Court Opinion

ID: 2644682
Source: CourtListenerOpinion
Date Created: 2013-12-03 17:54:49.202222+00
Date Added: 2024-06-11T12:53:59.930549
License: Public Domain

ATTORNEY FOR APPELLANT                             ATTORNEYS FOR APPELLEE
Robert M. Hamlett                                  Thomas W. Vander Luitgaren
Indianapolis, Indiana                              Matthew S. Schoettmer
                                                   Greenwood, Indiana
_____________________________________________________________________________

                                            In the
                         Indiana Supreme Court                                  Nov 22 2013, 12:10 pm
                             _________________________________

                                     No. 41S01-1306-TR-426

HAROLD O. FULP, JR.
                                                             Appellant (Plaintiff below),

                                                V.

NANCY A. GILLILAND,
                                                       Appellee (Defendant below).
                             _________________________________

                 Appeal from the Johnson Superior Court, No. 41D01-1011-TR-299
                                 The Honorable Kevin M. Barton
                             _________________________________

      On Petition to Transfer from the Indiana Court of Appeals, No. 41A01-1111-TR-530

                                       November 22, 2013
Rush, Justice.

       Revocable trusts are popular substitutes for wills, intended to provide non-probate distri-
bution of people’s estates after their deaths, allowing them to retain control and use of their
assets during their lifetimes. Here, Ruth Fulp placed her family farm in a revocable trust,
reserving the right to revoke or amend the trust and to use its assets—with any remaining trust
assets going to her three children upon her death. A few years later, she decided to sell the farm
to her son Harold Jr. for a low price, to pay for her retirement-home care and keep the farm in the
family. Ruth’s daughter, Nancy Gilliland, argued that a bargain sale would breach Ruth’s
fiduciary duty to her children and deprive Nancy of “her share” of the trust.

       We granted transfer to address an issue of first impression in Indiana: while a revocable
trust is revocable, whom does the trustee serve? Of course, Ruth as trustee owed a duty to herself
as the trust’s settlor and primary beneficiary. But the trial court found Ruth also owed that same
fiduciary duty to her children as remainder beneficiaries. We conclude, though, that neither the
terms of Ruth’s trust nor the Indiana Trust Code require her to serve two masters—her duty as
trustee was only to herself. Holding that trustees also owe a duty to remainder beneficiaries would
create conflicting rights and duties for trustees and essentially render revocable trusts irrevocable.
Ruth was free to sell her farm as trustee for whatever price she desired, without breaching a duty
to her children.

                                                Facts

       Soon after Ruth and Harold Fulp Sr. married, they moved to the family farm, where they
raised their three children—Harold Jr., Nancy, and Terry. Harold Sr. farmed the land; Junior later
joined him, then took over after Senior’s death. A few years later, Ruth placed the farm into the
Ruth E. Fulp Revocable Trust. As the Trust’s primary beneficiary, Ruth could use its assets; as
trustee, she could sell them; and as settlor, she could “alter, amend or revoke” the Trust “in any
respect.” In addition, the Trust required the trustee—unless another term of the trust provided
otherwise—to “administer the trust solely in the interest of the beneficiaries,” “treat multiple
beneficiaries impartially,” and “preserve the trust property.” Upon Ruth’s death, the trust would
become irrevocable, and the successor trustee would distribute any remaining assets to the children.

       As Ruth got older, she moved to the Indiana Masonic Home and decided to sell the farm to
pay for her living expenses there. But she wanted to keep the farm in the family, so she approached
Harold Jr., who was interested in buying it. He offered her a discounted price per acre—the same
price Nancy’s daughter had previously paid Ruth for another portion of the farm. Ruth agreed and
said “what I did for one I can do for the other.” But Harold Jr. cautioned her that the farm was
worth more than the $450,252 he was offering. Indeed, an appraisal later showed it was worth
more than $1 million.

       Harold Jr.’s lender, Farm Credit, drew up the purchase agreement, and Ruth signed it.
When Nancy found out, she objected because she “wanted her share.” Before the sale closed, Ruth
resigned as trustee. Nancy then became successor trustee and refused to proceed with the sale,
and Harold Jr. sought specific performance of the purchase agreement. He also argued that
Nancy tortiously interfered with the agreement.

