Court Opinion

ID: 3155188
Source: CourtListenerOpinion
Date Created: 2015-11-17 14:05:55.011547+00
Date Added: 2024-06-11T17:32:48.060524
License: Public Domain

In the
                           Missouri Court of Appeals
                                     Western District

                                                  
KAREN L. FAY,                                     
                                                     WD78302
               Appellant,                            OPINION FILED:
v.                                                
                                                     November 17, 2015
LLOYD GRAFTON AND                                 
RONALD W. GRAFTON,                                
                                                  
               Respondents.                       
                                                  

                   Appeal from the Circuit Court of Linn County, Missouri
                       The Honorable Tracey A. Mason-White, Judge

                                 Before Special Division:
       James Edward Welsh, P.J., Gary D. Witt, J., and Andrea R. Vandeloecht, Sp. J.

       Karen L. Fay appeals the circuit court's judgment in favor of Lloyd Grafton on her

Amended Petition to Disapprove the Wrongful Termination of an Irrevocable Trust. Fay

contends that the circuit court erred (1) in approving Lloyd Grafton's revocation and then

modification of the trust without requiring the consent of all beneficiaries of the trust; (2) in not

removing Lloyd Grafton as trustee of the trust because he violated the interests of the

beneficiaries, committed a breach of the trust, and violated his duty of loyalty and duty to

inform; (3) in approving Lloyd Grafton's revocation of trust and the subsequent transfer of the

shares of Lloyd Grafton, Inc., to himself without consideration of the "ascertainable standard" as
set forth in section 456.8-814, RSMo Cum. Supp. 2013; and (4) in not terminating all income

and benefits to Lloyd Grafton and holding him subject to the no-contest clause of the trust. We

affirm the circuit court's judgment.

        The evidence established that Lloyd Grafton and his then wife, Dorothy J. Grafton,

executed The Grafton Family Trust Agreement on January 9, 2003. The major assets of the trust

agreement were shares of common stock in two Missouri corporations: Grafton Family Farms,

Inc., and Lloyd Grafton, Inc. Lloyd Grafton and Dorothy Grafton were designated as the settlors

and co-trustees of the trust. The trust stated that, in the event of the death of either trustee, then

"the other designated Co-Trustee shall serve as the Sole Trustee."

        The purpose of the trust was set forth in the trust and provided: "The purpose of this

Trust Agreement is to maintain the assets of Lloyd Grafton, Inc., and Grafton Farms, Inc., as a

single farming operation as long as financially reasonable, for the longest term permitted by law,

unless terminated under Section 5." The trust set forth the "Dispositive Provisions During

Lifetime of Settlors," which said:

              During the lifetime of Settlors, or either of them, the Trustee shall hold
        and administer the Trust Estate as follows:

                a. The shares of Grafton Farms, Inc., transferred by each Settlor to this
        Trust shall be held in separate trust for the benefit of each transferring Settlor and
        shall be administered according to the instructions set out at Section 10 of this
        Trust Agreement.

              b. All assets other than the shares of Grafton Farms, Inc., shall be held
        and administered as follows:

                (1) The net income shall be paid and distributed to or for the benefit of the
        Settlors, of [sic] the survivor of them.

                                                   2
                 (2) The Trustee may pay to or apply for the benefit of either or both
         Settlors all or any part of the principal as tahe (sic) Trustee may determine in its
         discretion.1

                 (3) In the event of the disability or impairment of either Settlor, the
         Trustee may pay to or apply for the benefit of either or both Settlors such part of
         the net income or principal, or neither, in the discretion of the Trustee.

Section 10 of the trust provided:

         Any and all trusts created under this Trust Agreement shall be irrevocable, and
         Settlors, and each of them, expressly waive all rights and powers, whether alone
         or in conjunction with others, and regardless of when or from what source such
         powers have been acquired, to alter, amend, revoke, terminate the trusts or to
         amend or revoke any of the terms of this Trust Agreement, in whole or in part,
         except according to the provisions of Section 7(j) of this Trust Agreement.

