Michael Collins v. Lynn B. Collins
No. 2016-302
Supreme Court
March Term, 2017
2017 VT 70
Robert R. Bent, J.
On Aрpeal from Superior Court, Caledonia Unit, Family Division
NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: JUD.Reporter@vermont.gov or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.
William P. Neylon, St. Johnsbury, for Plaintiff-Appellee.
Deborah T. Bucknam of Bucknam &
¶ 1. ROBINSON, J. This case calls upon us to consider the effect in a divorce case of a grantor‘s amendment to a revocable trust that changed the beneficiary from husband to husband‘s son, thereby keeping the trust property out of the marital estate and shielding it from wife‘s claims. Wife appeals the family division‘s final property division award. In particular, she challenges the trial court‘s refusal to enforce a subpoena requiring grantor father to testify about the trust and his capacity to change its beneficiary and argues that the family court should have included the trust assets as part of the marital estate. We affirm.
¶ 2. The material facts are as follows. The parties marriеd in 1984 and have two children, both of whom are now adults. The parties earned comparable incomes during their marriage. Their primary asset is their marital home, which the parties stipulated is valued at $140,000. Each party has two retirement accounts, which are roughly equal in net value after considering loans, and wife has a vested inheritance from her mother‘s estate of around $4000. Lastly, wife owes $16,000 for a student loan executed on behalf of the parties’ son.
¶ 3. At issue in this appeal is the status of a revocable trust that husband‘s parents established in 1999. The parents placed their real estate properties in the trust, which included their house—located near the parties’ marital home—and a camp at a lake in Barnet.1 The parents named themselves as trustees and husband as the sole beneficiary; husband would become a successor trustee when either of his parents became unable to act as trustee. The trust document provided that the grantors could amend the trust at any time, and that upon the death of both grantors, the trust could not be amended or revoked and the trustee would distribute the trust assets to the beneficiary. The trust also contains a Cеrtificate of Deposit (CD) that was valued at around $38,000 at the time of the last hearing and a savings account. The parties used the trust‘s CD to secure a $38,000 loan for themselves.
¶ 4. Father moved in with the parties following the death of husband‘s mother in 2011; husband and wife jointly cared for him. The parties separated in early 2014, and husband filed for divorce in April of that year. About two years after the parties separated, husband moved into his parents’ house with father. Father‘s health declined over the course of the divorce proceedings. When the family court held a status conference in Januаry 2015, father was living in a rehabilitation center.
¶ 5. At that January 2015 status conference, the parties discussed the parents’ revocable trust and considered the relevance of this Court‘s decision in Billings v. Billings, 2011 VT 116, ¶ 23, 190 Vt. 487, 35 A.3d 1030, and the Legislature‘s subsequent amendment of
¶ 6. In July 2015, shortly before the first
¶ 7. The court quashed the subpoena for father‘s medical records on the basis of father‘s doctor-patient privilege. The court rejected wife‘s argument that husband‘s procurement of a letter concerning father‘s health from a doctor at the rehabilitation facility amounted to a waiver of father‘s doctor-patient privilege because the court concluded, after taking evidence, that father himself had not actually authorized this disclosure.
¶ 8. Regarding the subpoena wife served upon father, the court relied on
¶ 9. The court closed the evidence at the conclusion of the March 2016 hearing. Father died in April 2016 and wife moved to re-open the evidence in the divorce proceeding, arguing that his death meant that husband had acquired a significant amount of assets from the trust. The court granted wife‘s motion and held a hearing in June 2016.3 At the hearing, the parties primarily focused on the trust‘s CD and the student loan that was taken out in wife‘s name for the parties’ son. In documents wife submitted to the court after the hearing she argued that the court should include the trust assets as part of the marital estate because the son was a nominee beneficiary of the trust assets, meaning that father named him as the sole beneficiary only to shield the assets from wife, and in the alternative that husband had equitable ownership over the trust assets.
¶ 11. Regarding the trust, the court declined wife‘s request that it treat the trust assets аs part of the marital estate. It determined that the parties’ son was not a nominee. The court distinguished this case from our prior cases concerning nominees by noting that, because the assets were in a revocable trust, husband never had title to them. Furthermore, the court determined that there was no evidence of an agreement between husband and the son, by which the son would transfer the assets back to husband and which would support the conclusion that the son was a nominee. The court did not directly address the equitable ownership argument.
¶ 12. Although the court did not treat the trust assets as part of the marital estate, it did consider evidence of husband‘s lifestyle as impacted by the benefits he derived from the trust. The court found it significant that husband continued to live rent-free in his parents’ house, which belonged to the trust, and that he had no plans to leave in the near future. Considering this factor, and wife‘s extensive involvement in caring for husband‘s family members during their marriage, the court ordered that wife would have the exclusive right to live in the marital home for nine years, but that the house would be sold if she moved out or if husband moved out of his parents’ home for a period of at least fourtеen months. Both parties were ordered responsible for the loan secured by the CD; if the parties sold the home, they would pay off the loan and divide the remaining equity, and if husband paid the loan within the following year, wife‘s right to stay in the house would terminate and the parties would sell the home and divide the equity. The court did not order any spousal maintenance. Wife appealed.
