Court Opinion

ID: 9380117
Source: CourtListenerOpinion
Date Created: 2023-03-17 14:04:10.563998+00
Date Added: 2024-06-11T17:17:22.722449
License: Public Domain

RENDERED: MARCH 10, 2023; 10:00 A.M.
                         NOT TO BE PUBLISHED

                 Commonwealth of Kentucky
                           Court of Appeals

                              NO. 2021-CA-0643-MR

KEVIN A. MCKIM AND THERESA
SMITH                                                                 APPELLANTS

                 APPEAL FROM JEFFERSON CIRCUIT COURT
v.                HONORABLE JESSICA E. GREEN, JUDGE
                         ACTION NO. 21-CI-000103

MARY K. MCKIM; KAYLA M.
MCKIM; AND MADISON E. MCKIM                                             APPELLEES

                                     OPINION
                                    AFFIRMING

                                   ** ** ** ** **

BEFORE: THOMPSON, CHIEF JUDGE; DIXON AND LAMBERT, JUDGES.

DIXON, JUDGE: Kevin A. McKim and Theresa Smith appeal the order of the

Jefferson Circuit Court, entered May 26, 2021, dismissing the underlying action to

invalidate the modification of the Kevin A. McKim Gift Trust (hereinafter “Trust”)

and for other related relief. After careful review of the briefs, record, and law, we

affirm.
            BACKGROUND FACTS AND PROCEDURAL HISTORY

                Kevin and Mary K. McKim were married in 1992, and Kayla M.

McKim and Madison E. McKim are their daughters. In 2005, Kevin established an

irrevocable trust for the benefit of Mary, his children, and his future grandchildren.

The original trust instrument names Mary as trustee and charges her with using

income from Trust property to provide, as she deems advisable, for the

beneficiaries’ “support in their accustomed manners of living and for their

maintenance, health[,] and education.” Trust article 2.1(a). Presently, only Mary,

Kayla, and Madison are beneficiaries to the Trust. Under articles 2.4 and 3.4 of the

original trust instrument, the Trust terminates in favor of separate trusts for Kevin’s

children, with Theresa Smith as trustee, upon either the McKims’ divorce or

Mary’s death. Kevin contends that, in effect, Mary would be removed as both

trustee and beneficiary.

                In December 2018, Kevin filed for divorce; that case is still pending.

On July 16, 2020, Mary executed a trust decanting modification agreement

pursuant to KRS1 386.175. The modified agreement removed the provisions that

would terminate the Trust upon the McKims’ divorce – permitting Mary to retain

her status as both trustee and beneficiary – and removed and replaced Theresa as a

named successor trustee.

1
    Kentucky Revised Statutes.

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                On January 7, 2021, Kevin filed the underlying complaint which was

amended on February 15, 2021, to include Theresa as a plaintiff. Therein, Kevin:

(1) sought a declaration that the modification agreement is invalid and the terms of

the original trust instrument remain in effect, (2) asserted Mary breached her

fiduciary duties, resulting in damage to Appellants, the Trust, and its beneficiaries,

and (3) alleged various violations of Kentucky trust statutes. Pursuant to CR2

12.02(f), Mary moved to dismiss, arguing: (1) Appellants lacked standing; (2) the

claims should have been raised in district, not circuit, court;3 and (3) Kevin’s

claims are barred by equitable estoppel. After briefing and oral arguments, the

court granted the motion on all grounds, and this appeal followed.

                                STANDARD OF REVIEW

                CR 12.02(f) authorizes judgment in favor of a defendant for a

plaintiff’s “failure to state a claim upon which relief can be granted[.]” When

considering a motion to dismiss, the court should view the pleadings “in a light

most favorable to the plaintiff and accept all allegations in the complaint as true.”

Cotton v. Nat’l Collegiate Athletic Ass’n, 587 S.W.3d 356, 361 (Ky. App. 2019)

(quoting Mims v. Western-Southern Agency, Inc., 226 S.W.3d 833, 835 (Ky. App.

2
    Kentucky Rules of Civil Procedure.
3
  Appellants concede that the removal of a trustee is the sole provenance of the district court, but
they nonetheless contend this isolated error did not preclude the circuit court from acquiring
subject matter jurisdiction over their remaining claims.

                                                -3-
2007)). “Since a motion to dismiss for failure to state a claim upon which relief

may be granted is a pure question of law, a reviewing court owes no deference to a

trial court’s determination; instead, an appellate court reviews the issue de novo.”