                                                  2
        After a bench trial, the trial court found that Ruth was competent to sell the farm, the
price paid for the farm was adequate, and Harold Jr. exerted no undue influence. Still, the court
denied specific performance because it found that Ruth breached her fiduciary duty to the children
by selling the farm at a low price, and Harold Jr. breached his fiduciary duty as a beneficiary by
participating in the sale.

        Harold Jr. appealed. The Court of Appeals agreed with the trial court that if Ruth had sold
the farm as trustee, she would have breached a fiduciary duty to her children. Fulp v. Gilliland,
972 N.E.2d 955, 964 (Ind. Ct. App. 2012), trans. granted, 988 N.E.2d 797. But it also recognized
that if Ruth had such a duty, her conflicting rights and duties as trustee would essentially render
the Trust irrevocable. To avoid that untenable result, the court instead concluded that Ruth sold
the farm as settlor, so that the purchase agreement “in effect” amended the Trust. The Court of
Appeals also concluded that Nancy had not tortiously interfered with the contract.

        Nancy sought transfer, asking us to decide whether the trustee of a revocable trust owes a
duty to the settlor alone or also to the remainder beneficiaries. We granted transfer to address
that issue, and we conclude that while a revocable trust is revocable, the trustee only owes a duty
to the settlor. Therefore, Ruth was free to sell the farm as trustee, as the purchase agreement
reflected, without breaching any fiduciary duty. And since Ruth owed her children no duty as
trustee, she had no need to sell the farm as settlor, as the Court of Appeals concluded—nor
would the facts in this case support any intent to amend the Trust. Finally, we expressly adopt
the Court of Appeals’ conclusion that Nancy did not tortiously interfere with a contractual
relationship. Ind. Appellate Rule 58(A).

                                       Standard of Review

        This case requires us to determine Ruth’s duties under the terms of the Trust and the
Indiana Trust Code. The interpretation of trusts and statutes is a question of law, which we
review de novo. Univ. of S. Ind. Found. v. Baker, 843 N.E.2d 528, 531 (Ind. 2006); Kaser v.
Barker, 811 N.E.2d 930, 932 (Ind. Ct. App. 2004), trans. denied.

                                                 3
                                         Revocable Trusts

          Ruth held the farm in a revocable trust. Revocable trusts have become popular estate
planning tools and substitutes for wills because they allow settlors to avoid probate and
guardianship, to have greater privacy, and to manage their assets. John J. Barnosky, The
Incredible Revocable Living Trust, 10 J. Suffolk Acad. L. 1, 1–15 (1995). Like other trusts, a
revocable trust “is a fiduciary relationship between a person who, as trustee, holds title to property
and another person for whom, as beneficiary, the title is held.” See Ind. Code § 30-4-1-1(a) (2004).
A settlor creates a revocable trust by executing the trust agreement, at which time the trustee takes
legal title to the property, and the beneficiary takes equitable title. Breeze v. Breeze, 428 N.E.2d
286, 287 (Ind. Ct. App. 1981); see I.C. § 30-4-1-1(a). But unlike other trusts, settlors of
revocable trusts continue using the trust property during their lives and retain the power to
revoke or amend the trust at any time. Kesling v. Kesling, 967 N.E.2d 66, 80, 86 (Ind. Ct. App.
2012), trans. denied. And unlike a will, upon the settlor’s death, the “trust property is not in the
decedent-settlor’s estate.” In re Walz, 423 N.E.2d 729, 732 (Ind. Ct. App. 1981). When Ruth
agreed to sell the farm, her Trust was fully revocable, and she was its settlor, trustee, and primary
beneficiary.