         The trust stated that the settlors have two children, Karen Fay and Ronald Grafton, and

set forth provisions concerning how the trust estate would be held and administered upon the

death of both settlors and how the trust estate shall be divided among Karen Fay and Ronald

Grafton and among others if Karen Fay and Ronald Grafton are no longer living. The trust

further provided direction about the trustee's duty to inform and report to "Qualified

Beneficiaries"2 about "the administration of the Trust and of the material facts necessary for them

to protect their interests." The trust specifically stated, however, that the provisions regarding the

duty to inform and report "are inapplicable as to notice to persons other than a surviving spouse

so long as a surviving spouse is or may be entitled to receive income or principal distributions

from the Trust, or holds any power of appointment therein, and where any or all Qualified

Beneficiaries are the issue of the surviving spouse."

         1
           Section 7, subsection (e), of the Trust provided: "The determination by the Trustee exercising discretion
under this Trust shall be absolute, final and binding upon all persons then or thereafter interested in any trust or any
interest in any trust created under this Trust Agreement."
         2
           The trust defined "Qualified Beneficiary" as "a beneficiary, who, on the date of the beneficiary's
qualification is determined: (1) to be a distributee of Trust income or principal; or (2) would be a distributee of Trust
income or principal if the Trust terminated on that date."

                                                            3
       Dorothy Grafton died on November 26, 2008, which left Lloyd Grafton as the sole trustee

of the Grafton Family Trust. On January 17, 2013, Lloyd Grafton executed a Restatement of the

Grafton Family Trust Agreement, which purported to revoke in its entirety the Grafton Family

Trust Agreement dated January 9, 2003. Upon realizing that the Restatement may have been

inappropriate, Lloyd Grafton executed an amendment to the Restatement of the Grafton Family

Trust Agreement on May 1, 2013. Pursuant to the amendment, Lloyd Grafton reinstated all of

the original terms of the original Grafton Family Trust Agreement and revoked in its entirety the

Restatement of the Grafton Family Trust Agreement. On the same day that the amendment to the

Restatement was executed, Lloyd Grafton, acting as Trustee of the Grafton Family Trust

Agreement, transferred to himself in his individual capacity 7480 shares of common stock in

Lloyd Grafton, Inc. Also, on that same day, Lloyd Grafton, as Trustee of the Grafton Family

Trust Agreement, executed a Bill of Sale transferring to himself all assets in the Trust, which

included "all personal property, farm machinery, implements equipment, household goods,

furniture, fixtures and all purely personal property and all other property in said Trust" except for

shares of common stock of Grafton Farms, Inc." Thereafter, he placed the shares of Lloyd

Grafton, Inc., into the Lloyd Grafton Revocable Trust Agreement.

       On April 24, 2013, Karen Fay filed a Verified Petition to Disapprove the Wrongful

Termination of an Irrevocable Trust with the circuit court, seeking: (1) to disapprove the alleged

modification of the trust agreement by Lloyd Grafton on January 9, 2003, (2) to remove Lloyd

Grafton as trustee and appoint a successor trustee; and (3) a remedy for a breach of trust. On

April 2, 2014, Fay filed an amended Verified Petition to Disapprove the Wrongful Termination of

an Irrevocable Trust asserting the three counts mentioned above, one count for "Breach of Trust,

True Contest and Attack" and 16 counts for conversion. Fay, however, dismissed 15 of the

                                                  4
conversion counts before trial. The circuit court held a two-day bench trial on October 21 and

22, 2014. On December 23, 2014, the circuit court entered judgment for Lloyd Grafton on all

counts. Fay appeals.

         Our review of this judge-tried case is governed by Murphy v. Carron, 536 S.W.2d 30, 32

(Mo. banc 1976). We will affirm the circuit court's judgment unless it is unsupported by

substantial evidence, it is against the weight of the evidence, or it erroneously declares or applies

the law. Pearson v. Koster, 367 S.W.3d 36, 43 (Mo. banc 2012). We view the evidence and

inferences in the light most favorable to the circuit court's judgment and disregard all contrary

evidence and inferences. Essex Contracting, Inc. v. Jefferson Cty., 277 S.W.3d 647, 652 (Mo.

banc 2009). Where the issue is strictly a question of law, we apply de novo review. Pearson,
367 S.W.3d at 43. We give no deference to the circuit court's rulings on questions of law. Id. at

43-44.

