Case Title: In Matter of Campbell's Trusts

Citation: 258 N.W.2d 856

Docket Number: 

State: minnesota

Court: Minnesota Supreme Court

Date: 1977-09-23T00:00:00Z

Document:
258 N.W.2d 856 (1977) In the Matter of the TRUSTS Created by and under the Last Will and Testament of John Charles CAMPBELL, Jr., Deceased, for the Benefit of Robert N. Campbell and the Robert N. Campbell Trust U/A Dated August 2, 1974. Janet S. CAMPBELL, Individually, et al., by Janet S. Campbell, Their Guardian Ad Litem, Appellants, v. Robert Noel CAMPBELL, Respondent, Northern City National Bank of Duluth, as Trustee under the Last Will and Testament of John Charles Campbell, Jr., etc., Respondent. No. 47036. Supreme Court of Minnesota. September 23, 1977. *857 *858 *859 Hanft, Fride, O'Brien & Harries, Edward T. Fride and Rita D. Hutchens, Duluth, for appellants. Bruess, Hamerston, Bye & Boyd, Robert W. Boyd and R. Craft Dryer, Duluth, for Campbell. Fryberger, Buchanan, Smith, Sanford & Frederick and John T. Oswald, Duluth, for No. City Nat'l Bank. Heard before KELLY, YETKA and SCOTT, JJ., and considered and decided by the court en banc. SCOTT, Justice. Petitioners commenced this action in district court to obtain construction of the will and trusts created thereunder of John Charles Campbell, Jr. Following entry of judgment in favor of respondents, Northern City National Bank of Duluth and Robert Noel Campbell, petitioners brought this appeal. Testator John Charles Campbell, Jr. (JCC), drafted his will, which was later delivered to the bank and executed on May 22, 1959. A handwritten codicil was added May 27, 1963. This will provided a marital trust for testator's wife Irene and a residuary spendthrift trust for his three children, John Charles Campbell III (Jack), Mary Leda Campbell, and Robert Noel Campbell (RNC). The will became effective upon the death of JCC on July 16, 1963. On February 5, 1953, a trust was created by RNC with Northern Minnesota National Bank of Duluth as trustee, the predecessor of Northern City National Bank, which is also trustee for the JCC testamentary trusts. RNC was designated "donor" of this trust, although the assets placed in the trust were those of JCC. Under Article I of the 1953 RNC trust agreement JCC retained control over the distribution of the trust income and principal. This trust was terminated in August 1974, and its assets were transferred to a new irrevocable trust created by RNC with Northern City National Bank as trustee. This 1974 trust was established for the benefit and use of RNC, and for the support and maintenance of his family, which consists of his wife Janet and their seven children. RNC left his family in February 1974 and established residence in Arizona. The trustee of the 1974 trust has continued *860 to pay the trust proceeds to Janet and the children in Duluth.[1] Janet and the children seek by this action to gain support from the JCC testamentary trusts and additional support from the 1974 RNC trust. The district court held that petitioners were not presently entitled to distributions from the JCC testamentary trusts, and further could not obtain an increase in the current level of distribution from the 1974 RNC trust.[2] Petitioners also sought to obtain attorneys fees from the JCC testamentary trusts. The district court denied recovery of fees. We find the legal issues raised by this appeal to be the following: (1) Are petitioners "beneficiaries" of a residuary trust created under the will of JCC? (2) Does the trust provision for "support" of a beneficiary include the support of a beneficiary's wife and children? (3) Does the word "debts" as used in the trust include the support of a beneficiary's wife and children? (4) Did the district court improperly exclude parol evidence in construing the will of JCC? (5) Does the doctrine of practical construction apply to this case? (6) Is the spendthrift clause in the trust valid? (7) Should the marital trust created for the benefit of Irene N. Campbell be terminated on the ground that it no longer serves a material purpose? (8) Did the trustee of the 1974 RNC trust abuse its discretion in refusing additional distributions from the trust corpus? (9) Did the district court abuse its discretion in refusing to award petitioners attorneys fees out of the corpus of the JCC trusts? 1. It is petitioners' contention that they are within the class of intended "beneficiaries" as that term is used in Article VI, paragraph (D) of the JCC will. This clause reads as follows: Careful examination of this clause together with other parts of the will clearly shows that petitioners are not within the class of intended beneficiaries. First, the overall phrase refers to "income paid any of the beneficiaries." This implies that paragraph (D) only comes into effect when the income currently being paid to a trust beneficiary becomes insufficient to meet certain extraordinary needs. Yet it is admitted that petitioners are not currently being paid trust income, nor are they entitled to receive trust income. Paragraph (C) of the will specifically provides that the residuary trust income is to be paid by the trustees to JCC's children by his wife Irene, and can only