Title: Cooper v. Brodie
Citation: N/A
Docket Number: 960283
State: Virginia
Issuer: Virginia Supreme Court
Date: January 10, 1997

Present:  All the Justices 
 
SUSAN JONES COOPER, TRUSTEE, ETC. 
 
OPINION BY JUSTICE ROSCOE B. STEPHENSON, JR. 
v.  Record No. 960283 
                                     January 10, 1997 
SALLY H. BRODIE, ET AL. 
 
 
FROM THE CIRCUIT COURT OF ARLINGTON COUNTY 
 
William L. Winston, Judge 
 
 
The principal issue in this appeal is whether the trial 
court erred in terminating a trust and ordering the trustee to 
distribute the assets of the trust before estate tax liability 
had been determined.  Other issues presented are whether the 
court erred in denying the trustee her requested compensation for 
services as trustee and in ordering that the trustee be 
personally responsible for a portion of the legal fees and 
expenses incurred in this litigation. 
 
I 
 
On February 14, 1994, Sally H. Brodie and Margaret Jones 
(collectively, Brodie) filed a declaratory judgment suit against 
their sister, Susan Jones Cooper, in her individual capacity, as 
trustee of the Lucy P. Jones 1991 Trust (Lucy's Trust), and as 
Executrix of the Estate of Lucy P. Jones, her mother.  Brodie 
asked (a) in Count I of the bill of complaint, that Lucy's Trust 
be terminated and its assets distributed to the beneficiaries; 
(b) in Count II, that Cooper be removed as executrix of Lucy 
Jones' estate; and (c) in Count III, for an award of at least 
$100,000 in damages against Cooper for alleged breach of 
fiduciary duties and, also, that Cooper be removed as trustee of 
Lucy's Trust.  Brodie alleged that Cooper (1) failed to terminate 
 
 
 
 
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Lucy's Trust and to distribute its assets when Cooper had already 
provided for the payment of the estate tax by electing to utilize 
the installment payment provisions of § 6166A of the Internal 
Revenue Code; (2) breached fiduciary duties as executrix by 
misrepresenting the estate tax issue in order to fraudulently 
obtain a larger fee from the estate; and (3) breached fiduciary 
duties as trustee by failing to act in the best interests of the 
beneficiaries of Lucy's Trust because of conflicts of interest. 
 
Following an ore tenus hearing, the trial court found that 
Cooper had not breached her fiduciary duties and that no cause 
existed to remove Cooper as executrix or as trustee.  
Accordingly, by decree entered March 3, 1995, the court dismissed 
with prejudice Counts II and III of the bill of complaint.  At 
that time, the court continued the cause as to Count I (the 
termination of Lucy's Trust) because one of the partnerships held 
in the trust was in the process of closing a lucrative lease.  
The transaction, however, did not close because the required 
rezoning was not obtained. 
 
By final decree entered November 13, 1995, the trial court 
ordered Cooper to terminate Lucy's Trust and to distribute its 
assets forthwith to its beneficiaries.  The court further ordered 
that the beneficiaries shall not dispose of or encumber the 
assets received without paying their pro-rata share of the estate 
taxes due on those assets whenever Cooper reached a settlement 
with the tax authorities in a manner acceptable to at least one 
 
 
 
 
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of her sisters. 
 
The trial court allowed Cooper to recover her attorney's 
fees and costs related to Counts II and III as a charge against 
Brodie's interests in Lucy's Trust.  The court, however, divided 
the attorney's fees and costs related to Count I, charging 
Brodie's fees and costs to Lucy's Trust and Cooper's fees and 
costs one-half to her individual interest in the trust and one-
half to the trust.  The court also denied Cooper's motion for the 
payment of a $500,000 fee for her services as trustee since the 
inception of Lucy's Trust. 
 
II 
 
On February 14, 1991, Lucy P. Jones executed her revocable 
inter vivos trust, naming Cooper as trustee.  Lucy also had named 
Cooper as executrix of her will.   
 