                                    Interpreting Ruth’s Trust

          We must interpret the terms of the Trust to determine the duties it imposed upon Ruth as
trustee, and to determine whether the sale of the farm breached any of those duties. Our primary
purpose “in construing a trust instrument is to ascertain and give effect to the settlor’s intention.”
Univ. of S. Ind. Found., 843 N.E.2d at 532. We look at the trust as a whole and cannot take
“individual clauses out of context.” Walz, 423 N.E.2d at 733 (quoting Hauck v. Second Nat.
Bank of Richmond, 153 Ind. App. 245, 259-60, 286 N.E.2d 852, 861 (1972)). If the “trust is
capable of clear and unambiguous construction,” we “must give effect to the trust’s clear
meaning.” Univ. of S. Ind. Found., 843 N.E.2d at 532. Finally, after interpreting the terms of the
Trust, we must ensure that its application does not violate the Trust Code. See I.C. § 30-4-1-3
(2004).

                                     Ruth’s Fiduciary Duties

                                                  4
       Nancy argues that Ruth as trustee breached a fiduciary duty to the remainder beneficiaries
by selling the farm for below market value. A trustee breaches his or her fiduciary duties by
violating any duty owed to the settlor or beneficiary. I.C. § 30-4-1-2(4) (2004). Ruth’s Trust
provided that she, as trustee, owed a fiduciary duty to herself as settlor and primary beneficiary. We
disagree with Nancy’s argument that the Trust imposed on Ruth an additional duty to her own
children.

I. Trust Law Generally.

       Whether the trustee of a revocable trust owes a duty to remainder or contingent
beneficiaries while the trust is revocable is an issue of first impression in Indiana, but other states
have concluded that trustees owe no such duty while a trust is revocable. We find Justice Guzman’s
concurrence in Moon v. Lesikar, 230 S.W.3d 800, 806 (Tex. App. 2007), persuasive. There, a
contingent beneficiary of a revocable trust argued that her rights were violated when the settlor/
trustee of a revocable trust sold trust property for well below fair market value. Id. at 802, 809.
Justice Guzman concluded that if the settlor/trustee of a revocable trust owed the contingent
beneficiaries a duty, the settlor/trustee’s rights and duties would conflict because “the settlor, in
his capacity as trustee, would have a duty to prevent himself, in his capacity as settlor, from
revoking the trust.” Id. at 809. Because this illogical conclusion would render the trust “no longer
. . . freely revocable,” Justice Guzman concluded that the trustee’s duty was to the settlor not the
contingent beneficiaries, while the trust was still revocable. Id. at 809-10. And the Florida Court
of Appeals reached a similar conclusion in Brundage v. Bank of Am., 996 So. 2d 877, 882 (Fl.
Dist. Ct. App. 2008): “during the settlor/beneficiary’s lifetime, a trustee owes a fiduciary duty to
the settlor/beneficiary and not the remainder beneficiaries, who not only have no vested interest
but whose contingent interest may be divested by the settlor prior to her death.”

       Finally, the Uniform Trust Code takes a similar position: “While a trust is revocable . . . ,
rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclu-
sively to, the settlor.” Unif. Trust Code § 603(a) (amended 2010). Courts in states that have
enacted the Uniform Trust Code have easily concluded that trustees exclusively owe a duty to
settlors—and indeed, we can find no jurisdiction that holds otherwise. E.g., In re Stephen M.
Gunther Revocable Living Trust, 350 S.W.3d 44, 47 (Mo. Ct. App. 2011) (finding “[t]he trustee

                                                   5
owed no duty to the beneficiaries prior to the settlor’s death”); Ex Parte Synovus Trust Co., 41
So. 3d 70, 74 (Ala. 2009) (finding the trustee owed a duty only to the settlors, so the beneficiaries’
“causes of action for breach of fiduciary duty do not seek redress for legally protected rights”).

