Case Title: Ackers v. First National Bank of Topeka

Citation: 192 Kan. 319, 387 P.2d 840

Docket Number: 

State: kansas

Court: Kansas Supreme Court

Date: 1963-12-19T00:00:00Z

Document:
192 Kan. 319 (1963)
387 P.2d 840
BESSIE M. ACKERS, and UNITED TRUST COMPANY, a corporation, Administrator of the Estate of Frank C. Ackers, deceased, Appellants,
v.
THE FIRST NATIONAL BANK OF TOPEKA, a corporation, Trustee; THE KANSAS UNIVERSITY ENDOWMENT ASSOCIATION, a corporation; FRANCES C. XANDERS; and CHARLOTTE XANDERS, a minor, Appellees.
No. 43,403

Supreme Court of Kansas.
Opinion filed December 19, 1963.
James C. Johnson, of Abilene, and Jacob A. Dickinson, of Topeka, argued the cause, and John F. Christner, Paul H. Royer, and R.H. Royer, all of Abilene, Paul C. Aiken, Sam A. Crow, Ralph E. Skoog, and Bill G. Honeyman, all of Topeka, were with them on the briefs for the appellants.
James T. Graves, of Salina, and James L. Postma, of Lawrence, argued the cause, and C.L. Clark, James P. Mize, and Thomas M. Lillard, Jr., all of Salina, and Olin K. Petefish, of Lawrence, were with them on the briefs for the appellees.
The opinion of the court was delivered by
HATCHER, C.:
This appeal is from a judgment rendered in an action challenging the validity of a trust instrument which reserved a life interest in the grantor, gave him power to revoke, and conveyed property in which his nonresident wife would have otherwise acquired an interest by inheritance.
A comprehensive discussion of the issues requires a rather extensive presentation of facts.
Bessie M. Ackers married Frank C. Ackers at Las Vegas, Nevada, on February 22, 1942, while residing in the state of California. She had been previously married twice and these marriages ended in divorce. Her second divorce became final four days before her marriage to Frank.
Frank had previously been married to Iva McCauley. Her death occurred in August, 1941. One child, the defendant, Frances Corrine Xanders was born to the marriage. The defendant, Charlotte Xanders, is the minor child of Frances.
In August of 1948, Frank left Los Angeles, California, where he and Bessie resided, to return to his parental home in Abilene, Kansas. There is no evidence that Bessie and Frank saw each other again until she went to Abilene in May, 1958, except for one trip she made to Abilene in the summer of 1949. She sued him for separate maintenance *321 in the district court at Abilene, Kansas, in May, 1958, and he cross petitioned for divorce. The action was pending at the time of Frank's death. When Frank left Los Angeles in August, 1948, he was in poor health and had been without work since April or May of that year. He took no property to Abilene. Bessie never became a resident of Kansas.
Frank's parents were Hiram E. Ackers and Maude E. Ackers. They were longtime residents of Abilene, Kansas. The title to the home was vested in Hiram. Hiram and Maude continued to reside there until their respective deaths. They were survived by their only children, Frank and Deane. On at least two occasions prior to the death of Hiram, Bessie had visited Hiram and Maude in Abilene. At the time of her visit in December, 1945, Hiram was 90 years of age and Maude was past 70.
Hiram died testate on December 3, 1946. The will of Hiram was admitted to probate in the probate court of Dickinson County, Kansas. He willed all of his property to Maude E. Ackers, Frank C. Ackers, and Deane E. Ackers in equal shares. Maude elected to take half of the property under the law so that Frank and Deane each received an undivided one-fourth of Hiram's estate. His property was not distributed but was held together and operated as a unit under the terms of a trust agreement dated December 19, 1946, until Maude's death. The trust agreement was filed in the probate court of Dickinson County in the proceeding administering the estate of Hiram and was approved by the court in its decree of settlement and distribution entered February 20, 1948.
On August 28, 1955, Maude died. She left Frank only an income for life from a one-half interest in property which she owned at her death. It appears that after the death of Maude, Deane conveyed to Frank his one-half interest in the homestead.
The real and personal property to which Frank held title during his lifetime, other than one-half interest in the homestead, accrued from his one-fourth interest in his father's estate. This property, which was acquired in 1946, was made the subject of a trust in 1955. This trust is the subject of the dispute in this appeal.
The trust indenture dated November 26, 1955, appointed D.E. Ackers trustee with the provision that if, for any reason, he be unable, fail, or refuse to act, the Central National Bank and Trust Company of Topeka, Kansas should be appointed. The trust originally *322 covered only the one-fourth interest which Frank held in real estate in Chase County, Kansas.
D.E. Ackers accepted the trust but resigned June 5, 1957. The Central National Bank and Trust Company, now the First National Bank of Topeka, immediately accepted the trust and has continued to serve. On or about the same date Frank conveyed or delivered to the trustee the balance of his property consisting of his three-fourth interest in the parental home in Abilene and stocks and bonds.
