Opinion ID: 1058041
Heading Depth: 2
Heading Rank: 1

Heading: Allocation of Condemnation Compensation

Text: The UPIA applies to every trust ... existing on January 1, 2000, except as otherwise expressly provided in ... the terms of the trust. Code § 55-277.33. The parties do not dispute that the UPIA generally governs the Trust at issue in this appeal. Under the UPIA, [a] trustee shall allocate to principal... [p]roceeds of property taken by eminent domain. Code § 55-277.13(4). See also Manufacturers Trust Co. v. Roanoke Water Works Co., 172 Va. 242, 256, 1 S.E.2d 318, 323-24 (1939) (a condemnation award equitably stands in the place of the land taken). However, Code § 55-277.3(A)(1) provides that, [i]n allocating receipts and disbursements to or between principal and income, a trustee [s]hall administer a trust ... in accordance with the terms of the trust ..., even if there is a different provision in this chapter. That provision's corollary is contained in Code § 55-277.3(A)(3): the trustee [s]hall administer a trust ... in accordance with [the UPIA] if the terms of the trust ... do not contain a different provision. Thus, the question is whether the Trust contains a different provision regarding the allocation of the condemnation compensation to principal or income. According to the Trustee and the circuit court, paragraph 3, subsection (C)(i) of the Trust provides an allocation of compensation from a condemnation action different than the requirement in Code § 55-277.13(4) that such be allocated to principal. Paragraph 3 of the Trust is titled DUTIES OF THE TRUSTEE. In subsection (C) proper, the Trustee is directed to distribute all net income generated by the [T]rust and the [T]rust property unto the Grantor during her lifetime. Subsection (C)(i) includes in net income all funds received from the rental of the [T]rust property and/or generated from or by the [T]rust property and/or any proceeds from the [T]rust property. The Trustee argues that the condemnation compensation constitutes proceeds from the [T]rust property. When considering the language used in a trust agreement, the intent of the grantor controls. Harbour v. SunTrust Bank, 278 Va. 514, 519, 685 S.E.2d 838, 841 (2009). We ascertain the intent of the grantor by looking at the language used in the trust agreement. Id. As with other written instruments, `[t]he primary significance of words should ordinarily attach and does attach, unless it is manifest from the [instrument] itself that other definitions are intended.' Wallace v. Wallace, 168 Va. 216, 224, 190 S.E. 293, 296 (1937) (quoting Rady v. Staiars, 160 Va. 373, 376, 168 S.E. 452, 452 (1933)); accord PMA Capital Ins. Co. v. U.S. Airways, Inc., 271 Va. 352, 358, 626 S.E.2d 369, 372 (2006) (`Words ... are normally given their usual, ordinary, and popular meaning.' (quoting D.C. McClain, Inc. v. Arlington County, 249 Va. 131, 135, 452 S.E.2d 659, 662 (1995))). Neither the Trust nor the UPIA defines the term proceeds. [4] It is a word of varied significance and employed with different meanings. Chase v. The Union Nat'l Bank of Lowell, 275 Mass. 503, 176 N.E. 508, 510 (1931). See also Gould v. Lewis, 267 Ill.App. 569, 572 (1932) (The meaning of the term proceeds in each case depends on its context, depends very much on the connection in which it is employed and the subject matter to which it is applied. (internal quotation marks omitted)). It has been defined, however, as [t]he value of land, goods, or investments when converted into money; the amount of money received from a sale. Black's Law Dictionary 1325 (9th ed.2009). We agree with the Trustee that proceeds from the [T]rust property include the condemnation compensation at issue. The UPIA uses the term proceeds when referring to the compensation awarded in exchange for property taken by eminent domain. Code § 55-277.13(4) ([p]roceeds of property taken by eminent domain). Further, the Trust provisions direct that the Trustee shall not sell the [Trust] property... except to a condemnor pursuant to a notice of condemnation. (Emphasis added.) Thus, the Grantor recognized that the Trust could, at some point, receive compensation from an eminent domain action, which the Trust termed a sale, that would take some or all of the Trust property. And, money received from a sale is commonly described as proceeds. Black's Law Dictionary 1325 (9th ed.2009). Relying on Code § 55-277.33, Riverside, however, contends that every section of the UPIA applies except as otherwise expressly provided in the . . . terms of the trust. Id. According to Riverside, the Trust's reference to any proceeds from the [T]rust property in the definition of the term net income is not an express provision negating application of the UPIA provisions allocating [p]roceeds of property taken by eminent domain to principal. Code § 55-277.13(4). We do not agree with Riverside's interpretation of Code § 55-277.33. That section means that Chapter 15.1 of Title 55, styled Uniform Principal and Income Act, applies as a whole to any trust in existence on January 1, 2000 unless the trust instrument itself expressly states that the UPIA does not apply. When the trust instrument so states, no part of the UPIA governs such a trust. As previously stated, the parties here do not dispute that the UPIA applies to the Trust at issue. In contrast to Code § 55-277.33, Code § 55-277.3 does not contain language requiring express rejection of the UPIA's default rules for allocating receipts and disbursements between principal and income. Instead, Code § 55-277.3 directs a fiduciary to administer a trust . . . in accordance with the terms of the trust when allocating receipts to principal or income even if there is a different provision in [the UPIA]. This section is consistent with the principle that the intent of the grantor