         In her first point on appeal, Fay contends that the circuit court erred in approving Lloyd

Grafton's revocation and then modification of the trust without requiring the consent of all

beneficiaries of the trust. She asserts that section 456.4A-411, RSMo Cum. Supp. 2013, and

section 456.590, RSMo 2000, require the consent of all beneficiaries to terminate or modify an

irrevocable trust or require a finding by the court that the rights of non-consenting beneficiaries

were being protected.

         While it is true that Lloyd Grafton attempted to revoke the trust by executing the

Restatement of the Grafton Family Trust Agreement on January 17, 2013, the evidence

established, and the circuit court found, that Lloyd Grafton realized that he lacked the power and

authority to execute the Restatement, so he executed an amendment to the Restatement of the

Grafton Family Trust Agreement on May 1, 2013. Pursuant to the amendment, Lloyd Grafton

                                                  5
reinstated all of the original terms of the original Grafton Family Trust Agreement and revoked

in its entirety the Restatement of the Grafton Family Trust Agreement. The trust, therefore, was

left intact as originally drafted and with no changes or amendments. As the circuit court found,

an order disapproving the Restatement is not necessary because Lloyd Grafton's actions in

revoking the Restatement were sufficient to reinstate the original trust without modification.

Thus, because the trust was not modified or terminated, the consent of the beneficiaries was not

required, and the court did not have to find that the rights of non-consenting beneficiaries were

being protected.

         In her second point on appeal, Fay asserts that the circuit court erred in not removing

Lloyd Grafton as trustee of the trust because he violated the interests of the beneficiaries,

committed a breach of the trust, and violated his duty of loyalty and duty to inform. Fay claims

that, because Lloyd Grafton tried to revoke the trust and later transferred assets out of the trust,

he violated sections 456.7-706, 456.8-801, 456.8-802, and 456.8-813, RSMo Cum. Supp. 2013.

         First, to the extent that Fay argues that Lloyd Grafton should be removed as trustee of the

trust because he attempted to revoke the trust by executing the Restatement of the Grafton

Family Trust Agreement, her argument is without merit given that Lloyd Grafton reinstated all of

the original terms of the original trust and revoked the Restatement when he filed the amendment

to the Restatement. As we noted previously, the trust was left intact as originally drafted and

with no changes or amendments. Thus, any contention that Lloyd Grafton as trustee of the trust

violated the interests of the beneficiaries, committed a breach of the trust, and violated his duty

of loyalty and duty to inform by revoking the trust by executing the Restatement is without

merit.

                                                  6
       Fay asserts, however, the fact that Lloyd Grafton later transferred assets of the trust to

himself also establishes that he violated the interests of the beneficiaries, committed a breach of

the trust, and violated his duty of loyalty and duty to inform. As noted by the circuit court in its

judgment, Fay did not plead that Lloyd Grafton should be removed as Trustee because he

removed assets from the Trust, and she did not request the court to amend the pleadings to

conform to the evidence at the end of trial. The circuit court, however, made findings regarding

Lloyd Grafton's removal of the assets from the trust and concluded that the trust gave Lloyd

Grafton as trustee absolute discretion to pay all or part of the principal of the trust to himself as

settlor. We agree.

       Section 3 of the trust set forth the "Dispositive Provisions During Lifetime of Settlors,"

which said:

             During the lifetime of Settlors, or either of them, the Trustee shall hold
       and administer the Trust Estate as follows:

               a. The shares of Grafton Farms, Inc., transferred by each Settlor to this
       Trust shall be held in separate trust for the benefit of each transferring Settlor and
       shall be administered according to the instructions set out at Section 10 of this
       Trust Agreement.

             b. All assets other than the shares of Grafton Farms, Inc., shall be held
       and administered as follows:

               (1) The net income shall be paid and distributed to or for the benefit of the
       Settlors, of [sic] the survivor of them.

               (2) The Trustee may pay to or apply for the benefit of either or both
       Settlors all or any part of the principal as tahe [sic] Trustee may determine in its
       discretion.3

       3
           We added the emphasis.

                                                   7
               (3) In the event of the disability or impairment of either Settlor, the
       Trustee may pay to or apply for the benefit of either or both Settlors such part of
       the net income or principal, or neither, in the discretion of the Trustee.