Without listing in detail the property which passed to the trustee by delivery of properly executed instruments, it will suffice to state that on May 23, 1958, the trust property consisted of Kansas real estate with a market value of $14,108, and stocks and bonds with a market value of approximately $33,200.
The trust contained the following provisions:
Upon their death the trustee was to transfer and deliver all of the remaining assets to the Kansas University Endowment Association.
The district court found:
On June 4, 1959, a petition was filed by Bessie against the First National Bank of Topeka, Trustee, initiating this action. On October 5, 1959, the United Trust Company, a corporation of Abilene, Kansas, and Administrator of the estate of Frank C. Ackers, deceased, was granted leave to join in the action as an additional plaintiff, and Frances C. Xanders, Charlotte Xanders, a minor, and The Kansas University Endowment Association, a corporation, were joined as additional parties defendant.
The amended petition was in two counts. The first count demanded judgment in favor of Bessie and the administrator each for one-half of the assets of the trust estate. The second count demanded judgment in favor of the administrator for all of the assets of the estate to be administered and distributed to the heirs at law.
The lower court rendered judgment in favor of the defendants and the plaintiffs have appealed.
The first question presented for determination is whether the trust instrument is void in its entirety because the settlor reserved to himself the right to direct the trustee as to the sale of the assets held in trust and the purchase of other assets; the right to the income from the trust estate during his lifetime; the right to demand the payment over of the corpus of the trust, and the right to revoke the trust.
Prior to 1949 the statute covering trusts pertaining to personal property provided:
At the same time there was a statute, which still exists, covering trusts and powers concerning land as follows:
This court construed the provisions of G.S. 1935, 33-101, to harmonize with the provisions of G.S. 1949, 67-414, insofar as possible. However, if the instrument contained the power of the grantor to revoke, it was to the use of the person making the same and therefore void. (Hazleton v. Reed, 46 Kan. 73, 26 Pac. 450; *324 Glover v. Fillmore, 88 Kan. 545, 129 Pac. 144; Shulsky v. Shulsky, 98 Kan. 69, 157 Pac. 407.) The fact that the grantor reserved to himself other powers over the corpus of the trust estate did not affect its validity. Such powers as might be reserved by the settlor were considered in Miles v. Miles, 78 Kan. 382, 388, 96 Pac. 481, where it is stated:
In Herd v. Chambers, 158 Kan. 614, 149 P.2d 583, this court had under consideration the construction of G.S. 1935, 33-101 and held:
This was the only construction left open to the court if the language of the statute was to be given any effect. The statute made no exceptions as to the invalidity. The trust instrument was simply void if revocable by the settlor, and thus made "to the use of the person or persons making the same."
*325 The statute was contrary to the general law of the land. It was amended by the legislature in 1949 to read:
This court has not been called upon to interpret the statute since the amendment. However, the intent and purpose of the legislature would appear to be clear. If the settlor retained the control over the corpus of the trust such as the right to remove the trust assets or the right to revoke the trust, it was void as to creditors regardless of motive but otherwise it was valid. This construction establishes the same basic principle for testing the validity of trusts pertaining to personal property as that pertaining to land. (G.S. 1949, 67-414.) It also places the Kansas rule in harmony with the general rule announced by the courts of other states. (See the cases hereinafter cited covering the more limited question before us.)
We must conclude that there being no creditors, the trust was valid and could not be challenged by the administrator or other persons, unless for or by the wife in defense of her rights under the provisions of G.S. 1949, 59-504, 59-505, or 59-602.
The question is next raised as to the statutory rights of one spouse in the property of the other.
Kansas has never operated under the common law applicable to husband and wife by which husband and wife were in legal contemplation but one person and that person was the husband; the legal existence of the wife for most purposes merged in that of the husband, and the husband took a freehold estate in the wife's lands during coverture and the right to convey her chattels real.
The Kansas Constitution, article 15, section 6, provides:
The legislature immediately enacted laws to complement the constitutional provision:
The statutes gave the wife the same rights as to ownership, power to convey and control her separate property as those of the husband. (Putnam v. Putnam, 104 Kan. 47, 177 Pac. 838; State v. Koontz, 124 Kan. 216, 257 Pac. 944.)