controls. Harbour, 278 Va. at 519, 685 S.E.2d at 841. So, the relevant inquiry is whether the Trust at issue contains any provision reflecting the Grantor's intent with regard to the allocation of condemnation compensation. It is correct, as Riverside asserts, that paragraph 3(C)(i) of the Trust does not expressly address allocation of receipts between principal and income. Instead, paragraph 3 pertains to the Trustee's duties, which, among other things, include the duties to hold, manage, and generate income from the [T]rust property, pay taxes, repair the Trust property, make capital improvements, and distribute net income generated by the [T]rust and the [T]rust property to the Grantor during her lifetime. Riverside contends that the definition of the term net income contained in subsection (C)(i) of paragraph 3, when read in context, merely provides the method of calculating net income and does not provide any rule for allocation of condemnation compensation. The provisions of paragraph 3(C)(i) state: i. For purposes of this Agreement, net income shall be defined as all funds received from the rental of the trust property and/or generated from or by the [T]rust property and/or any proceeds from the [T]rust property and/or provided by the Grantor under paragraph C.ii. to maintain a positive operating cash flow LESS all funds paid by the Trustee for (a) current taxes due against the [T]rust property, (b) current insurance premiums for coverage secured on the [T]rust property, (c) repairs made to the [T]rust property, (d) currently due installments of principal and interest on loans secured by the [T]rust property, including authorized loans for capital improvements and loans for distribution to the Grantor, and (e) the administration of this [T]rust, including but not limited to, [T]rustee's fees, accounting fees, recording fees, management fees, attorney's fees, and filing fees. Undoubtedly, this subsection explains how to compute the net income distributable to the Grantor. Calculating net income necessarily starts with determining gross income and then deducting the allowable expenses. In this Trust, the Grantor specifically included in gross income all funds received from the rental of the [T]rust property and/or generated from or by the [T]rust property and/or any proceeds from the [T]rust property. By doing so, the Grantor allocated those receipts to income, and the Trustee is required to administer the Trust in accordance with its terms. Code § 55-277.3(A)(1). And, as we have already explained, the term proceeds, as used in this Trust, encompasses the condemnation compensation at issue. We are not persuaded otherwise by the cases cited by Riverside. For example, in Estate of Reynolds, 494 Pa. 616, 432 A.2d 158 (1981), the question was whether shares of stock received by the trustee of a testamentary trust as part of a 3-for-2 stock distribution should be allocated to principal or income. Id. at 159. The relevant provisions of the trust directed that any and all dividends shall be considered as income. Id. at 160. However, the Pennsylvania Principal and Income Act mandated the allocation of the stock distribution at issue to principal. Id. at 161. According to the court, [t]o supersede the operation of the Principal and Income Act, . . . a [contrary] direction [by a settlor] must be clearly expressed. Id. Thus, resolution of the dispute turned on the definition of the term dividend. Finding nothing in the trust agreement to indicate that the settlor intended such a stock distribution to be allocated to income and recognizing that the corporation had referred to the distribution as a dividend or a split, the court concluded that the stock distribution was not a dividend, meaning that it was allocated to principal in accordance with the Pennsylvania Principal and Income Act. Id. at 163-64. In Venables, the issue concerned the allocation of trust expenses against principal and income. 808 P.2d at 771. In several paragraphs of the testamentary trust, the decedent directed the deduction of costs and expenses, and in one paragraph, directed the trustee to defray the reasonable costs of this trust including reasonable compensation to said trustee. Id. at 770. [B]ecause the trust instrument lack[ed] the specificity to identify and allocate adequately the variety of costs and expenses involved in administering the trust, the court concluded that the Washington Principal and Income Act controlled the allocation of the expenses against principal and income. Id. at 772. In contrast, the Trust at issue in the case before us expressly allocates any proceeds from the [T]rust property as income to be distributed to the Grantor, and the term proceeds encompasses money received as compensation for real property taken by eminent domain. As the allocation rule for condemnation compensation is provided in the Trust, there is no need to resort to the UPIA's default rules. Finally, Riverside contends that the circuit court's conclusion that the condemnation compensation should be allocated as income would lead to an absurd result because, had all the Trust property been taken by eminent domain, rather than only a portion, the entire Trust corpus could be depleted. But, the Trust provisions allow the Grantor to convey additional property, real and/or personal, to the Trustee. Furthermore, if the language used by a grantor is clear and unambiguous, we will not consider the grantor's apparent reasoning or motivation in choosing the particular language employed. Harbour, 278 Va. at 519, 685 S.E.2d at 841. Thus, we conclude that the circuit court did not err by concluding that the condemnation compensation should be allocated as income to the Trust, pursuant to its terms. The court properly granted partial summary judgment in favor of the Trustee on this issue.