Title: Little v. Ward

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  All the Justices 
 
GEORGE 
B. 
LITTLE, 
TRUSTEE      
                                              OPINION BY 
v.  Record No. 941475 
CHIEF JUSTICE HARRY L. CARRICO 
                                            June 9, 1995 
WILLIAM S. WARD, JR., ET AL. 
 
 
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND 
 
Melvin R. Hughes, Jr., Judge 
 
 
This appeal is from an order removing George B. Little 
(Little) and Robert L. Freed (Freed) as trustees of a trust 
because hostility developed between them.  Finding that the trial 
court erred in removing George B. Little, we will reverse. 
 
Anne L. Ward (Mrs. Ward) executed the trust agreement on 
December 30, 1976, and funded the trust with shares of stock she 
owned in The Little Oil Company, Incorporated, of Richmond (Little 
Oil).  In creating the trust, Mrs. Ward had three purposes in 
mind, (1) to remove the stock from her gross estate in order to 
achieve substantial savings in estate taxes, (2) to provide 
security for her husband, William S. Ward, Sr., one of the trust's 
beneficiaries whose affliction with alcoholism caused serious 
financial problems, and (3) to provide for her children, William 
S. Ward, Jr., and Beverly Lewis Ward, the trust's other 
beneficiaries.  
 
Article Seven of the trust agreement is central to the issues 
involved in the case.  It provides as follows: 
 
 
This trust is irrevocable and the Grantor does 
hereby expressly relinquish all right, whether acting 
individually or in conjunction with others, to alter, 
amend, revoke, or terminate this Agreement, but the 
Grantor expressly reserves the right to add additional 
property acceptable to the Trustee of any nature 
whatsoever to the principal of this trust. 
 
 
In the trust agreement, Mrs. Ward named Little, a Richmond 
attorney, as trustee.  However, in the introductory clause of the 
agreement, Little's name was followed by a blank space for the 
naming of a co-trustee.  Blank spaces were provided for the co-
trustee's name in two other places in the body of the document, 
and there was an extra signature line and a third notarial 
certificate included at the end.  Little explained on the witness 
stand that he provided the blank spaces when he prepared the 
document because Mrs. Ward consistently named two persons in other 
documents he had prepared for her. 
 
Little testified further that although he and Mrs. Ward 
discussed the naming of a co-trustee on a number of occasions 
after she executed the agreement and he delayed executing it for 
three months to give her time to name a co-trustee, she finally 
told him he should act as sole trustee, and he signed the 
agreement on March 24, 1977.  Mrs. Ward testified, however, that 
she "didn't trust [Little] to be sole trustee" and that when she 
left his office after she executed the trust agreement, she 
understood she had "the ability to fill in that blank."    
 
Ten years later, in February 1987, Mrs. Ward telephoned 
Freed, a Richmond attorney who then represented both Mrs. Ward and 
Little Oil, of which she was president.  Mrs. Ward told Freed the 
company was preparing to pay its annual dividend, and she 
instructed him to "figure out some way" to avoid sending Little 
the dividends on the stock in the trust, amounting to some $9,000. 
 
Freed "got the trust agreement out and focused on the blank 
in the document."  He also did some research and found no cases 
either supporting Mrs. Ward's position or prohibiting her from 
appointing a co-trustee.  Deciding that Mrs. Ward "had retained 
the right to complete the blank," Freed "advised [Mrs. Ward] of 
the risk of [filling in the blank,] agreed that [he] would serve 
as a co-trustee of the trust, . . . agreed that [he] would accept 
the funds from Little Oil Company," and secured Mrs. Ward's 
agreement to indemnify him.
1  However, neither Freed nor Mrs. Ward 
informed Little of Freed's purported appointment as co-trustee.  
                     
     
1Mrs. Ward never filled in any of the blank spaces in the 
trust agreement.  Apparently, Freed was content with her oral 
appointment of him as co-trustee. 
 
For more than three years, Freed periodically received checks 
from Little Oil, representing payments of dividends on the stock 
held in the trust.  Freed deposited the checks in an account he 
opened as "Escrow Agent" in a local bank but neither notified 
Little of the existence of the account nor reported the sums 
received to the Internal Revenue Service or Virginia tax 
authorities. 
 
Finally, on March 23, 1990, realizing he was in "a dilemma 
because [he] had not reported [the dividends and knew Little could 
not have reported them] on any trust income tax return,"  Freed 
sent bank "summaries" to the certified public accountant Little 
used to prepare tax returns for the trust.  Little immediately 
wrote Freed and demanded that he turn the funds over to Little.  
Freed refused the demand. 
 
Meanwhile, on December 23, 1986, Mrs. Ward and the three 
beneficiaries of the trust, with Freed as their counsel, filed a 
petition against Little, as trustee, alleging that, due to recent 
changes in federal and state tax laws, the shareholders of Little 
Oil had resolved that the company "should elect [Subchapter] S 
Corporation status pursuant to the provisions of the Internal 
Revenue Code on or before December 31, 1986."  The petition 
alleged further that Little had refused to terminate the trust, to 
distribute the shares of the corporation to the beneficiaries, or 
to resign as trustee and appoint a successor trustee so the 
corporation could elect Subchapter S status before December 31, 
1986. 
 