Moreover, section 7, subsection (e), of the trust provided: "The determination by the Trustee

exercising discretion under this Trust shall be absolute, final and binding upon all persons then or

thereafter interested in any trust or any interest in any trust created under this Trust Agreement."

       "It is well settled that the law allows a settlor to confer upon a trustee broad discretion in

decision-making." Deutsch v. Wolf, 994 S.W.2d 561, 567 (Mo. banc 1999). "[W]hen a settlor

vests sole discretion in a matter in a trustee, and supplies no objective standard by which to

evaluate the reasonableness of his conduct, a court must not interfere unless the trustee, in

exercising his power, willfully abuses his discretion or acts arbitrarily, fraudulently, dishonestly

or with an improper motive." In the Matter of Heisserer, 797 S.W.2d 864, 870 (Mo. App. 1990).

       The trust agreement set up by the settlors in this case most certainly favored paying

income and principal to the settlors during their lifetime over preserving assets for surviving

beneficiaries after the death of both settlors. According to the terms of the trust, Grafton had the

discretion to distribute income and principal to himself as a settlor and that discretion was

binding upon all persons interested in the trust.

       Fay attempts to rely on section 4(j) of the trust as support for her argument that Lloyd

Grafton was prohibited from conveying the property back to himself. Section 4(j) says:

               Notwithstanding any other provisions of the Trust Agreement, in no event
       shall any portion of the principal or income of the trust revert or be distributed to
       the Settlors, or either of them, or to the estate of either, be applied or distributed in
       a matter which satisfies, discharges or mitigates any legal obligation (including an
       obligation of support) of the Settlors or either of them, or otherwise be used or
       applied for the benefit of the Settlors, or either of them.

                                                    8
This provision, however, does not apply when a trustee pays a settlor income and/or principal of

the trust. It merely prohibits the trustee from applying income and/or principal of the trust to

satisfy any legal obligation owed by the Settlor. To read this as Fay suggests would prohibit the

settlors from receiving any benefit under the trust. This clearly was not the intent of the settlors

as evidenced by the above quoted provisions in section 3(b) of the trust. "In determining the

meaning of a trust provision, the paramount rule of construction is that the settlor's intent is

controlling and such intention must be ascertained primarily from the trust instrument as a

whole." Hudson v. UMB Bank, N.A., 447 S.W.3d 714, 721 (Mo. App. 2014) (quoting First Nat'l

Bank of Kansas City v. Hyde, 363 S.W.2d 647, 652 (Mo. 1962)). Section 3(b) (2) clearly states:

"The Trustee may pay to or apply for the benefit of either or both Settlors all or any part of the

principal as tahe (sic) Trustee may determine in its discretion."

       Moreover, the stated purpose of the trust was "to maintain the assets of Lloyd Grafton,

Inc., and Grafton Farms, Inc., as a single farming operation as long as financially reasonable[.]"

Lloyd Grafton testified at trial that it was no longer financially reasonable to continue operating

Lloyd Grafton, Inc., and Grafton Farms, Inc., as a "single farming operation" due to conflicts and

disputes between himself, as acting president of Lloyd Grafton, Inc., and Fay, as acting president

of Grafton Farms, Inc. The circuit court found that Fay provided no evidence establishing that

the decision to remove the shares of Lloyd Grafton, Inc., was not financially reasonable.

       We acknowledge that the circuit court did not explicitly state in its judgment that it was

not financially reasonable to continue operating the two farms as a single farming operation.

However, because the parties did not request findings of fact, "[a]ll fact issues upon which no

specific findings are made shall be considered as having been found in accordance with the result

reached." Rule 73.01(c). Thus, we presume that the circuit court found that operating the two

                                                  9
farms as one farming unit was no longer financially reasonable. Indeed, the evidence at trial

supported such finding. Lloyd Grafton testified that he did not trust Fay, and Fay testified that

she did not trust her father. Given their distrust of one another and the fact that Fay is President

of Grafton Farms, Inc., and Lloyd Grafton is President of Lloyd Grafton, Inc., it is most certainly

understandable that it would no longer be financially reasonable to continue operating Lloyd

Grafton, Inc., and Grafton Farms, Inc., as a "single farming operation."