be paid to issue of such children upon the death of the primary beneficiary. *861 Since RNC is still living, his children are not yet entitled to trust income, and by the language of paragraph (D) are therefore not entitled to invade the corpus for any reason. Second, paragraph (D) states that the class entitled to its benefits is limited to "beneficiaries under any of the trusts created hereunder." Two trusts are created by the JCC will. Article V establishes a marital trust for Irene N. Campbell. Article VI, paragraph (C), establishes a residuary trust for the three Campbell children, Mary Leda, Jack, and Robert. The unambiguous class of trust beneficiaries therefore consists of Irene, Mary Leda, Jack, and Robert. The provision of paragraph (C) that upon the death of any of the three children his or her share passes to the issue of such child gives the issue only a contingent beneficiary status, since they cannot take until the death of the primary beneficiary. Petitioners argue, however, that because paragraph (D) provides for the possibility of invasion of the corpus for a "proper and suitable education," it must refer to JCC's grandchildren. The evidence does establish that at the time of execution of the will in 1959 Jack Campbell was 28 years old and Robert was 26 years old, both having completed what education they intended to receive. This argument fails, however, in the case of Mary Leda Campbell. At the time of the execution of the will in 1959 she was only 19 years old, had completed 1 year of college, and had recently married. The record does not show that at this point she had foreclosed any possibility of further education. The will provides in Article VI, paragraph (B), that the trustees were to maintain JCC's homestead for Mary Leda "during her minority" as the "first charge" upon the residuary trust, indicating that JCC specifically had Mary Leda in mind, considering she was 7 years younger than Robert and 9 years younger than Jack. Finally, the "education" argument is defeated by the first sentence of paragraph (C), which establishes the residuary trust: "The remaining net annual income shall be expended by my Trustees for the support, maintenance and education of any children which I may have as a result of my marriage to the said Irene N. Campbell." (Italics supplied.) Surely the use of the word "education" here and its use in paragraph (D) refer to the same class of individuals, namely, JCC's three children. Considering these provisions together demands the conclusion that paragraph (D) was only intended to permit invasion of the trust corpus by the present income beneficiaries of the testamentary trusts, thus precluding the children of RNC from asserting a valid claim under this clause. Since this conclusion is reached based upon the terms of the will itself, consideration of extrinsic evidence is not permitted. In re Trust Known as Great Northern Iron Ore Prop., Minn., 243 N.W.2d 302 (1976). 2. Petitioners' next claim is based upon the term "support" used in Article VI, paragraph (C), of the JCC will establishing the residuary trust: "The remaining net annual income shall be expended by my Trustees for the support, maintenance and education of any children which I may have as a result of my marriage to the said IRENE N. CAMPBELL." Petitioners quote 2 Scott, Trusts (3 ed.) § 128.4, p. 1024, as follows: Petitioners conveniently end the quotation one sentence too soon, however. The concluding sentence of this section reads: "Whether his [beneficiary's] wife and children, if he refuses to support them, or if the *862 wife has secured a divorce with alimony, have claims which they can enforce against the trust estate is considered hereafter." The quoted section, which is under the general heading of "The Beneficiary," only states that the beneficiary himself is entitled to sufficient trust income or distribution to support both himself and his family. Section 157.1, to which § 128.4 refers, considers in detail the status of dependents of the beneficiary of a spendthrift trust. The rule given is that "it has been held in a number of cases that [the beneficiary's] interest can be reached by his wife or children to enforce their claims against him for support." This presumes that the beneficiary has refused to support his family. In the present case, RNC established the 1974 trust for the support of his family, and has not so far contested distributions from that trust for his wife and children. This court has previously rejected the possibility that a beneficiary's dependents can reach a spendthrift trust despite claims of public policy, until actually paid over to the beneficiary. In Erickson v. Erickson, 197 Minn. 71, 266 N.W. 161, rehearing denied, 267 N.W. 426 (1936), the plaintiff sought to have certain judgments and claims in her favor against her former husband for alimony and child support impressed as a lien on and paid out of his interest in a testamentary trust created by his father. The court denied the claim, noting that The legal conclusions reached in Erickson are as follows: *863 On its facts the present case is stronger than the Erickson case regarding the testator's intent to protect the residuary trust from claims of creditors or other nonbeneficiaries. Article VI, paragraph (G), provides: This language makes clear the intent of JCC to allow distribution of trust assets only to the stated beneficiaries. Under Erickson, payment of support for the spouse and children of RNC cannot be made from the trust in the face of such an explicit limitation. The Erickson case and many other cases and authorities on the same point were considered in In re Trust Created by Moulton, 233 Minn. 286, 46 N.W.2d 667 (1951). Of the cases cited therein some followed the Minnesota rule, some were contrary, and others took an intermediate position by distinguishing between divorced and undivorced wives.