Title: Wilcox v. Gentry

State: kansas

Issuer: Kansas Supreme Court

Document:

254 Kan. 411 (1994)
867 P.2d 281
RON R. WILCOX and NANCY JO WILCOX, Appellants,
v.
ISABELL GENTRY, JAMES F. JARVIS, Trustee, Frank Gentry Trust, Appellees.
No. 68,401

Supreme Court of Kansas.
Opinion filed January 21, 1994.
Don W. Noah, of Noah & Harrison, P.A., of Beloit, argued the cause, and Jerry L. Harrison and Mark J. Noah, of the same firm, were with him on the briefs for appellants.
Rodney G. Nitz, of Salina, argued the cause and was on the briefs for appellee James F. Jarvis, Trustee, Frank Gentry Trust.
The opinion of the court was delivered by
McFARLAND, J.:
Ron and Nancy Wilcox appeal from the district court's judgment holding that any payments made by the trustee of the Frank Gentry Trust (Trust) which are made for the benefit of Isabell Gentry and not paid directly to Isabell are not subject to garnishment. The Court of Appeals affirmed the judgment appealed from, but reversed, sua sponte, a continuing garnishment order entered by the district court relative to payments made by the trustee directly to Isabell Gentry. The matter is before us on petition for review.
In 1985, Frank Gentry created a revocable Trust. During his lifetime, Frank was the beneficiary of the Trust. Upon Frank's death certain trust property was to be distributed to named individuals. The residue of the Trust's assets was to be divided into *412 five equal shares. Four of these shares were to be distributed to the four individuals designated as their recipients. This action concerns the fifth share. The applicable Trust provision in Article III, Section D.5, is as follows:
The district court and the Court of Appeals characterized the Trust provisions applicable to Isabell Gentry in (e) as being discretionary in nature. This determination is unchallenged herein and we agree we are dealing with a discretionary trust. The Trust contains no spendthrift provision.
Ron and Nancy Wilcox obtained a judgment against Isabell Gentry for fraud in the sale of a residential property. Their judgment was for $40,000 actual damages and $11,667.35 punitive damages. They garnished the Trust to seek satisfaction of their judgment. Frank Gentry, grantor and sole beneficiary during his lifetime, had died previously, thereby activating section 5(e) relative to Isabell.
The district court held that any trustee payments directly to Isabell were subject to garnishment but that trustee payments for Isabell's benefit were not. The propriety of the district court's determination relative to payments made for Isabell's benefit is the only aspect of the judgment from which an appeal was taken.
The Court of Appeals' affirmance of the district court was based, in part, upon our case of State ex rel. Secretary of SRS v. Jackson, 249 Kan. 635, 822 P.2d 1033 (1991). Reliance on Jackson is misplaced. Jackson involved an action by SRS, pursuant to K.S.A. 39-719b, to compel the Jackson Trust beneficiary to reimburse SRS for public assistance benefits she had received. The Trust was not a party to the action, and the trustee was not being asked to pay anything to SRS. The issue was whether or not the *413 trust had been an "available resource" to Jackson at the time she was receiving public assistance funds for purposes of determining her eligibility for such SRS benefits. Thus, the spendthrift provisions of the Jackson Trust were irrelevant. The case involved only Jackson's interest in the trust. We held that the trust was discretionary as to payments of principal but not discretionary as to income. Thus, as Jackson had the right to receive the trust income, such income was an available resource to Jackson in determining her eligibility for public assistance.
In Jackson we cited Restatement (Second) of Trusts § 155(1) (1957) and comment (b), which provide:
"Comment b:
Section 155(1) was pertinent to Jackson as we were concerned with the interest of the beneficiary to the trust and her concomitant ability to compel payment to her.
In the case before us, the issue is not whether the trustee can be compelled to pay income or principal. The issue before us is, if the trustee exercises its discretion and makes a payment on behalf of the beneficiary, whether such payment is subject to the creditors' garnishment.
This makes Restatement (Second) of Trusts § 155(2), rather than (1), the applicable statement, as it provides:
As previously stated, there is no valid restraint on alienation (spendthrift provision) involved herein. This section makes no distinction between payments directly to the beneficiary or on the beneficiary's behalf.
Pertinent comments to subsection (2) are found therein as follows:
"Illustrations:
In IIA Scott on Trusts § 155.1, p. 160-61 (4th Ed. 1987), the following pertinent discussion appears:
In Bogert, Trusts and Trustees § 228, pp. 524-32 (Rev.2d Ed. 1992), distinctions between discretionary and spendthrift trusts are discussed, and the following is stated relative to a creditor's ability to reach trust funds:
....
The above-cited treatises are persuasive. We see no valid reason for treating payments to a beneficiary differently from payments made on behalf of the beneficiary as far as creditors are concerned. If the creditor has the right to reach payments made to the beneficiary excluding payments made on behalf of the beneficiary serves only to encourage circumvention of that right. We adopt Restatement (Second) of Trusts § 155(2) and find it determinative of this issue. The district court and the Court of Appeals erred in holding that only funds paid directly to a discretionary trust beneficiary are subject to garnishment by a creditor.
In their petition for review, Ron and Nancy Wilcox object to the Court of Appeals' reversal, sua sponte, of the district court's continuing order of garnishment as to funds paid directly to the beneficiary.
The Wilcoxes did not appeal from this part of the judgment as it was in their favor. No cross-appeal was filed.
K.S.A. 1992 Supp. 60-2103(h) provides:
As to its basis for raising an issue sua sponte, the Court of Appeals stated:
The district court had both personal and subject matter jurisdiction herein.
The order of continuing garnishment entered herein as to funds paid directly to the beneficiary was in no way an inherent part of the sole issue on which the appeal was taken or necessary to the determination of that issue. Even if such had been the situation, *417 the parties should have been afforded the opportunity to brief the sua sponte issue.
If judicial review was to be had on this aspect of the judgment, it should have been the subject of a cross-appeal by a party aggrieved thereby. This did not occur. We conclude the Court of Appeals lacked jurisdiction to raise and determine this matter sua sponte. See Douglas v. Lombardino, 236 Kan. 471, 490, 693 P.2d 1138 (1985).
The judgment of the Court of Appeals is reversed. The judgment of the district court is reversed, and the case is remanded for further proceedings.