Court Opinion

ID: 1060282
Source: CourtListenerOpinion
Date Created: 2013-10-09 18:43:40.362698+00
Date Added: 2024-06-11T13:08:17.834135
License: Public Domain

Present:       All the Justices

GEORGE                        B.                      LITTLE,              TRUSTEE
                                                             OPINION BY
v.   Record No. 941475                              CHIEF JUSTICE HARRY L. CARRICO
                                                           June 9, 1995
WILLIAM S. WARD, JR., ET AL.

               FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
                        Melvin R. Hughes, Jr., Judge

        This    appeal   is    from     an    order      removing    George    B.       Little

(Little)       and   Robert    L.    Freed    (Freed)      as    trustees     of    a   trust

because hostility developed between them.                       Finding that the trial

court erred in removing George B. Little, we will reverse.
        Anne L. Ward (Mrs. Ward) executed the trust agreement on

December 30, 1976, and funded the trust with shares of stock she

owned in The Little Oil Company, Incorporated, of Richmond (Little

Oil).      In creating the trust, Mrs. Ward had three purposes in

mind, (1) to remove the stock from her gross estate in order to

achieve    substantial         savings       in   estate    taxes,      (2)   to    provide

security for her husband, William S. Ward, Sr., one of the trust's

beneficiaries        whose     affliction         with   alcoholism     caused      serious

financial problems, and (3) to provide for her children, William

S.   Ward,      Jr.,     and       Beverly    Lewis      Ward,    the    trust's        other

beneficiaries.

        Article Seven of the trust agreement is central to the issues

involved in the case. It provides as follows:
          This trust is irrevocable and the Grantor does
     hereby expressly relinquish all right, whether acting
     individually or in conjunction with others, to alter,
     amend, revoke, or terminate this Agreement, but the
     Grantor expressly reserves the right to add additional
     property acceptable to the Trustee of any nature
     whatsoever to the principal of this trust.
       In the trust agreement, Mrs. Ward named Little, a Richmond

attorney, as trustee.            However, in the introductory clause of the

agreement, Little's name was followed by a blank space for the

naming of a co-trustee.                Blank spaces were provided for the co-

trustee's name in two other places in the body of the document,

and    there    was    an   extra      signature       line    and    a   third    notarial

certificate included at the end.                 Little explained on the witness

stand that he provided the blank spaces when he prepared the

document because Mrs. Ward consistently named two persons in other

documents he had prepared for her.
       Little       testified    further       that    although      he    and    Mrs.    Ward

discussed the naming of a co-trustee on a number of occasions

after she executed the agreement and he delayed executing it for

three months to give her time to name a co-trustee, she finally

told    him    he    should     act    as    sole     trustee,    and      he    signed   the

agreement on March 24, 1977.                 Mrs. Ward testified, however, that

she "didn't trust [Little] to be sole trustee" and that when she

left   his     office    after    she       executed    the    trust      agreement,      she

understood she had "the ability to fill in that blank."

       Ten     years    later,    in    February       1987,   Mrs.       Ward   telephoned

Freed, a Richmond attorney who then represented both Mrs. Ward and

Little Oil, of which she was president.                   Mrs. Ward told Freed the

company       was    preparing    to     pay    its     annual       dividend,     and    she

instructed him to "figure out some way" to avoid sending Little

the dividends on the stock in the trust, amounting to some $9,000.

       Freed "got the trust agreement out and focused on the blank

in the document."           He also did some research and found no cases
either supporting Mrs. Ward's position or prohibiting her from

appointing a co-trustee.         Deciding that Mrs. Ward "had retained

the right to complete the blank," Freed "advised [Mrs. Ward] of

the risk of [filling in the blank,] agreed that [he] would serve

as a co-trustee of the trust, . . . agreed that [he] would accept

the   funds    from   Little   Oil   Company,"    and   secured    Mrs.   Ward's

agreement to indemnify him. 1        However, neither Freed nor Mrs. Ward

informed Little of Freed's purported appointment as co-trustee.
      For more than three years, Freed periodically received checks

from Little Oil, representing payments of dividends on the stock

held in the trust.        Freed deposited the checks in an account he

opened as "Escrow Agent" in a local bank but neither notified

Little of the existence of the account nor reported the sums

received      to   the   Internal    Revenue     Service   or     Virginia    tax

authorities.

      Finally, on March 23, 1990, realizing he was in "a dilemma

because [he] had not reported [the dividends and knew Little could

not have reported them] on any trust income tax return,"                     Freed

sent bank "summaries" to the certified public accountant Little

used to prepare tax returns for the trust.                 Little immediately

wrote Freed and demanded that he turn the funds over to Little.

Freed refused the demand.