It will be understood that the rule as announced does not apply to property jointly accumulated during the marriage. However, it is conceded in this case that the property in dispute was acquired by inheritance, rendering a consideration of the question as to what constitutes jointly acquired property unnecessary.
One spouse has no direct interest in property inherited by the other, and has no rights or liabilities in connection with litigation between heirs. (Rost v. Heyka, 133 Kan. 292, 299 Pac. 969; Carter v. Becker, 69 Kan. 524, 77 Pac. 264.)
There have been no statutory restrictions placed on the right of one spouse to make disposition of separately owned personal property regardless of the knowledge and consent of the other. It has been considered that to restrict either spouse in the sale or disposal of separately owned personal property without the consent of the other would be disastrous to trade and commerce. A different rule has been made applicable to real estate by statute:
It will be noted that the first part of the section gives the surviving spouse one-half of all the real estate which the decedent was at any time seized or possessed during the marriage, with the exceptions noted. This was not a common law right. It existed only by virtue of the statute. The proviso definitely excepted from the provision of the statute a surviving spouse who, at the time of the conveyance, was not and never had been a resident of this state during the existence of the marriage relation. The fact that the wife, the surviving spouse, was a resident of the state of California at all times, material to this controversy, is not disputed. In McGill v. Kuhn, 186 Kan. 99, 103, 348 P.2d 811, it is stated:
We must conclude that Bessie, the surviving spouse, had no claim on her deceased husband's property or the corpus of the trust by virtue of G.S. 1949, 59-505.
The appellant, Bessie, contends that there are two other statutes which give her a right to one-half of her deceased husband's assets and the trust instrument was executed in a fraudulent attempt to defeat such right.
The statute relating to intestate succession of a surviving spouse (G.S. 1949, 59-504) provides in part:
The statute limiting testamentary power (G.S. 1949, 59-602) insofar as applicable to a spouse provides:
It will be noted that the two statutes above quoted make no distinction between a resident and a nonresident spouse. They both have the same right of intestate succession and they are both protected by the limitation on testamentary power.
In McKelvey v. McKelvey, 75 Kan. 325, 328, 89 Pac. 663, it is stated:
It would appear that a resident spouse has a vested right of inheritance, a one-half interest, in the real estate which the deceased spouse was seized or possessed at any time during the marriage. (G.S. 1949, 59-505.) Neither could it be disposed of by will without the consent of the other. (G.S. 1949, 59-602.)
A resident spouse takes but a contingent right to inherit the personal property owned by the other. The right to inherit is contingent upon the other spouse not conveying the property during his or her lifetime.
A nonresident spouse has only a contingent right of inheritance in both the real estate and personal property of the other. The right to a one-half interest in the real estate is not protected by G.S. 1949, 59-505. The right to inherit under G.S. 1949, 59-504 and protected by 59-602 from testamentary disposition is contingent upon the spouse holding title to the property, not conveying it during his or her lifetime with or without consideration and without the knowledge or consent of the other.
*329 The right of the surviving spouse to inherit is greater than that of children mentioned in G.S. 1949, 59-504. The limitation on testamentary power contained in G.S. 1949, 59-602 (2) is not extended to children. The property may be conveyed during the lifetime of the parent or it may be devised and bequeathed away from the children by will.
We have now reached the crux of this controversy. If a spouse can during his or her lifetime make an absolute conveyance of all separately owned property, both real and personal, and thus defeat the right of a nonresident spouse to inherit under the provisions of G.S. 1949, 59-504, may the right be defeated by a trust conveyance which the grantor reserves the right to revoke?
The trial court concluded as a matter of law that:
The lower court correctly applied the law, as found in the Restatement of the Law of Trust, to the facts in the present case. However, the particular phase of the restatement in which we are interested is by no means universally accepted.
Restatement, Second, Trusts, § 57, page 151, states the general rule as follows:
The above statement is very generally accepted and followed. The restrictions on the general rule are stated on page 153 as follows:
"ILLUSTRATION:
The foregoing statement covers the factual situation in this present controversy. The decisions of the courts of the various states are in direct conflict on the question. It would be impossible to state a general rule which it could be said is supported by the weight of authority.
