Case Title: Ladysmith Rescue Squad v. Newlin

Citation: 

Docket Number: 091388

State: virginia

Court: Virginia Supreme Court

Date: 2010-06-10T00:00:00Z

Document:
Present:  Hassell, C.J., Koontz, Kinser, Lemons, Goodwyn, and 
Millette, JJ., and Russell, S.J. 
 
LADYSMITH RESCUE SQUAD, INC. 
 
 
 
            OPINION BY 
v.  Record No. 091388  
  SENIOR JUSTICE CHARLES S. RUSSELL 
                                      June 10, 2010 
DONALD H. NEWLIN, AS EXECUTOR 
AND TRUSTEE UNDER THE WILL OF 
MILLER HART COSBY, ET AL. 
 
FROM THE CIRCUIT COURT OF CAROLINE COUNTY 
Harry T. Taliaferro III, Judge 
 
 
This appeal questions the propriety of the circuit 
court’s division and partial commutation of a testamentary 
charitable remainder unitrust over the objection of a 
charitable beneficiary.  The material facts are undisputed and 
the appeal presents a pure question of law. 
Facts and Proceedings 
 
Miller Hart Cosby (the testator) died a resident of 
Caroline County on March 17, 2004, unmarried and with no 
descendants.  His will dated March 2, 1998, together with a 
codicil dated September 25, 2002, were admitted to probate.  
The third article of the will gave all of the testator’s 
stocks, bonds and other securities to trustees, to hold in a 
charitable remainder unitrust as recognized by certain 
provisions of the Internal Revenue Code.1  The terms of the 
                     
1 A charitable remainder unitrust "is a trust in which no 
more than a specified percentage of the fair market value of 
the trust's assets (as determined each year), for a specified 
period, can go to the noncharitable beneficiaries; the rest 
trust required the trustees to invest and manage those assets 
for the benefit of four named individuals (the income 
beneficiaries) who were to receive the net income earned by 
the trust, or 6% of the value of the trust assets, whichever 
is less.  The income was to be distributed annually, divided 
equally among them and payable in quarterly installments.  At 
the death of the last surviving income beneficiary, the 
trustees were to distribute the residue of the trust assets to 
two named charitable beneficiaries: The Upper Caroline 
Volunteer Fire Department (Upper Caroline) and the Ladysmith 
Volunteer Rescue Squad (Ladysmith), in equal shares for their 
general purposes, provided those entities were charitable 
organizations within the contemplation of the Internal Revenue 
Code at the time of distribution.2 
 
The fifth article of the will contained a typical 
spendthrift clause, insulating the beneficiaries’ interests 
from the claims of their creditors and denying the 
beneficiaries any right to encumber or otherwise control their 
shares until actually paid to them by the trustees. 
                                                                
belongs to a charity or charities designated in the trust."  
Estate of Tamulis v. Commissioner, 509 F.3d 343, 344 (7th Cir. 
2007) (citing 26 U.S.C. § 664(d)(2) (2006 & Supp. II 2008)). 
2 The trustees were authorized to designate alternative 
charitable beneficiaries in their discretion if the named 
charitable beneficiaries should then fail to qualify as 
charities. 
 
2
 
The will appointed Donald H. Newlin and William J. Howell 
(the trustees) as executors and trustees.  After they 
qualified, the trustees instituted this proceeding in the 
circuit court as a complaint for advice and guidance, asking 
the court to determine the assets of the estate that were the 
residue subject to payment of debts, taxes and costs of 
administration.  The trustees pointed out that the will had 
designated its fourth article as the residuary clause but that 
the assets passing under that fourth article would be 
insufficient to pay the estate expenses.  They asked the court 
to ascertain what other bequests should abate in order to pay 
those expenses. 
 
Several years of litigation ensued on the issues raised 
by the trustees’ complaint.  In April 2009, only two of the 
income beneficiaries, Gloria G. Essaye and William Welford 
Orrock, remained alive and the value of the trust corpus was 
between five and six million dollars.  At that point, the 
trustees, the two surviving income beneficiaries and Upper 
Caroline (the moving parties) moved the court to authorize the 
trustees to divide the trust into two equal trusts, to be 
called the “Upper Caroline Trust” and the “Ladysmith Trust.”  
Ladysmith objected to the division of the trust.  The moving 
parties also moved the court to authorize the trustees to 
commute and terminate the Upper Caroline Trust by paying the 
 
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income beneficiaries in cash the commuted value of their 
interests in that trust based upon their life expectancies and 
distributing the remainder of that trust to Upper Caroline 
without awaiting the death of the last surviving income 
beneficiary.  The motions asked that the proposed Ladysmith 
Trust continue in effect, to be administered in accordance 
with the testator’s will.3  Because all other issues in the 
suit were resolved by settlement among the parties, this 
appeal concerns only those two motions. 
 