      Meanwhile, on December 23, 1986, Mrs. Ward and the three

beneficiaries of the trust, with Freed as their counsel, filed a

       1
       Mrs. Ward never filled in any of the blank spaces in the
trust agreement.    Apparently, Freed was content with her oral
appointment of him as co-trustee.
petition against Little, as trustee, alleging that, due to recent

changes in federal and state tax laws, the shareholders of Little

Oil had resolved that the company "should elect [Subchapter] S

Corporation status pursuant to the provisions of the Internal

Revenue      Code    on   or   before     December     31,   1986."     The     petition

alleged further that Little had refused to terminate the trust, to

distribute the shares of the corporation to the beneficiaries, or

to   resign    as    trustee     and    appoint    a   successor      trustee    so   the

corporation could elect Subchapter S status before December 31,

1986.
        The petition prayed that the court order Little to distribute

to the beneficiaries the shares he held in trust,                      order that the

trust be terminated, or order Little to resign as trustee and

appoint      Freed   as   successor       trustee.      Little   filed    a     response

denying that his refusal was without good cause.                      He also offered

to resign as trustee in favor of "any corporate fiduciary in the

City    of   Richmond,"        provided    his    successor    concurred      with    his

position that the trust should not be terminated because there

were contingent beneficiaries who could not be ascertained until
                                            2
the occurrence of future events.
        The Subchapter S issue became moot for reasons unrelated to

the questions involved in the present case.                   However, the petition

        2
      On appeal, Little stresses the point that because there were
contingent beneficiaries who could not be ascertained until the
occurrence of future events, it was his duty to resist the efforts
to terminate the trust. His opponents deny there is any substance
to the point.    In view of the disposition we make of the case
infra, we need not decide the point.
filed by Mrs. Ward and the beneficiaries was not dismissed, and

negotiations continued for several years concerning a successor to

Little as trustee.     Then, on July 26, 1990, after Little learned

of the "Escrow Agent" account into which Freed had been depositing

dividends accruing on the stock held in the trust, Little filed a

cross-bill against Freed and his law firm seeking judgment "in an

amount equal to the total dividends diverted . . . together with

appropriate interest and an additional sum equal to the total of

all penalties and interest payable to the United States Government
                                       3
and the Commonwealth of Virginia."         A consent order allowed the

filing of the cross-bill.

      Freed and his law firm filed an answer to the cross-bill on

April 23, 1991.      From this answer, Little learned for the first

time of Freed's purported appointment as co-trustee.            By order

entered August 23, 1993, the case was continued, and Freed and his

law   firm    were   permitted   to   withdraw   as   counsel   for   the

beneficiaries of the trust. 4
      With leave of court, the beneficiaries, with new counsel,

filed an amended petition on October 12, 1993.            This petition

sought the removal of both Little and Freed as trustees "due to
      3
      At time of trial, the funds in Freed's "Escrow Agent" account
amounted to "about $29,000."
          4
      About this time, an incident occurred which caused friction
between Little on the one hand and Mrs. Ward and the beneficiaries
on the other. In a letter dated May 18, 1993, Mrs. Ward and the
beneficiaries requested that Little pay hospital bills totalling
some $14,000 that had been incurred for the hospitalization of
William S. Ward, Sr.     Little refused the request, taking the
position that Mrs. Ward was responsible for the bills of her
spouse.
irreconcilable          disagreements      and    conflict        between      the   co-

trustees."

        After a hearing, in an order entered May 26, 1994, the trial

court found that "because of the existence of the hostility and

friction" between Little and the settlor and beneficiaries and

between Little and Freed, "the best interests of the trust would

be served by the removal of . . . Little and . . . Freed as

trustees."        The order removed Little and Freed, appointed The

Tredegar Trust Company as the sole trustee, and dismissed Little's

cross-bill.       We awarded Little this appeal.
        William S. Ward, Sr., one of the trust's beneficiaries, died

in   December,      1993.       Freed,    his    law   firm,   and       the   surviving

beneficiaries, William S. Ward, Jr., and Beverly Lewis Ward, have

filed       a   joint   brief    and     will    be    referred     to    hereinafter,

collectively, as Ward. 5

        The initial question to be decided is whether Freed was

validly appointed as co-trustee.                In resolving this question, the

crucial consideration is whether Mrs. Ward validly reserved the

power to name a co-trustee.

        On this point, the trial court noted in a letter opinion that

"[t]he settlor, by terms of the trust instrument, may reserve to

herself the power to modify or alter the trust with reference to

the details of administration of the trust."                   In its order of May

        5
      Anne L. Ward is not a party to this appeal, but she signed a
statement at the end of the appellees' brief in opposition to the
granting of an appeal that she agreed with the argument of
appellees' counsel.
26, 1994, the court stated that "the terms of the trust . . .

permitted . . . Anne L. Ward, to preserve the power to appoint a

second    trustee     to   the    trust    instrument"    and       that   Mrs.   Ward

"accomplished [this] by . . . appointing Robert L. Freed as co-

trustee." 6

     However, the court did not specify any term of the trust

agreement     that   reserved     the     power   to   name   a     co-trustee    and,

indeed, the instrument contains no such term.                       Apparently, the

court considered that Mrs. Ward's stated intent to name a co-

trustee, coupled with the presence of blank spaces in the trust

agreement, constituted a reservation of the power to name a co-

trustee.
     If this was the basis of the trial court's finding of a

reservation of power, then the finding was in error for it is in

contravention        of    Article      Seven     of    the      trust     agreement.