On August 1, 1992, Lucy died without revoking the trust, and 
the trust became irrevocable.  The named beneficiaries of both 
Lucy's Trust and her will are her three daughters:  Susan Cooper, 
Sally Brodie, and Margaret Jones.
1  At the time of her death, the 
value of Lucy's probate estate was approximately $800,000.  The 
value of the assets in Lucy's Trust was approximately 
$12,000,000. 
 
In Article I(C) of the trust agreement, Lucy provided that 
                     
     
1On April 30, 1993, Cooper disclaimed a fractional share of 
her one-third share of Lucy's Trust in favor of her daughters, 
Sally Hart Hunt and Carolyn C. Snare.  Hunt and Snare were added 
as parties to this suit. 
 
 
 
 
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"the assets held at [her] death and other assets received by 
[her] Trustee by reason of [her] death, after payment of any 
charges under Article II, shall be distributed in accordance with 
the provisions of Article III."  Article II of the trust provides 
as follows: 
 
 
At my death my Trustee may pay to or upon the 
order of my Executor, or may pay directly, funds needed 
to pay my legally enforceable debts, my charitable 
pledges, funeral and burial expenses, costs of 
administration, death taxes and cash bequests under my 
Will.  My Trustee may rely upon my Executor as to the 
amount of the charges.  The decision of my Trustee 
whether to provide funds shall be final. 
 
Article III of the trust provides, in pertinent part, the 
following: 
 
 
Upon my death and after the payment or provision 
for the payment of the debts, taxes and other charges 
described in Article II, the then remaining Trust 
Estate shall be divided per stirpes into equal shares 
. . . .  Each share for a child of mine . . . shall be 
distributed to such child.
[ ]
2
 
 
Under Article V of Lucy's Trust, Cooper was granted the 
powers set forth in Code § 64.1-57.  Cooper also was granted "the 
power to enter into partnership agreements and act as a partner 
to the same extent that [Lucy] could [have done] if acting 
individually."  Article V further provided that Cooper "shall be 
entitled to receive reasonable compensation for her services." 
 
The assets of Lucy's Trust constitute approximately 95% of 
                     
     
2Lucy Jones' will likewise directed Cooper, as Executrix, to 
pay estate and inheritance taxes, debts, and costs of 
administration and, then, to distribute the remainder of her 
estate in equal shares to her three daughters. 
 
 
 
 
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Lucy Jones' estate.  The majority of these assets (approximately 
60%) are interests in partnerships that own real estate and are 
closely held businesses, and they include a one-third interest in 
the George H. Rucker Company, a one-half interest in the Jones & 
Jones Partnership, and a one-third interest in the Marye's 
Heights Apartments in Fredericksburg.  Lucy's Trust also holds 
1,850 shares of stock in Geo. H. Rucker Realty Corporation, a 
closely held family corporation. 
 
On October 29, 1993, Cooper, as executrix, filed the federal 
estate tax return and reported the value of the gross estate to 
be $12,639,567.  The return showed deductions of slightly over 
$759,000.   
 
The value of the partnership interests as reported in the 
federal estate tax return was based on appraisals by qualified 
professional appraisers.  The Internal Revenue Service (IRS), 
however, was having its own appraiser value those interests.
3    
Therefore, when the trial court terminated Lucy's Trust and 
ordered the distribution of its assets to the beneficiaries, the 
IRS audit was pending, and the amount of the federal estate tax 
had not been determined.
4
 
     
3According to the estate tax counsel for Lucy's Trust, "it 
is almost a certainty the IRS will assert greater values for 
those interests than reflected on the Federal Estate Tax Return, 
and claim more Federal estate tax than reflected on that return." 
     
4To avoid late payment penalties, Cooper exercised her right 
to make a discretionary election under § 6166 of the Internal 
Revenue Code and Code § 58.1-905(B), which allow installment 
payments of estate and inheritance taxes due on family business 
interests. 
 
 
 
 
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III 
 
The first question presented is whether the trial court 
erred in terminating Lucy's Trust and ordering distribution of 
its assets to the beneficiaries.  To answer this question, we 
look to the trust agreement in order to ascertain Lucy's intent. 
 
