Court Opinion

ID: 4203524
Source: CourtListenerOpinion
Date Created: 2017-09-14 22:08:07.033087+00
Date Added: 2024-06-11T14:41:01.329161
License: Public Domain

2017 IL App (3d) 160619

                         Opinion filed September 14, 2017
_____________________________________________________________________________

                                           IN THE

                            APPELLATE COURT OF ILLINOIS

                                     THIRD DISTRICT

                                            2017

RUSSELL B. CAMPBELL, BARBARA                  )     Appeal from the Circuit Court
A. DETERMAN, and GREG E.                      )     of the 9th Judicial Circuit,
CAMPBELL, as Trustees of the Clyde E.         )     Warren County, Illinois.
Campbell Declaration Trust Dated March        )
29, 1999, as Amended and Restated,            )
                                              )
       Plaintiffs,                            )
                                              )
       v.                                     )
                                              )
RUSSELL B. CAMPBELL and GREG E.               )     Appeal No. 3-16-0619
CAMPBELL,                                     )     Circuit No. 14-MR-68
                                              )
       Defendants                             )
                                              )
                                              )
(Russell B. Campbell, Defendant and           )
Cross-Defendant-Appellant; Greg E.            )
Campbell, Defendant and Cross-Plaintiff-      )     The Honorable
Appellee).                                    )     Heidi A. Benson,
                                              )     Judge, presiding.

____________________________________________________________________________

      JUSTICE CARTER delivered the judgment of the court, with opinion.
      Justice Schmidt concurred in the judgment and opinion.
      Justice O'Brien specially concurred, with opinion.
_____________________________________________________________________________

                                           OPINION
¶1               Plaintiffs, as trustees of the Clyde E. Campbell Declaration of Trust, brought a

     declaratory judgment action against two of its beneficiaries, Russell B. Campbell and Greg E.

     Campbell, seeking to have the trial court determine which of the two beneficiaries was entitled to

     certain current or former trust property. During pretrial proceedings, the two beneficiaries filed

     cross-motions for partial summary judgment. After a hearing, the trial court granted Greg’s

     motion for partial summary judgment and denied Russell’s motion. Russell appeals. We affirm

     the trial court’s ruling.

¶2                                                     FACTS

¶3           The dispute in this case involves the estate plan of Clyde Campbell. Clyde was married to

     Helen Campbell and had three children: Barbara Determan, Greg Campbell, and Russell

     Campbell. In 1999, as part of his estate plan, Clyde executed a declaration of trust, which

     established the instant living trust (Clyde’s trust or the trust). Clyde also executed a will and

     other documents to form a land trust (farm trust) and a limited liability company (LLC). 1 The

     farm trust was owned equally by Clyde’s trust, Helen’s trust (a trust that was established by

     Clyde’s wife), and Greg. Each owned a one-third interest. The LLC was owned in the same

     manner.

¶4           In February 2012, Clyde amended and restated the declaration of trust (amended

     declaration). Of relevance to this appeal, the amended declaration provided that (1) Clyde was

     the trustee of the trust; (2) as long as he was acting as the trustee, Clyde had the power to

     withdraw any part or all of the net income and principal of the trust; (3) Clyde could make gifts

     of “trust property” to such persons and entities and subject to such terms and conditions as Clyde

             1
              It is impossible to tell with certainty from the record before us whether the land trust in this case
     was a common law land trust or an Illinois land trust. Therefore, to avoid confusion, we will refer to the
     land trust simply as the “farm trust.” See IMM Acceptance Corp. v. First National Bank & Trust Co. of
     Evanston, 148 Ill. App. 3d 949, 954 (1986) (explaining the difference between the two types of trusts).
                                                           2
     deemed appropriate; and (4) upon Clyde’s death, any interest that Clyde’s trust owned in the

     farm trust and the LLC was to be distributed to Helen first (either directly or in trust) and then to

     Greg, if Helen died before Clyde or if Helen disclaimed her interest.

¶5          In April 2012, while Clyde was residing in a retirement community but still serving as the

     trustee of his own trust, Russell’s attorney drafted two assignments at Russell’s direction, which

     purported to transfer the interest of Clyde’s trust in the farm trust and the LLC to Russell. A

     secretary or assistant for Russell’s attorney took the assignments to Clyde at the retirement

     community, and Clyde signed the assignments in his own name individually. Clyde did not sign

     the assignments in his capacity as the trustee of his trust. The assignments specifically stated that

     they were to be effective upon Clyde’s death, and the secretary was the only person who

     witnessed the assignments. Clyde passed away in July 2012, and his will was subsequently

     admitted to probate.