The court heard arguments of counsel and reviewed their 
memoranda of law.  In support of the motions, counsel for the 
trustees argued:  “Now, the only unanticipated circumstance[,] 
I submit, is that the beneficiaries . . . have said: ‘We would 
rather have our money today than wait.’ . . . . I believe the 
Court has the authority to do that; particularly, where the 
beneficiaries have said:  ‘This is our property and we want it 
today so we can eliminate investment risk; we can eliminate 
mortality risk, and we can handle our own funds.’ ”  (Internal 
quotation marks added.) 
                     
3 These motions were made as a part of a settlement 
agreement, in which all parties joined.  The agreement 
resolved the issues raised by the trustees’ complaint and 
recited that because Ladysmith objected to the motions to 
divide and commute the trust, those questions would be 
submitted to the court for its approval. 
 
4
 
Ladysmith’s counsel argued that the motions, if granted, 
would “take Dr. Cosby’s will and tear it up” by violating the 
testator’s explicitly stated intent to place the trust assets 
in the hands of his trustees to be managed by them, with 
specified benefits to certain named beneficiaries for their 
lifetimes, and upon the death of the last survivor of them, to 
pass to two charities.  The court granted the motions to 
divide the trust and to commute and terminate one of the 
progeny of the division.  We awarded Ladysmith an appeal. 
Analysis 
 
No evidence was taken in support of the disputed motions 
in the circuit court and the court made no express findings of 
fact.  This appeal, therefore, presents pure questions of law, 
which we review de novo on appeal.  Antisdel v. Ashby, 279 Va. 
42, 47, 688 S.E.2d 163, 166 (2010). 
 
In support of their motion to divide the testamentary 
trust, the moving parties relied on Code § 55-544.17, which 
provides:  
Combination and division of trusts. – After notice 
to the qualified beneficiaries, a trustee may 
combine two or more trusts into a single trust or 
divide a trust into two or more separate trusts, if 
the result does not materially impair rights of any 
beneficiary or adversely affect achievement of the 
purposes of the trust. 
 
 
5
 
In support of their motion to commute and terminate the 
Upper Caroline trust, the moving parties relied on Code § 55-
544.12(A), which provides: 
A.  The court may modify the administrative or 
dispositive terms of a trust or terminate the trust 
if, because of circumstances not anticipated by the 
settlor, modification or termination will further 
the purposes of the trust.  To the extent 
practicable, the modification shall be made in 
accordance with the settlor's probable intention. 
 
 
With respect to division of the trust, the sole question 
before us is, therefore, whether division of the trust 
established by the testator’s will would “materially impair 
rights of any beneficiary or adversely affect achievement of 
the purposes of the trust” within the intendment of Code § 55-
544.17.  If the answer to that question is in the affirmative, 
the trustees lacked authority to make such a division and the 
circuit court erred in approving such a division. 
 
The testator expressly provided in his will that the 
trustees had authority to amend the trust “for the sole 
purpose of ensuring that this trust qualifies and continues to 
qualify as a charitable remainder unitrust.”  (Emphasis 
added.) No contention is made by any party that the trust 
failed, or would have failed if undivided, to so qualify.  
Therefore, authority to divide the trust can be found, if at 
all, only within the language of Code § 55-544.17, not from 
any expressed intention of the testator. 
 
6
 
Our analysis does not end with the decision of that 
question alone, however, because the two motions were 
inextricably intertwined parts of a common design.  If either 
were denied, the other would be futile.  The common design was 
simply to enable Upper Caroline and the income beneficiaries 
to “have [their] money today [rather] than wait.”  Ladysmith 
consistently objected to this common design on the ground that 
it would violate the testator’s intent.  Division of the trust 
would be necessary to isolate Ladysmith, depriving it of 
standing to object to the motion to commute and terminate the 
Upper Caroline trust, because Ladysmith would have no 
pecuniary interest in that trust.  Thus, after a division was 
made, all parties to the Upper Caroline trust would be in a 
position to present a draft of an agreed order to the court 
for its commutation and termination. 
 
The trustees argue that the adoption of the Uniform Trust 
Code (UTC) in 2005,4 of which both Code sections quoted above 
were a part, effected a “dramatic change” in the trust law of 
Virginia.  We agree that the UTC materially changed the law, 
but not as dramatically as the moving parties contend.  The 
framers of the UTC were careful to preserve the guiding 
principles that have historically been the foundations of 
                     
4 2005 Acts ch. 935. 
 
 
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trust law.  The following provisions of the UTC, as adopted in 
Virginia, are illustrative:  Code § 55-541.06 provides that 
the common law of trusts and the principles of equity 
supplement the UTC except when modified by statute.5  Code 
§ 55-541.05(B) provides that the express terms of a trust 
prevail over many provisions of the UTC, including the power 
to divide a trust under Code § 55-541.17.  For the protection 
of charitable trusts, the Attorney General is given the rights 
of a “qualified beneficiary” by Code § 55-541.10(D). 
 