¶ 13. Wife first argues that the family court erred in granting husband‘s motions to quash her subpoenas because this evidence would have showed that father lacked the testamentary capacity to amend his trust. Secоnd, she makes two arguments for why the trust assets should have been included in the marital estate. She argues that husband had full control over the trust assets before and after father‘s change in beneficiary and treated the property as if it were his own. Alternatively, she contends that the parties’ son was a nominee, and father named him as the beneficiary only to shield the assets from wife.
I. Motions to Quash
¶ 14. The family court did not err in granting husband‘s motions to quash. Wife argues that father‘s testimony was relevant to her argument that he did not have the testamentary capacity to amend his trust and that husband exerted pressure on him to do so, and therefore the amendment was invalid. She argues that
¶ 15. As an initial matter, we question whether the family division is a proper forum in which to challenge the validity of the trust amendment on the ground that father lacked the requisite testamentary capacity. The Legislature has given the probate division exclusive jurisdiction over matters involving the administration of trusts. See Vermont Comment,
¶ 16. Even if the family division did have jurisdiction to determine father‘s testamentary capacity, the superior court correctly interpreted the statute to bar wife‘s subpoena for father‘s testimony. We review questions of statutory interpretation without deference, and we enforce the language according to its plain meaning. Wright v. Bradley, 2006 VT 100, ¶ 6, 180 Vt. 383, 910 A.2d 893.
¶ 17. In this case, on the face of the trust, husband‘s interest in the trust assets had not vested before wife‘s subpoena. The trust documents allowed the grantors to amend the trust until both died, at which time the beneficiary‘s interest in the trust would vest and the trustee would distribute the assets. Father was still alive when wife served the subpoena, so any beneficiary‘s interest in the trust assets could be modified or divested. In fact, by the time of the subpoena, father had changed the
II. Husband‘s Interest in the Trust Assets
¶ 18. The family court did not err in excluding the trust assets from the marital estate. Wife makes multiple arguments to support her assertion that the family court should have treated the trust assets as if they belonged to husband. She contends that the parties’ son was a nominee because father named him as the beneficiary only to shield assets from the divorce. She also argues that fоr various reasons, husband‘s control over and use of the trust property means that the property should have been included in the marital estate. We conclude that wife‘s suggestion that father‘s change of trust beneficiary was improper or suspicious is unfounded, that wife‘s arguments that the trust assets should be included in the marital estate because the son was a nominee fail on the law and the facts, and that wife‘s other legal theories in support of her claim that the court should have included the trust in the marital estate, to the extent we understand them, are unpersuasive. The court properly considered whatever benefit husband was deriving from the trust in dividing the marital property, while declining to treat the trust itself as part of the marital estate.
¶ 19. We first emphasize that wife‘s general premise, that there was something fraudulent or legally improper in the change of trust beneficiary during the divorce proceedings as an attempt to keep the trust property out of the marital estate, is unfounded. By their nature, revocable trusts may be freely modified or revoked. See
¶ 20. Wife‘s argument that the parties’ son was a nominee is not supported by the law or the facts. On the law, she relies on cases that are inapposite. On the facts, wife relies on argument rather than record evidence, and has failed to provide the necessary transcripts tо facilitate our review.
¶ 21. The cases wife relies on are distinguishable in a critical way. Pursuant to statute and our jurisprudence, when a party to a divorce transfers property to a third person, a “nominee,” with the intent of reducing the other party‘s share of marital property, that property will be considered part of the marital estate. See
¶ 22. Nevitt and Clayton are inapposite to this case. Those cases involved the transfer of property owned by a party to the divorce. Here, husband did not own the trust assets when his father changed the trust beneficiary; he had only a future interest in the assets, contingent on remaining the beneficiary of the trust. See
¶ 23. More importаntly, wife‘s arguments are not supported by the record. In arguing that the son in this case was a nominee and husband was the true effective beneficiary of the trust estate wife offers no citations to the record, and points to no evidence, other than the “suspiciousness” of the timing of the change of beneficiary, to support the contention that the son has merely accepted the trust estate in a nominal capacity, holding it for father‘s benefit upon request. Wife has not identified any testimony showing that the son is merely a nominal holder of the trust assets, or collusion between thе son and father. Although she identifies factors from which the court may infer such collusion, including husband‘s apparent continued access to trust assets for his own use, she has not shown based on the record in this case that the family division abused its discretion in deciding that the son was not a nominee. See Nevitt, 155 Vt. at 400-01, 584 A.2d at 1139-40 (reviewing trial court‘s decision regarding nominee for abuse of discretion).