[3] In Moulton we declined to overrule Erickson or to adopt an intermediate view: The principle established by Erickson and Moulton is that the intent of the testator controls where claims upon a spendthrift trust are made by nonbeneficiaries, even spouses or dependent children. The will of JCC makes unmistakable his intent that the residuary trust proceeds be paid only to his children and not be subject to claims for support by others. Under the rule in Minnesota, the phrase "support * * * of any children" in the will of JCC, viewed in light of Article VI, paragraph (G), must be held to bar claims of nonbeneficiaries to the trust income or corpus.[4] This bar extends to the beneficiary's spouse and children, and is not affected by extrinsic evidence regarding the testator's alleged affection for these claimants. 3. For reasons expressed in the previous section, Article VI, paragraph (G), cannot be interpreted to allow claims upon the trust for support of the beneficiary's wife and children. This paragraph manifests in unambiguous language the intent of JCC to prevent claims upon the trust by nonbeneficiaries. Whether support of the spouse and children of the beneficiary is regarded as a "debt" or as "alimony and child support" is immaterialthe only relevant inquiry under Erickson and Moulton is whether the settlor intended claims for support to reach the trust directly. Paragraph *864 (G) does not permit such an interpretation, and as concluded above, extrinsic evidence is not a factor in this inquiry. 4. The rules governing the use of extrinsic evidence in interpreting testamentary trusts are well established. These various rules can be summarized into a simple principle: Where the intent of the testator-settlor is clear from the language of the instrument, parol evidence is not admissible; where there is ambiguity as to the intent, parol evidence may be admitted for clarification. See, 19B Dunnell, Dig. (3 ed.) § 9888a; 20 Dunnell, Dig. (3 ed.) §§ 10257, 10260. As to the will herein, the district court found: The will of JCC was carefully drafted and contains no patent or latent ambiguities. The will establishes a marital trust for Irene and a residuary trust for JCC's three children, which contains a spendthrift provision and a provision preventing payment of trust assets to creditors. These specific terms do not require parol evidence regarding the testator's relationship to the various family members to make their meaning clear. Indeed, the record shows the testator to have been a man who said what he meant, and since he apparently drafted his own will, his words must be taken as his intention. Absent material ambiguities, extrinsic evidence may not be admitted to vary the plain meaning of the testator's words. In re Trust Known as Great Northern Iron Ore Prop., Minn., 243 N.W.2d 302 (1976). 5. Petitioners correctly point out that the doctrine of practical construction has been extended to wills. In re Trust Under Will of Koffend, 218 Minn. 206, 15 N.W.2d 590 (1944). The following statement concerning this doctrine applied to trusts is found in First and American National Bank v. Higgins, 208 Minn. 295, 319, 293 N.W. 585, 597 (1940): The present case is not appropriate for application of this contractual doctrine. Rather, we find persuasive the argument presented by respondents: The testamentary trust at issue herein came into being upon the death of JCC in 1963. Any conduct of the donor or beneficiaries prior to that time is clearly not relevant to the construction of the trust provisions. In addition, our prior cases state that the doctrine of practical construction applies only where the terms of the *865 instrument are ambiguous. First and American National Bank v. Higgins, supra. The terms of the will in this case are of sufficient clarity to make application of this doctrine inappropriate. 6. Petitioners in essence ask the court to overrule Erickson v. Erickson, supra, and In re Trust Created by Moulton, supra, and to hold as a matter of public policy that claims for family support by nonbeneficiaries should reach spendthrift trusts. As was stated in Moulton, "There is much respectable authority supporting appellants' contention in this respect." 233 Minn. 300, 46 N.W.2d 674. Nevertheless, we adhere to the reasoning of the Erickson case, and hold that claims of alimony and support are not an exception to the protection offered by spendthrift provisions. Such claims can be allowed only where the instrument of trust can be fairly be so construed. The unambiguous intent of the testator herein was to bar all claims by nonbeneficiaries, and under the rule of Erickson and Moulton, this precludes claims for alimony and support. 