Our somewhat limited research discloses that the states of Florida (Williams et al. v. Collier, 120 Fla. 248, 158 So. 815); Kentucky (DeLeuil's Executors v. DeLeuil, 225 Ky. 406, 74 S.W.2d 474); Maryland (Brown v. Fidelity Trust Co., 126 Md. 175, 94 Atl. 523); Massachusetts (Kerwin v. Donaghy, 317 Mass. 559, 59 N.E.2d 299); Michigan (Rose v. Union Guardian Trust Co., 300 Mich. 73, 1 N.W.2d 458), and Vermont (Dunnett et al. v. Shields and Convant, 97 Vt. 419, 123 Atl. 626) adhere to the rule that one spouse may by a revocable living trust make a valid conveyance of separately owned property in which the other would otherwise have a right of inheritance.
The states of Illinois (Smith v. Northern Trust Co., 322 Ill. App. 168, 54 N.E.2d 75); Maryland (Mushaw v. Mushaw, 183 Md. 511, 39 A.2d 465); New Hampshire (Walker v. Walker, 66 N.H. 390, 31 Atl. 14); New York (Newman v. Dore, 275 N.Y. 371, 9 N.E.2d 966, 112 A.L.R. 643); Pennsylvania (Pengelly Estate, 374 Pa. 358, 97 A.2d 844), and Virginia (Norris v. Barbour, 188 Va. 723, 51 S.E.2d 334) adhere to the rule that a conveyance by one spouse to a trustee, reserving the income for life and power of revocation, is illusory and void as to the rights of the surviving spouse under the law of descent and distribution.
The courts of Ohio followed the latter rule until 1961. A review of the opinions in the Ohio cases will present the reasoning on both *331 sides of this controversy. In the case of Bolles v. Toledo Tr. Co., 144 Ohio St. 195, 58 N.E.2d 381, the Supreme Court of Ohio held in the first three paragraphs of the syllabus:
In the opinion it is stated:
In Harris v. Harris, 147 Ohio St. 437, 72 N.E.2d 378, it was again held in the syllabus:
Three of the justices dissented.
In Smyth v. Trust Co., 172 Ohio St. 489, 179 N.E.2d 60, the court reversed its position of long standing and held in the second paragraph of the syllabus:
In the opinion the court referred to the syllabus in the Harris case and then stated:
"Matthias, J., in a dissenting opinion, observed:
"Zimmerman, J., likewise dissenting stated:
The court adopted the reasoning in the dissenting opinions and concluded the opinion:
This court has not heretofore been called upon to determine this specific question. However, the decisions of this court, insofar as at *333 all analogous, would appear to lean toward the protection of the right of a spouse to inherit as against any semblance of overreaching on the part of the other by the execution of an illusory instrument.
In Poole v. Poole, 96 Kan. 84, 89, 150 Pac. 592, this court, without making reference to any statute, stated generally as follows:
In Small v. Small, 56 Kan. 1, 12, 42 Pac. 323, this court quoted with approval from a note in Kerr on Frauds and Mistakes, p. 220, as follows:
We conclude that the husband of a nonresident wife may, by absolute sale, gift or other transfer made in good faith during his lifetime, deprive the wife of her distributive share. However, if the transfer is colorable only and the husband retains the power of revocation, it is fallacious, illusive and deceiving, and will be considered as fraud on the rights of the widow where she is deprived of her distributive share.
The trust instrument in question reserved to the donor the power of revocation. The donor did not part with dominion over the trust res and the widow is not barred from claiming her distributive share of the corpus of the trust under the law of intestate succession. (G.S. 1949, 59-504.)
The appellees suggest that after the death of the donor's daughter and granddaughter, the corpus of the trust was to pass to the Kansas University Endowment Association. They then contend, and the trial court concluded, that this court is committed to the rule that it is the fixed policy of the law to uphold charitable gifts *334 as valid whenever possible. This court has held charitable trusts to be favorites of the law and that they must be upheld whenever possible. (In re Estate of Porter, 164 Kan. 92, 187 P.2d 520.) However, this court is also committed to the rule that one spouse should not be permitted to defeat the statutory rights of the other by a colorable or illusory conveyance.
There is no place for the application of the rule favoring charities under the facts in this controversy. Public welfare is not enhanced by a husband conveying all of his property to charity, by a colorable instrument, and thus leaving his widow to seek alms.
The conclusions reached render the rather extensive controversies as to admissibility of evidence, competency of witnesses, and related alleged trial errors immaterial.
The judgment is affirmed insofar as applicable to one-half the corpus of the trust. The judgment is reversed insofar as it deprives the widow of her right of inheritance under G.S. 1949, 59-504, and the district court is instructed to enter judgment directing the trustee to deliver to the administrator of the estate of Frank C. Ackers' one-half of the corpus of the trust as it existed at the death of Frank C. Ackers, plus increments accruing therefrom, but less the trustee's reasonable cost of administering the trust, to be administered according to law for the sole benefit of Bessie M. Ackers.
The cost of this appeal shall be taxed to the trust estate and paid by the trustee as part of the costs of administering the trust before transfer of one-half of the trust res to the administrator.
APPROVED BY THE COURT.
(REPORTER'S NOTE  For opinion denying motion for rehearing see 192 Kan. 471, 389 P.2d 1.)