¶ 24. Not only are wife‘s arguments unsupported by citations to the record, but the record itself is not sufficiently complete to enable us to thoroughly evaluate them. Wife ordered transcripts of only the second day of the finаl divorce hearing—the day when she testified—and ordered transcripts of only one of the two hearings the court held after reopening the evidence upon father‘s death. We have no way of knowing what evidence the court heard during those two sessions. In fact, wife‘s brief references without citation the testimony
¶ 25. We are also not persuaded by wife‘s litany of arguments that the trust assets should be treated as though they belong to husband because he had full use and control of the trust before and after father changed the beneficiary, as well as after father‘s death. Wife emphasizes that while father was alive, husband co-mingled trust funds with his own, used the trust checking account as though it were his own account, and lived in his parents’ house as if it were his own. She additionally stresses that after father died, the trust property should have been distributed to the beneficiary, the parties’ son, but husband continued to control the property and live in his parents’ house. Wife‘s translation of these factual claims into a viable legal argument that the family division should have treated the trust as part of the marital estate is not entirely clear, and her arguments evolved over the course of this case. However, none of the arguments are meritorious.
¶ 26. We are not convinced by wife‘s contention that husband had “equitable ownership” over the trust assets and they should therefore be included in the maritаl estate. Wife raised this argument before the family division only tangentially, and the court did not address it in on the record or in its written order. Wife also did not brief this argument on appeal, but her counsel did raise it during oral argument.
¶ 27. Without more support for this argument, it is unclear exactly what wife is arguing. In the context of trust law, all beneficiaries have equitable ownership in the trust assets. Restatement (Third) of Trusts Intro. Note (2003) (“Inherent in the Anglo-American trust is a separation of interests in its subject matter, the beneficiaries having equitable property interests and the trustee having a property interest that is normally a legal interest.“); see also Equitable Ownership, Black‘s Law Dictionary (10th ed. 2014) (defining term “equitable ownership” as “[a] beneficiary‘s interest in trust property“). Insofar as the term “equitable ownership” is typically used in trust law, wife‘s argument is nothing more than a reassertion of her position, discussed above, that notwithstanding the beneficiary designation on the face of the trust, husband was the actual beneficiary.
¶ 28. If wife is instead requesting that the Court craft an equitable remedy on the basis that husband is unjustly enriched by his use of the trust assets, we are similarly unpersuaded. See, e.g., Weed v. Weed, 2008 VT 121, ¶ 17, 185 Vt. 83, 968 A.2d 310 (recognizing constructive trust as equitable remedy “to avoid unconscionable results and to prevent unjust enrichment“). The parties’ son‘s interest has vested, and he therefore has a legal ownership interest in the trust property, regardless of husband‘s continued use of it. It would not be equitable to divest the son of his interest in the trust in order to subject the property to the distribution of marital property. If the son wants to bring a claim against husband for breaching trustee duties by using trust property for his own benefit and failing to distribute trust property as required by the trust documents, he may do so. See
¶ 29. In another attempt to argue that the trust funds should be included in the marital estate, wife contends that the Court should pierce the trust “veil,” similar to the way a court may pierce the corporate veil, and include the trust assеts in the marital estate. Wife did not frame the argument this way before the family division, and the court therefore did not have a chance to rule on it. This Court need not address arguments not properly preserved below. See State v. Ben-Mont Corp., 163 Vt. 53, 61, 652 A.2d 1004, 1009 (1994). Nonetheless, we note that this appears to be a novel legal theory that is not supported by our law.
¶ 30. Even if we were to import this concept into the area of trust law, it is unclear how it would apply to this context. First, there is no indication of fraud or improper behavior. We have held that a court may pierce the corporate veil “whеre the corporate form has been used to perpetrate a fraud, and also where the needs of justice dictate.” Agway, Inc. v. Brooks, 173 Vt. 259, 262, 790 A.2d 438, 441 (2001) (citation omitted). The record does not reflect that fraudulent or otherwise improper behavior was involved in this case. As explained above, it was father‘s prerogative to change the trust‘s beneficiary at any time and for any purpose. And, if wife is arguing that husband‘s actions in using the trust funds as his own were fraudulent or unjust, then that claim would again more properly be raised as a breach of fiduciary duty in the probate division because it deals with the administrаtion of a trust.
¶ 31. Furthermore, it is unclear what “piercing the veil” would mean in this case. A court may pierce a corporate veil to hold a shareholder personally liable to corporate creditors when the shareholder intentionally used the corporation to shield personal assets from creditor claims. See Agway, Inc., 173 Vt. at 263, 790 A.2d at 442 (reasoning that piercing corporate veil proper when sole shareholder “purposefully undercapitalized [a corporation] with the intention of isolating his debt from business and personal assets“). Wife is analogizing the corporate form to a trust, arguing that the trust in this case was used to intentionally shield husband‘s property from the divorce. Her analogy, however, falls short for several reasons. For one, in contrast to the corporate scenario above, the trust assets here did not belong to husband. Secondly, we reiterate that after father died, the beneficiary‘s interest vested and the trustee was obligated to distribute the assets. The parties’ son now has a present legal interest in the trust property; husband, as trustee, has no interest in the property so “piercing the veil” would require depriving a third party—thе parties’ son—of assets to which he is entitled.
¶ 32. Although the family division was correct to exclude the trust assets
Affirmed.
FOR THE COURT:
Associate Justice