Case Title: Hilbert v. Benson

Citation: 

Docket Number: 95-242

State: wyoming

Court: Wyoming Supreme Court

Date: 1996-06-03T00:00:00Z

Document:
Hilbert v. Benson1996 WY 77917 P.2d 1152Case Number: 95-242Decided: 06/03/1996Supreme Court of Wyoming
William C. HILBERT, individually and as Guardian of the 
Guardianship of Virginia M. Hornig,

 Appellant (Defendant/Third-Party 
Plaintiff),

v.

Eugene 
H. BENSON, as Trustee for the Trust Estate of Virginia M. 
Hornig,

 Appellee 
(Plaintiff),

 And

 Frederick J. 
Harrison,

 Appellee (Third-Party 
Defendant).

Appeal 
from the District Court, Carbon County, Kenneth E. Stebner, 
J.

Cary 
R. Alburn, III, of Alburn & Earnshaw, P.C., Laramie, for appellant 
Hilbert.

Kermit 
C. Brown and Bruce B. Waters of Smith, Stanfield & Scott, LLC, Laramie, 
for appellee Benson.

Lawrence 
G. Orr of Orr, Buchhammer & Kehl, Cheyenne, for appellee 
Harrison.

Before 
GOLDEN, C.J., and THOMAS, MACY, TAYLOR, and LEHMAN, JJ. 

GOLDEN, 
Chief Justice.

[¶1]      In a declaratory 
judgment action filed by a trustee against a guardian, the district court 
determined that trustor, Virginia Hornig (Hornig), possessed capacity and that 
appellee Frederick Harrison (Harrison), trustor's attorney, did not exert undue 
influence over her when she executed an irrevocable trust. Hornig's guardian, 
appellant William Hilbert (Hilbert), appeals the decision.

[¶2]      We 
affirm.

ISSUES

[¶3]      Hilbert presents 
the following issues:

I. 
         
Whether the district court's order of June 29, 1995, incorporating its 
April 28, 1995, opinion letter constitutes an appealable order under Rule 
1.05(a) and/or (b), Wyoming Rules of Appellate Procedure.

II. 
         
Whether appellant met the burden of proof necessary to show lack of 
capacity on the part of Virginia Hornig, at the time she executed the 
irrevocable trust agreement on February 11, 1993.

III. 
        
Whether there was sufficient evidence for the district court to find that 
the irrevocable trust agreement executed by Virginia Hornig on February 11, 
1993, is valid and enforceable.

[¶4]      Appellee Eugene 
H. Benson (Benson) presents these issues:

1. 
        
Does the Court's June 29, 1995, Order entered following the first portion 
of a bifurcated trial, constitute an appealable order?

2. 
        
Did Virginia Hornig have testamentary capacity sufficient to validly 
execute an Irrevocable Trust Agreement on February 11, 1995 (sic)?

[¶5]      Harrison presents 
these issues:

I. 
         
Does the order of June 29, 1995, entered following the first portion of a 
bifurcated trial, constitute an appealable order?

II. 
         
Did Virginia Hornig have testamentary capacity sufficient to validly 
execute an irrevocable trust agreement on February 11, 1995 (sic)?

III. 
        
Was the trial court correct in holding that the irrevocable trust was 
valid and enforceable?

FACTS

[¶6]      In its decision 
letter, the district court found that the evidence at trial painted a vivid 
picture of a remarkable woman:

[Virginia] 
Hornig was a school teacher in Rawlins, Wyoming for many years. People respected 
her. She was revered by her many former students. She was independent and 
financially responsible. She invested her funds wisely and managed to establish 
a modest estate of approximately $200,000.00. She apparently never married and 
has no children. . . . [S]he executed a will on April 17, 1990, at a time when 
no one disputes that she was competent. She had no doubt how she wanted her 
estate to be distributed [leaving] almost her entire estate to the Church and 
other Catholic organizations and [giving] one tenth of her estate to each [of 
two] cousins. . . .