The petition prayed that the court order Little to distribute 
to the beneficiaries the shares he held in trust,  order that the 
trust be terminated, or order Little to resign as trustee and 
appoint Freed as successor trustee.  Little filed a response 
denying that his refusal was without good cause.  He also offered 
to resign as trustee in favor of "any corporate fiduciary in the 
City of Richmond," provided his successor concurred with his 
position that the trust should not be terminated because there 
were contingent beneficiaries who could not be ascertained until 
the occurrence of future events.
2
 
The Subchapter S issue became moot for reasons unrelated to 
the questions involved in the present case.  However, the petition 
                     
     
2On appeal, Little stresses the point that because there were 
contingent beneficiaries who could not be ascertained until the 
occurrence of future events, it was his duty to resist the efforts 
to terminate the trust.  His opponents deny there is any substance 
to the point.  In view of the disposition we make of the case 
infra, we need not decide the point.   
filed by Mrs. Ward and the beneficiaries was not dismissed, and 
negotiations continued for several years concerning a successor to 
Little as trustee.  Then, on July 26, 1990, after Little learned 
of the "Escrow Agent" account into which Freed had been depositing 
dividends accruing on the stock held in the trust, Little filed a 
cross-bill against Freed and his law firm seeking judgment "in an 
amount equal to the total dividends diverted . . . together with 
appropriate interest and an additional sum equal to the total of 
all penalties and interest payable to the United States Government 
and the Commonwealth of Virginia."
3  A consent order allowed the 
filing of the cross-bill. 
 
Freed and his law firm filed an answer to the cross-bill on 
April 23, 1991.  From this answer, Little learned for the first 
time of Freed's purported appointment as co-trustee.  By order 
entered August 23, 1993, the case was continued, and Freed and his 
law 
firm 
were 
permitted 
to 
withdraw 
as 
counsel 
for 
the 
beneficiaries of the trust.
4
 
With leave of court, the beneficiaries, with new counsel, 
filed an amended petition on October 12, 1993.  This petition 
sought the removal of both Little and Freed as trustees "due to 
                     
     
3At time of trial, the funds in Freed's "Escrow Agent" account 
amounted to "about $29,000." 
     
4About this time, an incident occurred which caused friction 
between Little on the one hand and Mrs. Ward and the beneficiaries 
on the other.  In a letter dated May 18, 1993, Mrs. Ward and the 
beneficiaries requested that Little pay hospital bills totalling 
some $14,000 that had been incurred for the hospitalization of 
William S. Ward, Sr.  Little refused the request, taking the 
position that Mrs. Ward was responsible for the bills of her 
spouse.   
irreconcilable 
disagreements 
and 
conflict 
between 
the 
co-
trustees."   
 
After a hearing, in an order entered May 26, 1994, the trial 
court found that "because of the existence of the hostility and 
friction" between Little and the settlor and beneficiaries and 
between Little and Freed, "the best interests of the trust would 
be served by the removal of . . . Little and . . . Freed as 
trustees."  The order removed Little and Freed, appointed The 
Tredegar Trust Company as the sole trustee, and dismissed Little's 
cross-bill.  We awarded Little this appeal. 
 
William S. Ward, Sr., one of the trust's beneficiaries, died 
in December, 1993.  Freed, his law firm, and the surviving 
beneficiaries, William S. Ward, Jr., and Beverly Lewis Ward, have 
filed a joint brief and will be referred to hereinafter, 
collectively, as Ward.
5   
 
The initial question to be decided is whether Freed was 
validly appointed as co-trustee.  In resolving this question, the 
crucial consideration is whether Mrs. Ward validly reserved the 
power to name a co-trustee.   
 
On this point, the trial court noted in a letter opinion that 
"[t]he settlor, by terms of the trust instrument, may reserve to 
herself the power to modify or alter the trust with reference to 
the details of administration of the trust."  In its order of May 
                     
     
5Anne L. Ward is not a party to this appeal, but she signed a 
statement at the end of the appellees' brief in opposition to the 
granting of an appeal that she agreed with the argument of 
appellees' counsel. 
26, 1994, the court stated that "the terms of the trust . . . 
permitted . . . Anne L. Ward, to preserve the power to appoint a 
second trustee to the trust instrument" and that Mrs. Ward 
"accomplished [this] by . . . appointing Robert L. Freed as co-
trustee."
6
 
However, the court did not specify any term of the trust 
agreement that reserved the power to name a co-trustee and, 
indeed, the instrument contains no such term.  Apparently, the 
court considered that Mrs. Ward's stated intent to name a co-
trustee, coupled with the presence of blank spaces in the trust 
agreement, constituted a reservation of the power to name a co-
trustee. 
 