¶6          After Clyde’s death, a dispute arose as to whether Clyde’s trust or Russell owned the one-

     third interests in the farm trust and the LLC that was the subject of the assignments. If Clyde’s

     trust was the owner, pursuant to the terms of that trust, the one-third interests would pass to Greg

     upon Clyde’s death. If Clyde’s trust did not own the one-third interests, the interests would not

     pass to Greg, and Russell would remain the owner pursuant to the assignments.

¶7          In September 2014, plaintiffs filed the instant declaratory judgment action seeking to

     have the trial court determine whether Clyde’s trust (and, ultimately, Greg) or Russell owned the

     one-third interests in the farm trust and the LLC. The complaint was later amended, and both

     Russell and Greg were named as defendants. Russell and Greg both filed answers to the

     complaint. In his answer, Greg asserted, among other things, that Clyde lacked the mental

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       capacity to make the assignments and that the assignments were the product of undue influence

       on the part of Russell. In addition to an answer, Greg also filed a cross-claim.

¶8            In November 2015, Russell and Greg both filed cross-motions for partial summary

       judgment. Russell argued in his motion that the assignments were valid and that he was the

       rightful owner of the one-third interests in the farm trust and the LLC. Greg argued that the

       assignments were void; that Clyde’s trust was the rightful owner of the one-third interests; and

       that pursuant to the terms of Clyde’s trust, those interests passed to Greg upon Clyde’s death.

¶9            In December 2015, a hearing was held on the cross-motions for partial summary

       judgment. By the time of the hearing, the matters at issue before the trial court had been fully

       briefed by the parties, and the trial court had before it as part of the pleadings or supporting

       documents the amended declaration of trust, a portion of Clyde’s will, the two assignments, two

       certificates showing the interest of Clyde’s trust in the farm trust and the LLC, a portion of the

       operating agreement for the LLC, and some deposition transcripts. Of relevance to this appeal,

       the certificates for both the farm trust and the LLC provided that a transfer of the interest in

       either of the two entities could be made on the books of that entity by surrendering the properly

       endorsed certificate for that entity. In addition, the farm trust certificate and the LLC’s operating

       agreement both provided a right of first refusal to the other beneficiaries or members before a

       transfer of an interest in that particular entity could be made. At the hearing, the trial court

       listened to the arguments of the attorneys and then took the case under advisement.

¶ 10          The trial court later issued a ruling by letter, granting Greg’s motion for partial summary

       judgment and denying Russell’s motion. In the letter ruling, the trial court found that: (1) the

       assignments were invalid as inter vivos gifts because there was no present delivery or transfer

       since the assignments were not to take effect until Clyde’s death and Clyde had not issued a

                                                          4
       certificate for the one-third interest in the farm trust to Russell; (2) even if the assignments were

       properly delivered gifts, those gifts were void (at least as to the farm trust interest) because the

       transfer did not comply with the requirements contained in the farm trust certificate (the right of

       first refusal); (3) the assignments were also invalid as testamentary transfers because the

       assignments had not been witnessed by two witnesses as required by statute (see 755 ILCS 5/4-3

       (West 2012)); (4) the fact that there was an amended declaration of trust that gave Clyde the

       power to make gifts did not change the outcome of this case because the power to make gifts of

       trust property was different from the power to make gifts of trust shares and Clyde could not

       make gifts of trust shares that he did not own; (5) the purported assignment made no mention

       that Clyde was attempting to make the transfer in his capacity as trustee of his trust; and (6) the

       assignment of the LLC interest was void because the LLC never came into existence since the

       members of the LLC had never signed the operating agreement. In addition, in setting forth the

       factual history of this case, the trial court made a statement (statement of factual history) that

       Clyde had invited his children’s input into his estate plan and had engaged the services of a

       mediator to assist in working out the details of that plan in a vain attempt to promote family unity

       after his death.

¶ 11           After the trial court’s ruling, Russell promptly filed a motion to reconsider (titled as a

       motion to vacate) and challenged all or most of the findings that the trial court had made in its

       letter ruling and the statement that the trial court had made about the factual history of the case.

       Greg filed a response and opposed the motion to reconsider. Following a hearing, the trial court

       denied the motion. In so doing, the trial court stated, among other things, that (1) it was not

       changing any of its previous findings of fact but was expanding upon some of those findings and

       upon some of its prior reasoning; (2) while Clyde was a beneficiary, he was also subject to the

                                                         5
       restrictions in the instruments he was signing; (3) the attempted assignment was an ineffective

       attempt at an inter vivos transfer, which made the assignment a testamentary disposition under

       Illinois law; (4) although the LLC was in existence, a point upon which the trial court revised its

       previous conclusion, the court would not enforce the unsigned operating agreement of the LLC

       at the summary judgment stage; and (5) the court would not strike the statement that it had made

       about the factual history of the case, despite Russell’s complaint about that statement.