In 
1992, Ms. Hornig began to experience a general physical and mental 
deterioration. At that time, she was 70 or 71 years of age and diabetic. She 
became uncharacteristically untidy, had short term memory problems and confusion 
from time to time and experienced problems managing her affairs. Virginia Hornig 
is currently residing in a nursing home in Texas and has been diagnosed as 
suffering from Alzheimer's Disease. The evidence indicated she was in the 
preliminary stages of Alzheimer's Disease during the time surrounding the 
execution of the trust. She became concerned that, because of her deteriorating 
condition, she might do something to cause a change in the disposition of her 
property as set forth in the will. She consulted with her attorney, Mr. 
Harrison, who had represented her over a long period of time. She, after being 
advised by Harrison, determined the answer to her worries was the formation of 
an irrevocable trust. Dispositive portions of the will and trust remained 
exactly the same, with the minor exception that her bequest to her cousins was 
capped at $5,000.00.

[¶7]      Hilbert, one of 
the two cousins, had himself appointed guardian for Hornig. Following actions by 
Hilbert, Eugene H. Benson, as trustee for the trust estate of Hornig, sued 
Hilbert individually and as guardian of the guardianship for Hornig. Hilbert 
filed an answer and counterclaim and a third-party complaint against Frederick 
J. Harrison, Benson's attorney. Harrison withdrew as counsel for Benson. 
Benson's complaint alleged generally that Hilbert, appointed guardian in the 
State of Texas, transferred trust assets without knowledge of the trustee in 
Wyoming, revoked trust authority over retirement and social security accounts 
without authority and generally interfered with and jeopardized the ability of 
the trust to protect the interest of Hornig. The trustee's complaint requested 
that the court declare Hornig as having had capacity to execute the trust 
agreement, declare the trust's validity, declare that the trustee has control of 
Hornig's assets, command Hilbert to return assets to the trust, and enjoin 
Hilbert from interfering with the administration of the trust in the future. 
Hilbert's amended counterclaim and third-party complaint alleged that Hornig 
lacked testamentary capacity to execute the trust, Benson and Harrison knew or 
should have known she was incompetent, Harrison improperly influenced Hornig to 
sign the trust agreement, and Hornig is entitled to damages because of Benson's 
and Harrison's actions.

[¶8]      The trial court 
bifurcated the matter and on March 29, 1995, determined the issues of whether 
the trustor, Hornig, was mentally competent or had testamentary capacity on 
February 11, 1993, when she executed the irrevocable trust agreement and whether 
her attorney exerted undue influence over Hornig regarding the execution of that 
trust. The district court determined that Hilbert failed to meet his burden of 
proving by a preponderance of the evidence that Hornig did not possess 
testamentary capacity when she executed the irrevocable trust agreement and 
upheld the validity of the trust. Specifically, the district court found that, 
in accordance with Matter of the Estate of Obra, 749 P.2d 272 (Wyo. 1988), 
Hornig comprehended the extent and nature of her estate, understood the identity 
of the beneficiaries and their relationship to her, and understood the nature of 
the testamentary act of executing the trust document, that it was to be a 
disposition of her property to take effect at her death. The court also found 
there was no evidence that Harrison had exerted undue influence to cause her to 
execute the trust document. An order was entered to this effect and this appeal 
followed.

DISCUSSION

Appealable 
Order

[¶9]      The district 
court denied a motion to postpone the second portion of the bifurcated trial and 
scheduled it to proceed while this appeal was pending. Appellee Benson, on 
November 3, 1995, filed a motion with this Court to dismiss this appeal on the 
ground that the order from which the appeal is taken is not appealable pursuant 
to WYO. R.APP. P. 1.05. This Court denied that motion on November 16, 1995. In 
his appellate briefing, appellee Benson again raises this issue. Having 
previously ruled, we are reluctant to revisit the matter. Although the point is 
arguable and a close question is presented, we are satisfied that we should in 
the interests of judicial economy review the central issue presented, namely, 
the trustor's mental capacity to create and execute the trust agreement. On past 
occasion, this Court has treated a notice of appeal as a petition for either a 
writ of review or certiorari when we determined that the circumstances 
warranted. See, e.g., In Re Big Horn River System, 803 P.2d 61, 66-67 (Wyo. 
1990); J Bar H, Inc. v. Johnson, 822 P.2d 849, 854 (Wyo. 1991). In any event, 
given the present posture of this case with the litigants having provided the 
Court with appropriate briefing, we believe that review is appropriate under the 
circumstances.