In Article III of the trust agreement, Lucy Jones directed 
that the assets shall be distributed equally to her three 
daughters "after the payment or provision for the payment of the 
debts, taxes and other charges."  This article makes clear, 
therefore, that Cooper must either pay the estate tax or make 
provision for its payment before she is authorized to distribute 
to the beneficiaries "the then remaining Trust Estate." 
 
A prominent former law professor, recognized as an authority 
in trust and estate law, testified that, before a trustee can 
provide for the payment of estate taxes, the amount of the tax 
must be determined.  We agree. 
 
When the trial court terminated Lucy's Trust and ordered 
distribution of its assets, the amount of the federal estate tax 
had not been ascertained.  Thus, there was no way for Cooper to 
provide for the payment of the tax or to determine what would 
constitute "the then remaining Trust Estate."  Consequently, we 
conclude that the trial court erred in this ruling. 
 
IV 
 
We next consider the trial court's ruling regarding Cooper's 
claim of compensation for her services as trustee. 
 
 
 
 
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The trust agreement, in Article V, provides that Cooper 
"shall be entitled to receive reasonable compensation for her 
services."  On April 28, 1993, Cooper wrote a letter to Sally 
Brodie explaining her claim for compensation.  In the letter, 
Cooper stated that, after consulting with her attorneys, she 
"[had] decided to set [her] trustee and executor's fee at 
$120,000."  She further stated that "[the] commission will cover 
[her] time until the estate is audited and finally closed by the 
IRS" and that the commission also might be viewed "as relating 
partly to the work [she had] done as trustee for [her mother and 
father] for the past five years."  Thereafter, Cooper included 
the sum of $120,000 as a deduction on the federal estate tax 
return, representing her compensation for services as both 
executrix and trustee. 
 
At the time the trial court ruled that Cooper had not 
breached her fiduciary duties and that no cause existed for her 
removal as executrix or as trustee, the court was aware that 
Cooper had reported her compensation as $120,000 and that Cooper 
 felt the sum was fair and reasonable for her services as 
executrix and as trustee.  The court also knew that Cooper had 
been receiving substantial annual compensation for her work with 
the several entities in which Lucy's Trust had an undivided 
interest. 
 
After the trial court ordered termination of Lucy's Trust, 
Cooper requested the court to award her $500,000 for her services 
 
 
 
 
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as trustee.  The court properly denied the request. 
 
We think it is clear from the record that the court 
previously had determined, based upon Cooper's representation, 
that $120,000 was a reasonable sum to compensate Cooper for her 
services as both executrix and trustee, and we cannot say the 
court abused its discretion.  Accordingly, Cooper's compensation 
for her services as executrix and as trustee shall be fixed at 
$120,000 and paid from funds in Lucy's Trust. 
 
V 
 
Finally, we consider the trial court's ruling with respect 
to attorney's fees and costs.  As previously noted, the court 
allowed Cooper her attorney's fees and costs related to Counts II 
and III of the bill of complaint as a charge against Brodie's 
interests in the trust; however, the court divided the attorney's 
fees and costs related to Count I, charging Brodie's fees and 
costs to the trust and charging one-half of Cooper's fees and 
costs to the trust and one-half to her individual interest in the 
trust. 
 
As trustee, Cooper had a duty to defend the suit.  See 
Willson v. Whitehead, 181 Va. 960, 966, 27 S.E.2d 213, 216 
(1943).  When a trustee has a good faith basis for defending a 
suit, the attorney's fees and costs incurred should be charged to 
the trust estate.  See Cohn v. Central Nat'l Bank, 191 Va. 12, 
23, 60 S.E.2d 30, 35 (1950). 
 
In the present case, Cooper had a good faith basis for 
 
 
 
 
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opposing the trust's termination and her removal as both 
executrix and trustee.  She prevailed in the trial court on the 
removal counts and prevails on appeal regarding the termination 
count.  In the circumstances of this case, therefore, we conclude 
that the trial court erred in charging a portion of Cooper's 
attorney's fees and costs to her individual interest in Lucy's 
Trust; that portion should be charged to the trust. 
 
VI 
 
Accordingly, we will affirm in part and reverse in part the 
trial court's judgment and remand the case for further 
proceedings. 
 
Affirmed in part, 
                                                reversed in part, 
                                                and remanded.