7. Irene Campbell has been left permanently incapacitated by a stroke in 1951. She is now in her late sixties, and lives in a nursing home where she receives constant care. Under the marital trust she holds a total estate valued at $1,100,000, of which over $250,000 is in a guardianship account. In January 1976 the annual income from this account was estimated to be $10,448, resulting in an overall trust income in excess of $30,000. Her established need is about $21,000 per year. Petitioners conclude from these facts that the guardianship account is sufficient to provide for Irene Campbell's present and future needs, and that the marital trust should therefore be terminated. The district court found, to the contrary, that the purpose of the trust was to provide "continued care" for Irene, and that this purpose had not yet been accomplished. Article V, paragraph (A), of the will of JCC reads: The import of this language is that the trust is not to be subject to other claims during the lifetime of Irene. Presently the overall trust income exceeds her needs, but this could, of course, change in the future. The income from the guardianship account provides for only about ½ of Irene's current needs, meaning that the principal of that account would have to be expended to provide for her if the income from the corpus of the marital trust were not available. Although Irene suffered a stroke many years ago, it is possible that she could live for many more years, perhaps requiring increasing care as she grows older. Ten years of heavy medical expenses could deplete the guardianship account, and without the corpus of the trust Irene would be left penniless. Such a result would contravene the express intent of the will provision quoted above. The marital trust is therefore to be left intact, and will be distributed only upon the death of Irene Campbell. 8. Petitioners contend that the trustee of the 1974 RNC trust has abused its discretion in refusing additional distributions from the trust corpus. Article II of this trust states the purposes of the trust as being "for [RCN's] own use and benefit and for the support and maintenance of his wife *866 JANET S. CAMPBELL, and his issue in the event he is unable or fails to provide such support * * *." Article III, paragraph B, states in relevant part: The trustee has disbursed $18,000 per year to petitioners, and has in addition disbursed sums for educational and medical expenses. If the trustee continues to distribute the funds at the same rate (which requires invasion of the corpus), the trust will be further depleted, and will be exhausted in 3 or 4 years. Petitioners seek an increase in the $18,000 per year distribution based on inflation, as expressly provided in Article III, quoted supra, and also seek further disbursements for other family expenses. Such additional disbursements would, of course, deplete the trust even more rapidly. The trustee refused to increase the $18,000 per year allowance, and has refused to make further "emergency" disbursements beyond those already mentioned. The district court concluded as follows: Where, as here, a trustee is given broad discretion in disbursing the trust income and corpus, the rule is that the court will not substitute its discretion for that of the trustee except when necessary to prevent the abuse of discretion. In re Trusts Under Will of McCann, 212 Minn. 233, 3 N.W.2d 226 (1942); In re Trusteeship Created Under Will of Ordean, 195 Minn. 120, 261 N.W. 706 (1935). It follows that the judgment of the district court, which had before it all the facts regarding the trustee's use *867 of its powers, should not be questioned unless the record clearly shows it to be erroneous. In this case no showing of abuse has been made. The record shows that the trustee of the 1974 RNC trust has paid out the maximum amount of $18,000 per year and has made additional disbursements for educational and medical expenses. The record does not reflect that the monthly family expenses exceed the current (tax free) support level of $1,500 per month. Mrs. Campbell's testimony was as follows: "A Well, they come first, of course." Further, the record shows the trustee willing to meet extraordinary medical expenses not payable from the monthly allowance. To increase the monthly allowance where need does not warrant, and thereby further invade the trust corpus, may well result in an abuse of the trustee's discretion. See, In re Trust Created by Watland, 211 Minn. 84, 300 N.W. 195 (1941). In view of the fact that the 1974 RNC trust is fast being depleted, the trustee is justified in attempting to hold the line on disbursements when it does not appear that increases are necessary to meet basic needs. The district court noted in its memorandum: We find this conclusion fully warranted by the evidence, and in any event it is not clearly erroneous. The trustee may therefore continue the present level of distribution, but may exercise its discretion to increase or decrease this amount as the needs of the family indicate. 