Id. (quoting Fox v. Grayson, 317 S.W.3d 1, 7 (Ky. 2010)).

                                LEGAL ANALYSIS

             Appellants first challenge the court’s determination that they do not

have standing. Pursuant to § 112(5) of the Kentucky Constitution, which limits the

court’s jurisdiction to “justiciable causes,” a plaintiff must have constitutional

standing to initiate a lawsuit in the Commonwealth. Commonwealth, Cabinet for

Health and Family Servs., Dep’t for Medicaid Servs. v. Sexton, ex rel. Appalachian

Reg’l Healthcare, Inc., 566 S.W.3d 185, 196 (Ky. 2018). To satisfy this

requirement, the plaintiff must demonstrate an injury, caused by the defendant, that

is capable of being redressed by the court. Id. Moreover, the injury must be

concrete and particularized, as well as actual or imminent. Id. (citing

Massachusetts v. E.P.A., 549 U.S. 497, 517, 12 S. Ct. 1438, 167 L. Ed. 2d 248

(2007)). With these principles in mind, we will address Appellants’ arguments, in

turn.

             Kevin’s claimed injury is that, by permitting Mary to remain as trustee

even upon their divorce, the modification agreement exposes him to a perpetual tax

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burden4 that the initial trust instrument was explicitly designed to avoid. In

support, Kevin cites City of Louisville v. Stock Yards Bank & Trust Co., 843

S.W.2d 327 (Ky. 1992), wherein the Court held that increased economic outlays

resulting from the trustees’ alleged mismanagement of funds was a sufficiently

cognizable injury to support standing for the grantor, even though the trustees had

exclusive title to the trust assets by statute. Reasoning that Kevin’s continuing

duty to pay taxes was distinguishable from the future duty imposed in City of

Louisville, the court rejected Kevin’s contention. As we agree Kevin does not have

a requisite injury to support standing, we affirm, albeit on different grounds. See

Fischer v. Fischer, 348 S.W.3d 582, 591-92 (Ky. 2011) (citing Kentucky Farm

Bureau Mut. Ins. Co. v. Shelter Mut. Ins. Co., 326 S.W.3d 803, 812 n.3 (Ky. 2010)

wherein the court held that we are permitted to affirm on any grounds supported by

the record).

               Accepting arguendo that an increased tax burden is a sufficiently

particularized injury, the harm must also be actual or imminent. Here, Kevin

admits the triggering event – the dissolution of the parties’ marriage – has yet to

occur, and it is not claimed that Kevin has incurred any undue taxation.

Accordingly, we must determine whether this unrealized injury is sufficiently

4
 Specifically, Kevin states that, by virtue of sections 672(e) and 674 of the Internal Revenue
Code, he is required to pay income taxes incurred by the Trust so long as Mary remains trustee.

                                              -5-
imminent to confer standing. Relying on the Court’s interpretation of the term in

Overstreet v. Mayberry, 603 S.W.3d 244, 252 (Ky. 2020), Kevin maintains his

injury qualifies as such given that the dissolution is reaching its conclusion and the

modification agreement has already removed the tax saving measures.

             In Overstreet the Court explained:

             For an injury to be concrete, it must actually exist. And
             while an injury may be threatened or imminent, the
             concept of imminence cannot be stretched beyond its
             purpose, which is to ensure that the alleged injury is not
             too speculative for [constitutional standing] purposes –
              that the injury is certainly impending. Thus, the United
             States Supreme Court has repeatedly reiterated that
             threatened injury must be certainly impending to
             constitute injury in fact and that allegations of possible
             future injury are not sufficient.

Id. (internal quotation marks and citations omitted) (emphasis in original).

             Though Kevin insists a decree dissolving his marriage – thereby

causing his injury – is imminent, the fact that two years have elapsed since the

underlying petition was filed, and the dissolution action is unresolved with no date

certain to conclude, plainly stretches the definition of word. Furthermore, it is

conceivable that a decree will not be entered for a myriad of reasons; or that, prior

thereto, the trust agreement will be further modified to prevent the feared tax

liability, as Mary purports to have done during the pendency of this appeal; or the

remaining triggering event may occur nullifying the entire conflict. Hence, we

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conclude Kevin has failed to demonstrate that the injury is certainly impending;

thus, the court’s determination that he lacked standing is not erroneous.