¶ 12          A written order was later entered documenting the trial court’s ruling on the motion to

       reconsider. In the written order, the trial court made an Illinois Supreme Court Rule 304(a) (eff.

       Mar. 8, 2016) finding that the order was final and appealable. Following the entry of the order,

       Russell appealed.

¶ 13                                                ANALYSIS

¶ 14          On appeal, Russell argues that the trial court erred in granting partial summary judgment

       for Greg on the declaratory judgment complaint and in denying Russell’s motion for the same

       relief. Russell asserts that partial summary judgment should have been granted in his favor,

       instead of Greg’s, because the assignments were valid and were sufficient for Clyde, acting in his

       capacity as a beneficiary of his own trust, to transfer the one-third interests in the farm trust and

       the LLC to Russell. In support of that assertion, Russell contends that (1) the amended

       declaration of trust gave Clyde the unfettered right to make gifts of the trust property in his

       individual capacity, a right that Clyde properly exercised when he made the gift to Russell in the

       two assignments; (2) pursuant to the terms of Clyde’s trust, Clyde had the legal authority to give

       away the one-third interests in the farm trust and the LLC, not just the authority to give away

       specific items of property, as the trial court incorrectly indicated in its order; (3) the assignments

       were proper as present gifts of future interests because physical delivery of the assignments had

                                                         6
       been made and were not testamentary transfers as the trial court incorrectly found; (4) recording

       the assignments on the books of the farm trust or the LLC was not required to complete delivery

       of the two assignments; (5) there was no right of first refusal as to the farm trust interest because

       that right, as contained in the farm trust document, did not apply to gifts, such as the current

       assignment; (6) the fact that the certificate for the farm trust was never endorsed or surrendered

       would also not invalidate the gift made by Clyde in the assignment for the same reason—because

       a gift was involved and any such requirement did not apply to gifts; (7) the LLC was legally

       brought into existence by the filing of the articles of organization with the State, despite the

       members’ failure to sign the operating agreement, and the trial court’s conclusion to the contrary

       was in error; (8) although the LLC had valid legal existence, there was no right of first refusal as

       to the LLC interest because the operating agreement for the LLC, which would have given rise to

       such a right, was never signed and no requirement for first refusal existed under the applicable

       statute; and (9) the trial court’s statement of factual history was made in error and, if this case is

       reversed and remanded, should be stricken. For all of the reasons stated, Russell asks that we

       vacate the trial court’s ruling, enter partial summary judgment in his favor, and remand the case

       for further proceedings on Greg’s claims of lack of mental competency and undue influence with

       the disputed statement of factual history stricken.

¶ 15          Greg argues that the trial court’s ruling was proper and should be upheld. In response to

       Russell’s specific contentions, Greg maintains that (1) although Clyde had the legal authority to

       make gifts of the one-third interests in the farm trust and the LLC, for those gifts to be valid, he

       had to make the assignments in his capacity as the trustee of his own trust, not in his individual

       capacity, and he was subject to the limitations contained in the farm trust agreement and the

       LLC’s operating agreement when doing so; (2) although a present gift of a future interest could

                                                          7
theoretically be made by physical delivery of a written assignment of the donor’s interest in the

property gifted, such a gift was not accomplished here by Clyde because, as the trial court

correctly found, the delivery of the assignments was not effective; (3) because the assignments

were to take effect upon Clyde’s death and were not intended by Clyde to pass title immediately,

the assignments were testamentary dispositions, as the trial court correctly found, and were

invalid since they failed to comply with the requirements for such dispositions under the law (see

755 ILCS 5/4-3 (West 2012) (requiring the signatures of two witnesses for a valid will)); (4) the

delivery of the assignments to Russell’s attorney, alone, was not legally sufficient to convey the

one-third interests in the farm trust and the LLC from Clyde’s trust to Russell, but, rather, the

recording of the assignments on the books of the farm trust and the LLC was necessary to

complete the delivery of the gifts; (5) the fact that the farm trust certificate was not endorsed or

surrendered and that the assignments were not recorded on the books of the farm trust or the

LLC was further evidence that there was no present delivery by Clyde (that Clyde did not intend

to make a present transfer of a future interest with the two assignments); (6) the right of first

refusal contained in the farm trust agreement referred to “transfers” and, thus, contrary to