        Because Grafton did not ultimately revoke the trust and because he has the discretion to

remove some but not all assets from the trust, the circuit court did not erred in refusing to remove

Lloyd Grafton as trustee of the trust. Fay's contention fails.

        In her third point on appeal, Fay asserts that the circuit court erred in approving Lloyd

Grafton's revocation of trust and the subsequent transfer of the shares of Lloyd Grafton, Inc., to

himself without consideration of the "ascertainable standard"4 as set forth in section 456.8-814,

RSMo Cum. Supp. 2013. Section 456.8-814 provides in part:

                1. Notwithstanding the use of such terms as "absolute," "sole," or
        "uncontrolled," in the exercise of discretion under an ascertainable standard, the
        trustee shall exercise such discretionary power in good faith and in accordance
        with the terms and purposes of the trust and the interests of the beneficiaries.

               2. Subject to subsection 4 of this section, and unless the terms of the trust
        expressly indicate that a rule in this subsection does not apply:

                (1) a person other than a settlor who is a beneficiary and trustee of a trust
        that confers on the trustee a power to make discretionary distributions to or for
        the trustee's personal benefit may exercise the power only in accordance with an
        ascertainable standard[.]

        4
          Section 456.1-103(2), RSMo Cum. Supp. 2013, defines "ascertainable standard" as "a standard relating to
an individual's health, education, support, or maintenance within the meaning of Section 2041(b)(1)(A) or Section
2541(c)(1) of the Internal Revenue Code[.]"

                                                       10
The ascertainable standard set forth in section 456.8-814 does not apply when the trustee is also

the settlor. The trust gives Lloyd Grafton as trustee of the trust the discretion to pay all or part of

the principal to himself as a settlor without an ascertainable standard being applied. Fay's

contention is without merit.5

         In her final point, Fay contends that the circuit court erred in not terminating all income

and benefits to Lloyd Grafton and holding him subject to the no-contest clause of the trust.

Section 7(i) of the trust provided:

                 If any beneficiary under this Trust, in any manner, directly or indirectly,
         contests or attack this Trust or any of its provisions, the share or interest of that
         beneficiary in this Trust shall be revoked and of no force or effect, and such
         beneficiary's share or interest shall be distributed in the manner provided herein as
         if the contesting beneficiary had predeceased both Settlors without issue.

         "In reviewing the applicability of forfeiture provisions or 'no-contest' clauses, courts are

to consider the facts of the particular case, and those facts are to be considered and applied with

'a careful regard for the phrasing or language of the no-contest or forfeiture clause; and, having

in mind that forfeitures are not favored by the law.'" Chaney v. Cooper, 954 S.W.2d 510, 519

(Mo. App. 1997) (quoting Cox v. Fisher, 322 S.W.2d 910, 914 (Mo. 1959)). "'A no-contest or

forfeiture provision is to be enforced where it is clear that the trustor (or testator) intended that

the conduct in question should forfeit a beneficiary's interest under the indenture (or will).'"

Chaney, 954 S.W.2d at 519 (quoting Cox, 322 S.W.2d at 914).

         The no-contest clause does not appear to include actions by the settlor. The statement in

the clause that a beneficiary's share would be distributed "as if the contesting beneficiary had

         5
          Fay makes the argument that the ascertainable standard should apply at least to one-half of the transfers of
the stock in Lloyd Grafton, Inc., since half of the stock "should have gone to Dorothy Grafton, deceased former
spouse and settlor." Section 456.8-814, however, does not state that the ascertainable standard should apply if
property is placed in a trust by joint settlors.

                                                         11
predeceased both Settlors without issue" is illogical when the beneficiary is also one of the

settlors. Moreover, as we have already concluded, the trust was not ultimately modified or

revoked by Lloyd Grafton. The trust remains as originally drafted and with no changes or

amendments.

       We, therefore, affirm the circuit court's judgment.

                                                     /s/ JAMES EDWARD WELSH
                                                     James Edward Welsh, Presiding Judge

All concur.

                                                12