             As for Theresa, her claim to standing arises from her status as a

named successor trustee in the original trust instrument and the plain language of

the Uniform Trust Code (“UTC”), codified at KRS 386B.1-010 - 386B.11-050.

Specifically, KRS 386B.4-100(2) provides that “[a] proceeding to approve or

disapprove a proposed modification or termination under [various provisions of the

code] may be commenced by a trustee[.]” “Trustee” is defined by the UTC as

including “an original, additional, and successor trustee, and a cotrustee.” KRS

386B.1-010(21). Additionally, a “court may intervene in the administration of a

trust to the extent its jurisdiction is invoked by an interested person or as provided

by law.” KRS 386B.2-010(1).

             Mary disagrees, arguing that any standing Theresa – as a mere

contingent successor trustee – may have held was lost when she was duly replaced

prior to the occurrence of the condition for her appointment. Furthermore, Mary

asserts that Theresa’s reliance on the UTC is misplaced as no authority supports

her interpretation, and the modification was made pursuant to the decanting statute,

KRS 386.175, which is not a part of the UTC.

             The UTC was enacted in 2014, and there is little by way of judicial

guidance. We acknowledge that Theresa’s argument has some appeal under a

                                          -7-
plain reading of the text. However, the law is clear that statutory standing is not a

substitute for constitutional standing (see Sexton, 566 S.W.3d at 191), and because

we conclude that Theresa has failed to demonstrate the latter, we must affirm.

             Here, accepting arguendo that Theresa’s removal as a future trustee is

a concrete injury, the harm is neither actual nor imminent. Per sections 3.3 and 3.4

of the original trust instrument, Theresa would be appointed trustee if: (1) any

trustee ceases to act during Mary’s lifetime and Mary does not appoint another, (2)

the children are under 35 years of age and the McKims have divorced, or (3) the

children are under 35 years of age and Mary is deceased. Though Theresa asserted

in her petition that she “should be serving as trustee at this time or in the

immediate future,” it is undisputed that none of the prerequisites for her

appointment occurred either at the time of filing or in the intervening two years

since. For the reasons addressed above, we conclude there is an insufficient basis

to accept that one of the conditions is certainly impending. Consequently, we

agree with the trial court that Theresa has also failed to establish her standing to

bring the underlying action.

             Our conclusion is not undermined by Theresa’s citation to Matter of

Trust of Hildebrandt, 388 P.3d 918 (Kan. Ct. App. 2017), and Megiel-Rollo v.

Regiel, 162 So.3d 1088 (Fla. Dist. Ct. App. 2015). While Theresa asserts that

these courts, under identical provisions of the UTC, held that successor trustees

                                          -8-
had standing to challenge a trust modification and to seek reformation of a trust,

these cases are not binding on this Court and, more importantly, they are

distinguishable. In Hildebrandt, the party at issue had a present claim of

entitlement to appointment as trustee, the condition necessary therefor having

already occurred, and the litigation was to settle who the proper trustee was. In

Regiel, the appealing party was the current trustee. As stated above, Theresa has

neither a claim for appointment nor is she the present trustee.

             We are, likewise, unpersuaded by Theresa’s general assertion that

“courts routinely recognize the standing of parties with contingent interest in a

trust to challenge the trust’s administration” as a basis to find standing in this

matter. Though Theresa refers us to Betty G. Weldon Revocable Trust ex rel.

Vivion v. Weldon ex rel. Weldon, 231 S.W.3d 158 (Mo. Ct. App. 2007), in support

of her position, this reliance is misplaced. At issue in Weldon was the standing of

residuary beneficiaries, and the court therein affirmatively concluded that the

appealed judgment affected the litigants’ personal interest in the corpus of the trust.

Conversely, as a mere future trustee, Theresa does not have a comparable interest.

             As we have upheld the court’s determinations that Appellants lack

standing, we need not reach the merits of their remaining claims on appeal.

                                          -9-
                               CONCLUSION

           Therefore, and for the foregoing reasons, the order of the Jefferson

Circuit Court is AFFIRMED.

           ALL CONCUR.

BRIEFS FOR APPELLANTS:                  BRIEF FOR APPELLEES:

Clark C. Johnson                        Daniel M. Oyler
Burt A. Stinson                         Edward H. Bartenstein
Louisville, Kentucky                    Louisville, Kentucky

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