II. Terms of Ruth’s Trust.

       With those general trust law principles in mind, we turn to Ruth’s duties under her Trust.
Our primary purpose in interpreting the Trust is to implement her intent as settlor, Univ. of S.
Ind. Found., 843 N.E.2d at 532, and two provisions of Ruth’s Trust show she intended to owe a
duty only to herself. First, Article I provides that Ruth could revoke the Trust for any reason at
any time, which shows that she intended to control the farm and treat it as her own property. See
Marshall Cnty. Tax Awareness Comm. v. Quivey, 780 N.E.2d 380, 383, 385 (Ind. 2002) (finding
that settlor/trustee/primary beneficiary of property was still its “beneficial owner,” even though he
had previously transferred title to the trustee); Kesling, 967 N.E.2d at 83 (finding settlor of trust
could vote shares of stock held by the trust because he was the stock’s beneficial and record
owner); see also 26 U.S.C. § 677(a) (2006) (taxing income from revocable trust property as if it
was the settlor’s property because the settlor has control of the property). Second, Article II
provides that the Trust is for Ruth’s “use and benefit”—including the right to use all Trust assets.
The children’s interest in the Trust is purely secondary and arises only if Ruth chooses not to divest
them and if she chooses not to use all of the assets. So as trustee, Ruth’s fiduciary duty was to
herself, as settlor and primary beneficiary. Stated differently, Ruth was her own master.

       But Nancy argues that Ruth’s duty as trustee also extends to her remainder beneficiary
children. To find that Ruth owed such a duty, however, would bring her rights and duties into
conflict—she would have to serve two masters. As discussed above, such conflicting duties would
essentially make her Trust irrevocable, because complying as trustee with her own wishes to revoke
the Trust would breach her purported duty to the remainder beneficiaries by placing her own
interests above theirs. Moon, 230 S.W.3d at 809. In sum, Nancy’s argument fails because it would
defeat, rather than implement, the settlor’s intent. Univ. of S. Ind. Found., 843 N.E.2d at 532.

       Nancy nevertheless argues that the terms of Article V of the Trust compel the counter-
intuitive conclusion that Ruth’s duty as trustee also extended to her children. That provision, titled
Trustee’s Duties, states: “Unless the terms of the trust provide otherwise, the Trustee also has a

                                                  6
duty: 1. to administer the trust solely in the interest of the beneficiaries; 2. to treat multiple
beneficiaries impartially; . . . [and] 4. to preserve the trust property” (emphasis added). Here,
though, Article V would conflict with other rights and duties given to Ruth while the Trust is
revocable and she is still primary beneficiary. For instance, Ruth cannot have a duty to
administer the Trust solely in the interest of the beneficiaries, when Article I lets her remove any
beneficiary anytime. And she cannot have any duty to preserve the Trust’s assets, when Article II
gives her the right to consume them. By contrast, no such conflict exists in applying Article V to
a successor trustee once the Trust has become irrevocable and Ruth is no longer primary
beneficiary—at that time, the successor trustee can readily administer the trust for the
beneficiaries, treat them impartially, and preserve the Trust property. But until then, Article V by
its terms must yield to Ruth’s own powers as settlor, trustee, and primary beneficiary.

       Accordingly, Ruth as trustee owed a duty only to herself. As primary beneficiary, she
was entitled to use the Trust assets for her own benefit—and here, selling the farm benefitted her
by providing her with money for her care while keeping the farm in the family. The sale did not
breach any duty to Ruth’s remainder beneficiaries because she owed them no duty. Since Ruth
complied with the terms of the Trust, we must next determine whether its terms comply with the
Indiana Trust Code.

III. Indiana’s Adoption of Uniform Trust Code Section 603.

       In 2013, the Legislature amended the Trust Code to declare the same rule we announce
today—that while a trust is revocable, the trustee’s duty is only to the settlor: “While a trust is
revocable and the settlor has the capacity to revoke the trust: . . . (2) the duties of the trustee are
owed exclusively to . . . the settlor.” I.C. § 30-4-3-1.3(a) (Supp. 2013), Act of Apr. 29, 2013, P.L.
99-2013, § 9, 2013 Ind. Acts 745. That provision is materially identical to Uniform Trust Code
section 603, discussed above—and though this amendment took effect after Ruth executed the
Trust, Trust Code amendments apply retroactively unless they would “adversely affect a right
given to any beneficiary . . . [or] relieve any person from any duty or liability imposed by the
terms of the trust or under prior law.” I.C. § 30-4-1-4(b) (Supp. 2013). As detailed above, this
statute captures Ruth’s intent, and does not adversely affect the rights of any of the beneficiary
children because their rights were subject to Ruth’s right as settlor to revoke the Trust. Similarly,

                                                  7
the law does not relieve any person of a duty because while the Trust was revocable, Ruth owed
a duty only to herself. Therefore, under both the terms of the Trust and under Indiana law, Ruth
owed no duty to her remainder beneficiary children.