If this was the basis of the trial court's finding of a 
reservation of power, then the finding was in error for it is in 
contravention 
of 
Article 
Seven 
of 
the 
trust 
agreement.  
Restatement (Second) of Trusts § 331 (1959).  Article Seven 
provides that the trust is irrevocable and prohibits any 
alteration or amendment of the agreement save to add additional 
property acceptable to the trustee.   
 
Commenting on Article Seven, the trial court said in its 
letter opinion that the purpose of the Article was to prohibit "a 
change of purpose or object of the trust" and not to prevent the 
addition of a co-trustee as Mrs. Ward intended, which "did not 
                     
     
6On brief, Ward adopts the trial court's rationale in arguing 
that Mrs. Ward reserved the power to name a co-trustee. 
 
 
 
change the substantive provisions of the trust" but "merely 
relate[d] to its administration."
7  There is nothing in the 
language of Article Seven, however, that permits so restrictive an 
application 
of 
its 
terms. 
 
Rather, 
the 
language 
is 
all 
encompassing, prohibitive of any alteration or amendment of the 
agreement, substantive or administrative. 
 
When Little signed the trust agreement after it had been 
executed by Mrs. Ward and she had funded it with the Little Oil 
stock, the agreement became complete, its terms became fixed as 
they were then spelled out, and the trust became operative.  One 
of the terms becoming fixed as then spelled out was that the trust 
would be administered by only one trustee, namely, Little, despite 
the fact that blank spaces remained in the trust agreement; once 
the trust became operative, the blank spaces became surplusage 
and, thereafter, should have been ignored.
8
 
Another of the terms becoming fixed as then spelled out was 
the prohibition against any alteration or amendment of the trust 
agreement.  With the terms thus fixed, any filling in of blanks to 
name a co-trustee clearly would have been an alteration or 
                     
     
7Ward adopts the trial court's rationale in arguing that Mrs. 
Ward's appointment of a co-trustee did not violate Article Seven. 
     
8Ward makes the additional argument that the presence of 
blanks in the trust agreement "where one would expect a named 
trustee" rendered the instrument ambiguous and, hence, the trial 
court properly determined that Mrs. Ward intended that the trust 
be administered jointly by two trustees.  We will agree that Mrs. 
Ward had the described intent, but the fact she had such an intent 
is beside the point.  The question is whether Mrs. Ward acted 
pursuant to a power reserved in the trust agreement to carry out 
her intent.  And, as indicated in the text, infra, she did not act 
pursuant to any such power. 
amendment of the trust instrument in violation of Article Seven. 
See Restatement (Second) of Trusts § 331 cmt. b (1959). 
 
In our opinion, Mrs. Ward did not validly reserve the power 
to appoint a co-trustee and, hence, Freed was not validly 
appointed.
9  It follows that, while friction between co-trustees 
may be a valid ground for removal, May v. May, 167 U.S. 310, 320-
21 (1897), Freed never became a co-trustee, and, consequently, any 
hostility or friction that developed between him and Little could 
not constitute good cause for the removal of Little. 
 
Nor could the friction that existed between Little and Mrs. 
Ward and the beneficiaries serve as good cause for removing 
Little.  In the first place, the sole basis alleged in the 
beneficiaries' amended petition for removal of Little was the 
"irreconcilable 
disagreements 
and 
conflict 
between 
the 
co-
trustees"; therefore, friction between Little and Mrs. Ward and 
the beneficiaries was not available to the trial court as a ground 
for removing Little.  Ted Lansing Supply Co. v. Royal Aluminum & 
Constr. Corp., 221 Va. 1139, 1141, 277 S.E.2d 228, 229 (1981) (no 
court can base its judgment upon facts not alleged or upon a right 
not pleaded).  Furthermore, in Virginia, "[f]riction between the 
trustee and the beneficiary is not in itself sufficient ground for 
removal [of the trustee]."  Willson v. Kable, 177 Va. 668, 676, 15 
                     
     
9Little has been concerned throughout this case that if Mrs. 
Ward is held to have reserved the power to name a co-trustee, 
there is danger that the assets of the trust would be included in 
her gross estate with an accompanying increase in estate taxes in 
excess of $300,000.  Ward says there is no basis for Little's 
concern.  Because we hold that the trial court erred in finding a 
reservation of power, this issue is moot.   
S.E.2d 56, 59 (1941).  
 
Accordingly, we will affirm the judgment of the trial court 
to the extent that it removed Freed as trustee but reverse it to 
the extent that it removed Little as trustee and named a new 
trustee in his place.  We will dismiss with prejudice the amended 
petition insofar as it sought removal of Little as trustee and 
enter final judgment in favor of Little.  We will reverse the 
dismissal of Little's cross-bill, reinstate the cross-bill, and 
remand the case for further proceedings consistent with the views 
expressed in this opinion. 
 
Affirmed in part,
 
reversed in part,
                                                and remanded.