9. The district court denied attorneys fees to petitioners without explanation. Petitioners sought to have attorneys fees paid out of the trust fund corpus on the theory that they had conferred a benefit upon the trust. Both petitioners and respondents cite In re Living Trust Created by Atwood, 227 Minn. 495, 35 N.W.2d 736 (1949), as controlling on this issue. The following excerpts from Atwood illustrate the criteria established: Although Atwood makes clear that a simple loss on the merits does not bar allowance of attorneys fees, it also holds that the trust instruments in dispute must be sufficiently ambiguous to require litigation to establish their meaning and effect. Since we have found, along with the district court, that the trust instruments herein were not ambiguous, and therefore did not require litigation to permit proper administration, allowance of attorneys fees is not appropriate. The courts as well as the trustees have a responsibility to protect trusts from dissipation by the costs of extended litigation. Parties who seek to gain from trusts not established primarily for their benefit must bear some risk should they be entirely unsuccessful. In this case, both the trustees and the beneficiary of the JCC trust were respondents to the petition, neither having alleged any confusion or ambiguity regarding the terms of the trust or the proper method of its administration. To allow recovery of attorneys fees in this case would permit invasion of the trust corpus for a wholly unwarranted purpose, where the litigation has conferred no benefit on the trust. The decision in Atwood did not envision recovery of fees under these circumstances. In essence, petitioners attempt to show that JCC intended to bestow the benefits of his estate upon them, but did not express this intention in his will. The court has held this approach unacceptable. In re Trust Created by Will of Silverson, 214 Minn. 313, 8 N.W.2d 21 (1943). The primary function of the court in exercising jurisdiction over trusts is to preserve them and to secure their administration according to their terms. In re Trust Under Will of Cosgrave, 225 Minn. 443, 31 N.W.2d 20, 30 (1948). As indicated above, further proceedings incident to the dissolution of the parties' marriage may provide a more proper avenue for legal redress. Affirmed. KELLY, Justice (concurring specially). I concur with the majority opinion except as to that portion which asserts that In re Living Trust Created by Atwood, 227 Minn. 495, 35 N.W.2d 736 (1949) holds that the trust instruments in dispute must be sufficiently ambiguous to require litigation to establish their meaning and effect before an allowance of attorney fees may be made. I do not read the holdings in Atwood that narrowly. First of all, in Atwood there were ambiguities and the holding merely is that where there are ambiguities attorneys fees may be allowed if other appropriate circumstances are present. Atwood does not say that ambiguities must be present before attorneys fees may be allowed. The better rule should be broader than that proposed in the majority opinion. Even without ambiguities, if the legal effect of *869 language used in a trust instrument is in reasonable doubt with respect to substantial and material issues, then in the discretion of the court attorneys fees may be allowed. The litigation should be conducted in good faith for the primary benefit of the trust as a whole and the adjudication to be obtained should be essential to the proper administration of the trust. In the instant case I agree with the resultthat is, affirming the trial court's denial of attorneys fees as being within that court's discretionalthough I would also have affirmed a modest allowance of attorneys fees if they had been awarded. [1] Subsequent to the district court decision, RNC obtained a dissolution of marriage in Arizona. Janet did not appear in that action, but was granted alimony and child support in the amount of $600 per month. [2] The present level is $1,500 per month, the maximum allowed by the terms of that trust. Even this level requires invasion of the trust corpus, which apparently does not now exceed $76,000 in liquid assets. [3] The intermediate cases held that the trust can be reached by undivorced wives but not by alimony claims. See, e.g., Lippincott v. Lippincott, 349 Pa. 501, 37 A.2d 741 (1944). [4] The recent case of Smith v. Smith, Minn., 253 N.W.2d 143 (1977), does not require a different result. That case also involved alimony-and-child-support claims against a spendthrift trust, but two factors distinguish it from the present case. First, the beneficiary of the trust signed a stipulation as part of the divorce proceeding assigning to his wife assets of the trust. Second, the beneficiary had a right to withdraw these assets at any time under the terms of the trust. In the present case, neither is true. RNC has not agreed in any way to allow distribution of the residuary trust assets to his wife and children, nor is he presently entitled to any portion of the residuary trust corpus by Article VI, paragraph (C), since he has not yet reached age 50.