Russell’s contention and misreading of the trust language, also applied to gifts; (7) as Russell

correctly states, the LLC was properly formed and had full legal effect; (8) the LLC’s operating

agreement was also in effect because the members of the LLC had a meeting of the minds as to

the conditions contained in the operating agreement and treated the operating agreement as being

in effect, even though the members had failed to sign the operating agreement; (9) the

assignment of the LLC interest was invalid because it did not comply with the requirements of

the operating agreement (had to give notice and the right of first refusal to the other members of

the LLC); and (10) the trial court’s statement of factual history was properly made and, in the

                                                  8
       event of a reversal and a remand, should not be stricken. For all of the reasons set forth, Greg

       asks that we affirm the trial court’s grant of partial summary judgment in his favor.

¶ 16          The purpose of summary judgment is not to try a question of fact but to determine if one

       exists. Adams v. Northern Illinois Gas Co., 211 Ill. 2d 32, 42-43 (2004). Summary judgment

       should be granted only where the pleadings, depositions, admissions, and affidavits on file, when

       viewed in the light most favorable to the nonmoving party, show that there is no genuine issue as

       to any material fact and that the moving party is clearly entitled to a judgment as a matter of law.

       735 ILCS 5/2-1005(c) (West 2014); Adams, 211 Ill. 2d at 43. Summary judgment should not be

       granted if the material facts are in dispute or if the material facts are not in dispute but reasonable

       persons might draw different inferences from the undisputed facts. Adams, 211 Ill. 2d at 43.

       Although summary judgment is to be encouraged as an expeditious manner of disposing of a

       lawsuit, it is a drastic measure and should be allowed only where the right of the moving party is

       clear and free from doubt. Id. In appeals from summary judgment rulings, the standard of review

       is de novo. Id. When de novo review applies, the appellate court performs the same analysis that

       the trial court would perform. Direct Auto Insurance Co. v. Beltran, 2013 IL App (1st) 121128,

       ¶ 43. A trial court=s grant of summary judgment may be affirmed on any basis supported by the

       record. Home Insurance Co. v. Cincinnati Insurance Co., 213 Ill. 2d 307, 315 (2004).

¶ 17          In a conventional trust, the trustee holds the legal title to the property and the beneficiary

       holds the equitable title. Restatement (Third) of Trusts § 2 cmt. d (2003); Espevik v. Kaye, 277
Ill. App. 3d 689, 694 (1996). That same rule applies to a common law land trust. IMM

       Acceptance Corp., 148 Ill. App. 3d at 954. A different rule, however, applies to a special type of

       land trust known as an “Illinois land trust.” See id. Unlike a conventional trust and a common

                                                         9
       law land trust, in an Illinois land trust, the trustee holds both the legal and equitable title to the

       property. See id.

¶ 18           Courts will generally demand that a person dealing with trust property strictly observe the

       trust features. See Restatement (Third) of Trusts, pt. 4, ch. 11, intro. note (2003) (noting that the

       voluntary or involuntary transfer of a beneficiary’s interest in a trust does not refer to a transfer

       of the trust property itself because the beneficiary cannot assign more than the beneficiary has);

       Restatement (Third) of Trusts § 51 cmt. b (2003) (stating that a purported transfer of an interest

       that a beneficiary does not have is an ineffective transfer); Kortenhof v. Messick, 18 Ill. App. 3d
1, 7 (1974) (determining the validity of certain transfers in the context of an Illinois land trust).

       In other words, a trustee or beneficiary of a trust cannot make transfers of or relating to trust

       property as if the trust did not exist. See Restatement (Third) of Trusts, pt. 4, ch. 11, intro. note

       (2003); Restatement (Third) of Trusts § 51 cmt. b (2003); Kortenhof, 18 Ill. App. 3d at 8. The

       rationale for that rule is based upon consistency and the principle that a person who receives the

       benefits of the trust format (having property held in trust) should be required to observe that

       format in his or her dealings with the trust property. See Kortenhof, 18 Ill. App. 3d at 7-8 (stating

       that rationale in the context of an Illinois land trust). Although that rule and rationale have

       generally been stated with regard to Illinois land trusts, we believe that they would apply equally

       as well to a conventional trust and to a common law land trust. See Restatement (Third) of

       Trusts, pt. 4, ch. 11, intro. note (2003); Restatement (Third) of Trusts § 51 cmt. b (2003);

       Kortenhof, 18 Ill. App. 3d at 7-8. Therefore, when the legal title to property is held by a person in

       his capacity as trustee of a trust, to transfer that legal title to another person or entity, the trustee

       must execute the transferring document in his capacity as the trustee of the trust and not in his

       individual capacity. See Restatement (Third) of Trusts, pt. 4, ch. 11, intro. note (2003);

                                                           10
       Restatement (Third) of Trusts § 51 cmt. b (2003); Kortenhof, 18 Ill. App. 3d at 7-8. The failure

       to do so by the trustee would make the trustee’s attempt to transfer legal title an invalid or

       ineffective transfer. See Restatement (Third) of Trusts, pt. 4, ch. 11, intro. note (2003);

       Restatement (Third) of Trusts § 51 cmt. b (2003); Kortenhof, 18 Ill. App. 3d at 7-8.