We conclude that the UTC has not altered the fundamental 
principles that in construing, enforcing and administrating 
wills and trusts, the testator’s or settlor’s intent prevails 
over the desires of the beneficiaries, and that intent is to 
be ascertained by the language the testator or settlor used in 
creating the will or trust. Walton v. Melton, 184 Va. 111, 
115, 34 S.E.2d 129, 130 (1945).  The UTC has not so altered 
the law as to permit beneficiaries, after the death of a 
testator, to defeat the terms of his will that postpone their 
enjoyment of his bounty, merely because they “would rather 
have [their] money today than wait.” 
                     
5 To the extent any provisions of the UTC are in 
derogation of the common law or the principles of equity, they 
must be strictly construed.  Britt Construction, Inc. v. 
Magazzine Clean, LLC, 271 Va. 58, 63, 623 S.E.2d 886, 888 
(2006). 
 
8
 
There is no evidence in the record, and no contention is 
made, that the trust assets have been mismanaged,6 that the 
trust has become uneconomic, that its objects have become 
unattainable, or that any other factor, aside from the desires 
of the beneficiaries, justifies amending it in any way. 
 
Under the express terms of Code § 55-544.12(A), the 
circuit court had authority to modify or terminate the trust 
only in "circumstances not anticipated by the settlor” and 
when such "modification or termination will further the 
purposes of the trust.”  The moving parties argue that the 
settlor could not have foreseen that the beneficiaries would 
“rather have [their] money today than wait” and that they 
would resort to expensive litigation among themselves.  We do 
not agree.  Unfortunately, an examination of the records of 
this Court and others having similar jurisdiction demonstrates 
that beneficiaries of wills and trusts have, for centuries, 
engaged in such litigation with depressing frequency.  It may 
fairly be said that the likelihood of such litigation 
increases in direct proportion to the amount in controversy.  
Suits of this kind are most often based upon the 
                     
6 The circuit court complimented the trustees for their 
foresight in shifting trust assets from stocks and bonds to 
money market funds in a period of declining security markets, 
to the great advantage of the trust. 
 
9
beneficiaries’ desires to enhance their shares or accelerate 
their payment. 
 
There is no reason to suppose, and no evidence in the 
record to show, that the testator did not anticipate those 
risks.  The moving parties’ argument is based upon pure 
speculation.  The burden was upon them to prove that the 
circumstances upon which they rely to justify modification of 
the trust were "not anticipated by the settlor.”  Code § 55-
544.12(A).  The moving parties failed to carry that burden. 
 
Further, it cannot be said the modifications made by the 
circuit court would “further the purposes of the trust.”  Id.  
The settlor expressed a purpose to obtain for his assets the 
most favorable treatment possible for estate tax purposes, but 
that was not his only purpose.  He also expressed a purpose to 
provide a stream of income to named friends who were made 
income beneficiaries, but their distributions were not to 
invade the trust corpus and were to be paid out of trust 
income for their lifetimes.  The income beneficiaries’ 
benefits were shielded from their creditors and from their own 
interference by spendthrift provisions.  In no event was 
payment of their benefits to be accelerated.  The trustees 
were to manage the corpus, preserving it until the death of 
the last income beneficiary, and only then were they to 
disburse the residue to the charitable beneficiaries.  The 
 
10
modification made by the court did not further those purposes, 
but completely frustrated them. 
 
The division of the trust was merely a device to 
accomplish the moving parties’ desires without having to seek 
the approval of Ladysmith, the only party expressing a desire 
to defend the settlor’s intent.  Even that preliminary step 
“adversely affect[ed] achievement of the purposes of the 
trust” for the reasons stated above, and therefore contravened 
the provisions of Code § 55-544.17. 
 
The moving parties contend that Ladysmith has no standing 
to dispute the commutation and termination of the Upper 
Caroline trust because Ladysmith has no pecuniary interest in 
that trust.  The moving parties’ argument is circular.  
Ladysmith’s lack of standing is premised solely upon the 
validity of the circuit court’s order dividing the 
testamentary trust into two parts, which we hold to be 
erroneous for the reasons stated.  Ladysmith retains standing 
to object to the common design presented by both motions. 
Conclusion 
 
Because we conclude that the circuit court erred in 
granting the moving parties’ motions to divide the 
testamentary trust and to commute and terminate the Upper 
Caroline trust created by the division, we will reverse the 
judgment appealed from and remand the case to the circuit 
 
11
court with direction to enter orders denying both motions and 
for further proceedings consistent with this opinion. 
Reversed and remanded. 
 
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