Capacity

[¶10]   In determining Hornig's competence, 
the district court applied the standard used for testamentary capacity set out 
by this Court in Matter of the Estate of Obra, 749 P.2d 272 (Wyo. 1988). Under 
that standard, the district court determined that Hilbert failed to prove by a 
preponderance of the evidence that Hornig did not understand the nature of her 
act, the nature or character of her property and the natural objects of her 
bounty.

[¶11]   A review of the trust agreement 
indicates that it is an irrevocable inter vivos trust. A person lacking capacity 
to make an ordinary transfer of property has no capacity to create an inter 
vivos trust. Walton v. Bank of California, National Association, 218 Cal. App. 2d 527, 32 Cal. Rptr. 856, 865 (1963) (citing RESTATEMENT (SECOND) OF TRUSTS §§ 19, 
333 (see comment f, p. 151) (1959)); Harrison v. City Nat'l Bank of Clinton, 
Iowa, 210 F. Supp. 362, 371 (S.D.Iowa 1962). In determining the test for mental 
competency, Harrison considered the following:

"Mental 
incompetency, which will defeat the trust, exists where a person is incapable of 
understanding and acting with discretion in ordinary affairs of life, or is 
incapable of understanding, in a reasonable manner, the nature and effect of the 
trust. Strictly speaking, the question presented in such a case is not 
necessarily whether the settlor was generally of sound mind, but whether he had 
sufficient mental capacity to understand the trust which he 
executed."

Harrison, 
210 F. Supp.  at 370 (quoting 89 CJS Trusts § 73 (1955)).

[¶12]   That court determined the relevant 
question was:

did 
the settlor at the time he executed the supplemental trust, understand the 
consequences and effects of the same upon his rights and interests.

Harrison, 
210 F. Supp.  at 370.

[¶13]   Similarly, in Matter of Estate of 
Head, 94 N.M. 656, 615 P.2d 271 (App. 1980), cert. denied, 94 N.M. 675, 615 P.2d 992 (1980), the New Mexico appellate court said that when determining whether a 
trust instrument should be invalidated for lack of mental capacity, the test of 
mental capacity is

whether 
a person is capable of understanding in a reasonable manner, the nature and 
effect of the act in which the person is engaged.

Estate 
of Head, 615 P.2d  at 274.

[¶14]   In comparing the governing 
standards of testamentary capacity for executing wills and of contractual 
capacity for executing inter vivos conveyances, we agree with the 
Harrison court that a higher degree of mental capacity is required to execute an 
inter vivos conveyance or contract or to transact business generally, 
than is required in executing a will. Harrison, 210 F. Supp.  at 370. All three 
decisions just discussed hold that to invalidate a trust instrument, mental 
incompetency must be operative at the time of the execution of the instrument, 
there is a presumption of competence, that competence is a question of fact, and 
a determination that the trustor is competent will be upheld if supported by 
substantial evidence. Walton, 32 Cal. Rptr.  at 865; Harrison, 210 F. Supp.  at 
370; Estate of Head, 615 P.2d  at 274. The Iowa and New Mexico courts state that 
the party alleging incompetence bears the burden of proof and must establish 
incompetency by clear and convincing evidence. Harrison, 210 F. Supp.  at 370; 
Estate of Head, 615 P.2d  at 274.