              The Court of Appeals Decision and Amending a Revocable Trust

       The Court of Appeals also concluded that Ruth could sell the farm for below fair market
value, but for a different reason. It recognized that without some power to freely sell the farm,
Ruth’s revocable Trust would essentially become irrevocable. But the Court of Appeals believed
that “viewing Ruth as trustee” would cause the sale to breach a fiduciary duty to the remainder
beneficiaries—so that instead, Ruth must have intended to sell the farm as settlor, “in effect
partially amending the Trust.” Since Ruth’s Trust is silent about how to amend it, the Trust Code
requires any purported amendment to be in writing and “manifest[] clear and convincing
evidence of the settlor’s intent” to amend the trust. I.C. § 30-4-3-1.5(c)(2)(B) (Supp. 2013). The
Court of Appeals concluded that the signed purchase agreement between Ruth and Harold Jr.
was a sufficient written manifestation of intent to amend.

       We respectfully disagree with our colleagues’ conclusion for three reasons. First, as
discussed above, Ruth as trustee owed no duty to her children while her trust was revocable, so
no amendment was necessary for her to carry out her intent to sell the farm. Second, she held
title to the farm as trustee and signed the purchase agreement in that express capacity. And third,
the agreement did not purport to change the Trust, because nothing about the sale would change
the Trust’s terms, but only convert its primary asset from illiquid real estate to liquid cash.
Because of these facts, we find that the purchase agreement did not manifest clear and
convincing evidence that Ruth intended to amend the Trust.

                        Is Harold Jr. Entitled to Specific Performance?

       Harold Jr. sought specific performance of the purchase agreement, which the trial court
denied because it found that Ruth and Harold Jr. breached their respective fiduciary duties. We
review a trial court’s decision to grant or deny specific performance for an abuse of discretion,
Kesler v. Marshall, 792 N.E.2d 893, 896 (Ind. Ct. App. 2003), trans. denied—that is, for whether
the decision is “clearly against the logic and effect of the facts and circumstances before the court

                                                 8
or if the court has misinterpreted the law.” State v. Willits, 773 N.E.2d 808, 811 (Ind. 2002).
Because real estate is unique, courts routinely grant specific performance of purchase agreements.
Kesler, 792 N.E.2d at 896.       Here, the trial court misinterpreted the Trust and the law by
determining that Ruth had a duty to her children that she breached and that Harold Jr. aided in
that breach. Therefore, its denial of specific performance was an abuse of discretion.

                                    Nancy’s Equitable Defenses

       Finally, Nancy argues that Harold Jr. should not be granted specific performance because
the agreement is unfair, harsh, and inequitable, based on the disparity between the farm’s value
and the sale price. But the trial court specifically found that the sale price was adequate,
considering that Ruth offered Harold Jr. the same discounted price that she had previously
offered Nancy’s daughter and wanted to keep the farm in the family. And we will not set aside
the trial court’s findings or judgment unless they are clearly erroneous. Marion Cnty. Auditor v.
Sawmill Creek, LLC, 964 N.E.2d 213, 216 (Ind. 2012) (quoting Ind. Trial Rule 52(A)). Nancy
has failed to show that the trial court erred. Id.

                                             Conclusion

       We conclude that under the terms of the Trust and the Trust Code Ruth owed her children
no fiduciary duties and was free to sell her farm at less than fair market value; and that Harold Jr.
is therefore entitled to specific performance. We also conclude that Ruth did not effectively
amend the Trust by selling the farm. The judgment of the trial court is therefore reversed and
remanded, with instructions to grant specific performance of the purchase agreement.

Dickson, C.J., and Rucker, David, and Massa, JJ., concur.

                                                     9