Restatement     (Second)     of    Trusts    § 331     (1959).       Article      Seven

provides      that   the    trust    is     irrevocable       and    prohibits     any

alteration or amendment of the agreement save to add additional

property acceptable to the trustee.

     Commenting on Article Seven, the trial court said in its

letter opinion that the purpose of the Article was to prohibit "a

change of purpose or object of the trust" and not to prevent the

addition of a co-trustee as Mrs. Ward intended, which "did not

      6
      On brief, Ward adopts the trial court's rationale in arguing
that Mrs. Ward reserved the power to name a co-trustee.
change             the    substantive      provisions      of    the       trust"    but    "merely

relate[d]            to    its    administration." 7            There       is    nothing   in   the

language of Article Seven, however, that permits so restrictive an

application               of     its     terms.       Rather,        the     language       is   all

encompassing, prohibitive of any alteration or amendment of the

agreement, substantive or administrative.

       When Little signed the trust agreement after it had been

executed by Mrs. Ward and she had funded it with the Little Oil

stock, the agreement became complete, its terms became fixed as

they were then spelled out, and the trust became operative.                                      One

of the terms becoming fixed as then spelled out was that the trust

would be administered by only one trustee, namely, Little, despite

the fact that blank spaces remained in the trust agreement; once

the trust became operative, the blank spaces became surplusage
                                                                 8
and, thereafter, should have been ignored.
       Another of the terms becoming fixed as then spelled out was

the prohibition against any alteration or amendment of the trust

agreement.               With the terms thus fixed, any filling in of blanks to

name       a       co-trustee          clearly    would   have       been    an    alteration    or
       7
      Ward adopts the trial court's rationale in arguing that Mrs.
Ward's appointment of a co-trustee did not violate Article Seven.
               8
        Ward makes the additional argument that the presence of
blanks in the trust agreement "where one would expect a named
trustee" rendered the instrument ambiguous and, hence, the trial
court properly determined that Mrs. Ward intended that the trust
be administered jointly by two trustees. We will agree that Mrs.
Ward had the described intent, but the fact she had such an intent
is beside the point.     The question is whether Mrs. Ward acted
pursuant to a power reserved in the trust agreement to carry out
her intent. And, as indicated in the text, infra, she did not act
pursuant to any such power.
amendment of the trust instrument in violation of Article Seven.

See Restatement (Second) of Trusts § 331 cmt. b (1959).

        In our opinion, Mrs. Ward did not validly reserve the power

to     appoint     a    co-trustee      and,    hence,     Freed     was   not    validly

appointed. 9       It follows that, while friction between co-trustees

may be a valid ground for removal, May v. May, 167 U.S. 310, 320-

21 (1897), Freed never became a co-trustee, and, consequently, any

hostility or friction that developed between him and Little could

not constitute good cause for the removal of Little.
        Nor could the friction that existed between Little and Mrs.

Ward    and    the      beneficiaries     serve      as   good   cause     for   removing

Little.       In       the    first   place,   the    sole   basis    alleged     in   the

beneficiaries' amended petition for removal of Little was the

"irreconcilable              disagreements     and    conflict     between       the   co-

trustees"; therefore, friction between Little and Mrs. Ward and

the beneficiaries was not available to the trial court as a ground

for removing Little.              Ted Lansing Supply Co. v. Royal Aluminum &
Constr. Corp., 221 Va. 1139, 1141, 277 S.E.2d 228, 229 (1981) (no

court can base its judgment upon facts not alleged or upon a right

not pleaded).           Furthermore, in Virginia, "[f]riction between the

trustee and the beneficiary is not in itself sufficient ground for

removal [of the trustee]."              Willson v. Kable, 177 Va. 668, 676, 15
        9
      Little has been concerned throughout this case that if Mrs.
Ward is held to have reserved the power to name a co-trustee,
there is danger that the assets of the trust would be included in
her gross estate with an accompanying increase in estate taxes in
excess of $300,000.    Ward says there is no basis for Little's
concern. Because we hold that the trial court erred in finding a
reservation of power, this issue is moot.
S.E.2d 56, 59 (1941).

     Accordingly, we will affirm the judgment of the trial court

to the extent that it removed Freed as trustee but reverse it to

the extent that it removed Little as trustee and named a new

trustee in his place.   We will dismiss with prejudice the amended

petition insofar as it sought removal of Little as trustee and

enter final judgment in favor of Little.     We will reverse the

dismissal of Little's cross-bill, reinstate the cross-bill, and

remand the case for further proceedings consistent with the views

expressed in this opinion.
                                                 Affirmed in part,
                                                 reversed in part,
                                               and remanded.