, 94 (7th ed.)); Williams, 55 S.W.3d at 902 (quoting Guirl, 708 S.W.2d at 244). A court will less readily remove a trustee named by the grantor, especially on a ground existing at the time of the appointment and known by the grantor. Shelton, 119 S.W.2d at 954 (quoting Restatement of Trusts Section 107(a), cmt. f (1935)). “The removal of a trustee calls for the exercise of sound judicial discretion, which should not be abused.” Id.
5
Subsection 2 of the statute provides the grounds for removal of a trustee:
The court may remove a trustee if:
- the trustee has committed a serious breach of trust;
- lack of cooperation among cotrustees substantially impairs the administration of the trust;
because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee serves the best interests of the beneficiaries; or - the trustee has substantially and materially reduced the level of services provided to that trust and has failed to reinstate a substantially equivalent level of services within ninety days after receipt of notice by the settlor, a cotrustee, or a qualified beneficiary or removal is requested by all of the qualified beneficiaries and in either such case the party seeking removal establishes to the court that:
- removal of the trustee best serves the interests of all of the beneficiaries;
- removal of the trustee is not inconsistent with a material purpose of the trust; and
- a suitable cotrustee or successor trustee is available and willing to serve.
In removing Mr. Vivion and Mr. McGonegal as co-successor trustees, the trial court cited three grounds—serious breach of trust,
A breach of trust is a violation by a trustee of a duty the trustee owes to a beneficiary.
In removing Mr. Vivion and Mr. McGonegal for serious breach of trust, the trial court found that their participation in the decision, after Mrs. Weldon became incapacitated, to pay Gifford and Sally each $150,000 per year to “match” the salary being paid to Tony served no legitimate trust or business purpose and, thus, constituted a serious breach of trust.
The evidence showed that prior to her incapacitation, Mrs. Weldon requested Tony to become the manager and publisher of the Fulton Sun Gazette newspaper. Tony accepted the position in early 1998 earning a salary of $150,000 per year. Gifford and Sally were members of the WHC board of directors; and, unlike Tony, they did not hold any other position in any of the companies owned by WHC. Gifford earned approximately $30,000, and Sally earned $60,000. After Mrs. Weldon‘s incapacitation, Mr. Vivion and Mr. McGonegal, who were then co-successor trustees of Mrs. Weldon‘s Trust and also members of the WHC board of directors, voted with a majority of the WHC board to pay Gifford and Sally each $150,000 per year to match the salary of Tony. At trial, both Mr. Vivion аnd Mr. McGonegal testified that they made such decision because Gifford and
Q: Did you think that was a sound business decision to pay two people $150,000 that weren‘t really doing a whole lot?
A: Given that those people were going to be among the beneficiaries later, I had no problem with it. I mean, to me it was kind of a question of why should they be kind of living in half poverty now and when later on they are all going to be multi-millionaires.
Q: I guess the trust document doesn‘t give her three children anything until she dies, does it?
A: That‘s correct.
Q: And so why are you making the business decision to essentially distribute cash to these folks before Mrs. Weldon dies?
....
A: Yeah. Call me—I don‘t know. Call me sentimental. I don‘t know. To me it‘s—
....
A: I know this decision wasn‘t a popular one. It is what it is.
Q: And here‘s why—I appreciate that answer. I do. Here‘s what I‘m getting at, though: You all say that we can‘t make it cashwise with Callaway Hills, so we have to shut it down. But you‘re willing to part with $300,000 a year to two folks who honestly don‘t do a whole lot. That‘s what I‘m trying to figure out. Do you have any other explanation other than what we‘ve already talked about? If you don‘t, I‘ll quit beating a dead horse.
A: I do not.
The key factor under
The trial court‘s focus only on the lack of meetings between the co-successor trustees as a basis for Tony‘s removal was erroneous. The evidence revealed that after Mrs. Weldon became incapacitated, Tony, Mr. Vivion, and Mr. McGonegal did converse regarding Mrs. Weldon‘s care and various other issues. Although the evidence disclosed that the three co-successor trustees did not meet formally about the Trust, no evidence was presented that formal meetings were required to properly administer the Trust. No showing was made that provisions of the Trust went unimplemented. Instead, the evidence demonstrated that the purpose of the Trust, to provide for Mrs. Weldon‘s care, continued to be met. Furthermore, removal of Tony simply because she is a beneficiary under the Trust would violate the intent of Mrs. Weldon, who named Tony as a co-successor trustee despite her status as a future beneficiary of the Trust. Because no evidence was presented of misconduct by Tony relative to the Trust or its assets or that called into question Tony‘s capacity or fidelity to the Trust or its assets, the trial court erred in removing Tony as a co-successor trustee.
Next, Gifford and Sаlly challenge the trial court‘s appointment of the new co-successor trustees. They contend that under
A vacancy in a trusteeship required to be filled must be filled in the following order of priority:
- by a person designated in or pursuant to the terms of the trust to act as successor trustee;
- by a person appointed by a majority in number of the qualified beneficiaries; or
by a person appointed by the court.
As held above, the trial court erred in removing Tony as a co-successor trustee because no legal justificatiоn existed to thwart Mrs. Weldon‘s intention that Tony act as a co-successor trustee upon her incapacitation. Because Tony, a cotrustee, remains in office, the vacancies in a trusteeship created by the removal of Mr. Vivion and Mr. McGonegal are not required to be filled.
Subsection 4, however, grants the trial court authority to appoint additional trustees even if a vacancy is not required to be filled. It provides that “the court, in exercising its inherent equity authority, may always appoint additional trustees if the appointment would promote better administration of the trust.” Hanna, supra, Section 456.7-704 UTC Comment. Specifically, it states, “Whether or not a vacancy in a trusteeship exists or is required to be filled, the court may appoint an additional trustee or special fiduciary whenever the court considers the appointment necessary for the administration of the trust.”
CONCLUSION
The trial court did not err in construing the Trust as prohibiting the sale of Callaway Hills Stables during Mrs. Weldon‘s life unless such sale were necessary to enable the co-successor trustees to appropriately provide for Mrs. Weldon. It did err, however, in construing the Trust as necessarily compelling distribution of Callaway Hills Stables to a beneficiary upon final distribution of Trust assets.
Additionally, the trial court properly removed Mr. Vivion and Mr. McGonegal as co-successor trustees of the Trust for serious breach of trust under
The judgment of the trial court is affirmed in part and reversed in part, and the case is remanded for entry of judgment consistent with this opinion.
Footnotes:
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Separate Opinion:
None
This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.