¶ 19           In the present case, after having considered the above legal principles and having

       reviewed the record, we find that partial summary judgment was properly granted for Greg.

       Although the parties have made numerous assertions in support of their respective positions on

       appeal, the simple fact is that at the time of the assignment, Clyde in his capacity as trustee of his

       trust—and not Clyde individually—was the holder of the legal title to the one-third interests in

       the farm trust and the LLC. Clyde, in his individual capacity, therefore, had no ability to assign

       the legal title to the farm trust and the LLC to Russell, only Clyde acting in his capacity as the

       trustee of the trust could do that. See Restatement (Third) of Trusts, pt. 4, ch. 11, intro. note

       (2003); Restatement (Third) of Trusts § 51 cmt. b (2003); Kortenhof, 18 Ill. App. 3d at 7-8.

       There was nothing before the trial court or in the record on appeal in this case to support that

       such a transfer had been made by Clyde as the trustee of his trust. The trial court, therefore,

       properly determined that the two assignments were invalid or ineffective; that Clyde’s trust was

       the owner of the one-third interests in the farm trust and the LLC; and that the interests were to

       pass to Greg, upon Clyde’s death, pursuant to the terms of Clyde’s trust.

¶ 20           Having reached that conclusion, we must take a moment to comment upon Russell’s

       contention that under Illinois law, Clyde could validly assign his beneficial interest in his trust to

       Russell. We agree that Russell’s contention in that regard is well established in the law. See

       Restatement (Third) of Trusts § 51 cmt. b (2003) (recognizing that a beneficiary of a trust can

       voluntarily transfer during his life the whole or part of his beneficial interest in the trust); Victor

                                                         11
       v. Hillebrecht, 405 Ill. 264, 269 (1950) (stating that there is no rule in law or equity that would

       prevent a beneficiary of a trust, who is not under any incapacity, from disposing of his interest in

       the trust estate for consideration); St. Charles Savings & Loan Ass’n v. Estate of Sundberg, 150
Ill. App. 3d 100, 104-05 (1986) (applying the rule that a trust beneficiary may assign or transfer

       his beneficial interest in the context of an Illinois land trust). What Russell fails to recognize,

       though, is that a beneficiary of a trust, acting in his capacity as a beneficiary, can only transfer

       the interest in the trust that he or she actually holds—the beneficial or equitable interest. See

       Restatement (Third) of Trusts § 51 cmt. b (2003) (recognizing that the purported transfer of an

       interest that the beneficiary does not have is an ineffective transfer). A beneficiary cannot

       transfer legal title to property held in trust because the beneficiary does not hold that interest;

       only the trustee holds that interest. See Restatement (Third) of Trusts, pt. 4, ch. 11, intro. note

       (2003); Restatement (Third) of Trusts § 51 cmt. b (2003); Kortenhof, 18 Ill. App. 3d at 7-8.

¶ 21          Having found that the two assignments were invalid because they were not executed by

       Clyde in his capacity as the trustee of his own trust, we need not determine whether the

       assignments were also invalid because they failed to comply with the right of first refusal or

       because they did not comply with the statutory requirements for testamentary dispositions.

¶ 22                                              CONCLUSION

¶ 23          For the foregoing reasons, we affirm the judgment of the circuit court of Warren County.

¶ 24          Affirmed.

¶ 25          JUSTICE O’BRIEN, specially concurring.

¶ 26          I write separately because I agree with the disposition but not the entire rationale set out

       in the majority. Unlike the majority, I believe the Campbell Farms land trust was an Illinois land

       trust and as such, Clyde E. Campbell, in his capacity as the beneficiary of that land trust, had the

                                                         12
power to dispose of the trust property. See First National Bank of Barrington v. Oldenburg, 101
Ill. App. 3d 283, 287 (1981). However, Campbell’s power to dispose of the trust property in his

capacity as beneficiary was limited as set forth by the majority. Since those limitations apply in

this case regardless of whether the trust was a conventional trust or a land trust, I concur in the

remainder of the opinion.

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