[¶15]   In this case, the district court, 
as the trier of fact, required only proof of testamentary capacity. Actually, 
Hilbert, as the one asserting incompetence, had the burden to show lack of 
contractual capacity by clear and convincing evidence. (In this regard, we note 
that the district court apparently used only an ordinary evidence standard, 
which was to Hilbert's advantage.) Even though the district court focused upon 
testamentary capacity, our review of the record demonstrates that the district 
court's findings of fact were so thorough as to demonstrate Hornig was possessed 
of contractual capacity, as well as testamentary capacity, at the time she 
executed the trust instrument. Hilbert failed to meet his burden of establishing 
she was not, and any error in this respect was harmless. The decision that 
Hornig possessed the requisite mental competence at the time she executed the 
trust instrument is correct when the appropriate rule is invoked.

[¶16]   In addition to the discussion of 
facts which established that Hornig executed the trust agreement with her 
long-time attorney upon realizing her health was failing, the district court 
also found that: 

It 
is clear to the Court, from the testimony of every witness who testified, that 
she definitely understood what she was doing when she executed the document. She 
understood the nature of the testamentary act; she wanted to make sure her 
property was disposed of in the manner she had determined and did not want to be 
concerned about changing it because of her deteriorating mental state. She knew 
the identity of the prospective beneficiaries and the relationship of both 
cousins and the Catholic organizations to herself. She knew the nature of her 
estate. The general testimony of the witnesses that Ms. Hornig was becoming 
forgetful with regard to her short term memory, that she was becoming suspicious 
and confused, does not establish that she was incompetent to execute the trust 
agreement.

*           
*           
*           
*           
*           
*

The 
Court is persuaded by the totality of the evidence that she possessed the 
necessary clearness of mind and memory and the ability to understand facts and 
elements in their relation to each other when the trust was 
executed.

[¶17]   Under the correct standard, the 
district court's decision indicates that at the time she executed the trust, 
Hornig understood the consequences and effects of the same upon her rights and 
interests. Harrison, 210 F. Supp.  at 371. The district court's decision that 
Hornig had the requisite capacity to execute the trust is affirmed.

Sufficiency 
of the Evidence For Validating the Trust

[¶18]   Hilbert challenges the trial 
court's finding that the trust was valid and enforceable, claiming no evidence 
was submitted on this issue and it must still be decided. The only issue 
regarding the validity of the trust joined by the pleadings involved the mental 
capacity of trustor Hornig. The trustee's complaint for declaratory judgment 
requested that the trust be declared "valid in all particulars." Hilbert's 
answer generally denied the trust was valid and in his amended counterclaim 
alleged that the trust was not valid on grounds of lack of testamentary capacity 
and undue influence.

[¶19]   The elements of a valid trust 
include a competent settlor and trustee, intent by the settlor to create a 
trust, ascertainable trust res, sufficiently ascertainable beneficiary or 
beneficiaries, a legal purpose, and a legal term. McGinnis v. McGinnis, 391 P.2d 927, 933 (Wyo. 1964); Dallas Dome Wyoming Oil Fields Co. v. Brooder, 55 Wyo. 
109, 127-28, 97 P.2d 311, 318 (1939); State v. Underwood, 54 Wyo. 1, 25, 86 P.2d 707, 714 (1939); In Re Baum, 22 F.3d 1014, 1018 (10th Cir. 1994) (citing In re 
Estate of Granberry, 30 Colo. App. 590, 498 P.2d 960, 963 (1972) and Estate of 
Brenner, 37 Colo. App. 271, 547 P.2d 938, 941 (1976)); see also Matter of Estate 
of Boyer, 117 N.M. 74, 868 P.2d 1299, 1303 (1994).

[¶20]   Although the record is missing 
documents relating to bifurcation, the trial court apparently granted a request 
to bifurcate the proceedings. At trial, the trial judge directed the record to 
indicate that the matter before the Court at this portion of the bifurcated 
proceedings was the issue of "the validity of the Trust, . . . whether that 
Trust is valid or not and the issues will be limited to that." All trial 
testimony addressed only testamentary capacity and undue influence. The written 
closing arguments submitted addressed only these two aspects of validity. The 
trial court's ruling that the trust is valid and enforceable is supported by the 
record, precluding Hilbert from raising the issue of validity in any other 
context.

[¶21]   Affirmed.