Opinion ID: 2513973
Heading Depth: 2
Heading Rank: 1

Heading: the terms of the 1987 trust agreement

Text: ¶ 11 A trust is an arrangement for the ownership of property. The nature of the arrangement is such that the legal title of the property is held by the trustee, but the benefit and enjoyment of the property resides with the beneficiaries. It is well settled that [a] trust ... is a fiduciary relationship with respect to property, subjecting the person by whom the title to the property is held [the trustee] to equitable duties to deal with the property for the benefit of another person [the beneficiary], which arises as a result of a manifestation [by the settlor, or trustor] of an intention to create it. In re Estate of West, 948 P.2d 351, 353 (Utah 1997) (citing Restatement (Second) of Trusts § 2 (1959)). There must be an intent by the settlor to confer a beneficial interest in the property in some other person. To create an inter vivos trust, [a] settlor must have an intent to create a presently enforceable trust, ... the trust property must be clearly specified and set aside, ... and the essential terms of the trust must be clear enough for the court to enforce the equitable duties that are the sine qua non of a trust relationship. Sundquist v. Sundquist, 639 P.2d 181, 183-84 (Utah 1981) (citations omitted). ¶ 12 A trust is a form of ownership in which the legal title to property is vested in a trustee, who has equitable duties to hold and manage it for the benefit of beneficiaries. Cont'l Bank & Trust Co. v. Country Club Mobile Estates, Ltd., 632 P.2d 869, 872 (Utah 1981)(citing Restatement (Second) of Trusts § 2 (1959)). The trustee has exclusive control of the trust property, subject only to the limitations imposed by law or the trust instrument, and once the settlor has created the trust he is no longer the owner of the trust property and has only such ability to deal with it as is expressly reserved to him in the trust instrument. Id. (citation omitted). A trust must have an identifiable beneficiary who is capable of enforcing the equitable duties of the trustee. The transfer of property interests to the beneficiaries cannot be taken from them except in accordance with a provision of the trust instrument.... George G. Bogert & George T. Bogert, Trusts & Trustees § 998 (2d ed. rev.1983).
¶ 13 Absent fraud or mistake, a settlor has the power to modify a trust only if and to the extent that such a power was reserved by the terms of the trust. Kline v. Utah Dep't of Health, 776 P.2d 57, 61 (Utah Ct.App.1989); see also Restatement (Second) of Trusts § 331. The same rule applies to a settlor's power to revoke a trust. Restatement (Second) of Trusts § 331. Ordinarily, if a power to modify is subject to no restrictions, then a reserved power to amend or modify includes the power to revoke. Id. cmt. h. However, the settlor cannot modify the trust if, by the terms of the trust, he did not reserve a power of modification. Id. Likewise, [i]f the settlor reserves a power to modify the trust only in a particular manner or under particular circumstances, he can modify the trust only in that manner or under those circumstances. Id. cmt. d. However, as is the case with the 1987 Trust Agreement, if the settlor does not specify the method of modification, then the power may be exercised by any method which sufficiently manifests his intention to modify the trust. Id. cmt. c. In interpreting the terms of a trust, the proper focus of inquiry is the settlor's intent. Leggroan v. Zion's Sav. Bank & Trust Co., 120 Utah 93, 99, 232 P.2d 746, 749 (1951). ¶ 14 In Article XIII of the 1987 Trust Agreement, Mr. Flake expressly reserved both the power to modify and the power to revoke the trust created in 1987. The terms of the 1987 Trust Agreement state that the Undersigned reserves the right to amend, modify, [or] revoke the Trust, and thus it is clear that the settlor, Mr. Flake, reserved the right to amend, modify, or revoke. Revocation and Amendment A. As long as the Undersigned is alive, he reserves the right, without the consent or approval of any other, to amend, modify, revoke, or remove from this Trust the property that he has contributed, in whole or in part, including the principal and the present or past undisbursed income from such principal. The 1998 Restatement clearly states that it amends the 1987 Trust Agreement. ¶ 15 We agree with the trial court's conclusion that the 1998 Restatement, absent an explicit revocation, is construed only as a modification of the 1987 Trust Agreement. However, we find that although the 1998 Restatement amended, or modified, the 1987 Trust Agreement and did not revoke it in its entirety, the terms and contents of the 1998 Restatement did fully supercede all of the operative provisions of the original 1987 Trust Agreement.
¶ 16 This court recently held in Banks v. Means, 2002 UT 65, ¶ 14, 52 P.3d 1190, that a trust that specified revocation of a vested beneficiary interest through divestiture could only divest those beneficiary interests through a complete revocation of the trust. Mrs. Banks reserved the power to revoke, modify, or amend the trust in whole or in part, and limited that power in [a subsequent section] with regard to the beneficiaries. Banks, 2002 UT 65 at ¶ 12, 52 P.3d 1190. [A] complete revocation [or termination] was required to divest the beneficiaries of their vested interest. Id. The appellant in Banks relied on Groesbeck, 935 P.2d 1255, arguing that the limiting language merely proved that the trust was not illusory and did not restrict the grantor's right to divest the beneficiaries of their vested interests. The court in Groesbeck held that a reservation of the power to revoke does not make a trust invalid. Id. at 1257. However, in Banks, this court noted that Mrs. Banks reserved the right to amend, modify, or revoke the trust, specified how such changes were to be accomplished, and created vested beneficiary interests that could be divested only through a complete revocation or termination of the trust. Banks, 2002 UT 65 at ¶ 14, 52 P.3d 1190. [1] ¶ 17 As in Banks, Mr. Flake reserved the right to amend, modify, [or] revoke the trust and later stated that the vested beneficiary interests shall continue until revocation or termination of the Trust other than by death. Here, Article XIV of the 1987 Trust Agreement states as follows: Vested Interest of Beneficiaries The interest of the beneficiaries is a present vested interest which shall continue until the Trust is revoked or terminated other than by death. The 1987 Trust Agreement language can be distinguished from the language used in Banks. The limiting language in Banks was subject to a beneficial interest that was to be revoked or terminated through a complete divestiture of that beneficial interest. The relevant language from the trust in Banks is as follows: Article III AMENDMENT, REVOCATION AND ADDITIONS TO THE TRUST 3.2 Interests of the Beneficiaries. The interests of the beneficiaries are presently vested interests subject to divestment which shall continue until this Trust is revoked or terminated other than by death. (Emphasis added). Banks, 2002 UT 65 at ¶ 4, 52 P.3d 1190. This language at issue lacks any reference to a complete divestiture. The beneficial interest of Mrs. Flake was merely amended, and not completely divested as was the case in Banks. The dispositive issue in the present case is whether there was a complete divestiture of a beneficial interest as in Banks, or whether there was simply a change in the quality, or scope, of the beneficial interest. We held in Banks that revocation was required when terminating a vested beneficial interest. 2002 UT 65 at ¶ 14, 52 P.3d 1190. Here, we find that there is no requirement of revocation where the beneficial interest is simply modified or amended but not terminated. Therefore, Mrs. Flake's beneficial interest, as amended, was completely outlined in the 1998 Restatement, inasmuch as the 1998 Restatement contained all of the operative provisions of the Almon J. Flake Family Trust. The purpose and primary effect of Article XIV in the 1987 Trust Agreement is to save the Trust from the doctrine of merger and to prove that the Trust is not illusory. [2]