Court Opinion

ID: 4158211
Source: CourtListenerOpinion
Date Created: 2017-04-05 15:14:32.996779+00
Date Added: 2024-06-11T14:28:22.740257
License: Public Domain

[Cite as Collins v. Hearty Invest. Trust, 2017-Ohio-1270.]

STATE OF OHIO                      )                         IN THE COURT OF APPEALS
                                   )ss:                      NINTH JUDICIAL DISTRICT
COUNTY OF SUMMIT                   )

JOHN C. COLLINS, Executor of the                             C.A. No.   27964
ESTATE OF HUGH HEARTY, Deceased,
et al.

        Appellees                                            APPEAL FROM JUDGMENT
                                                             ENTERED IN THE
        v.                                                   COURT OF COMMON PLEAS
                                                             COUNTY OF SUMMIT, OHIO
HEARTY INVESTMENT TRUST, et al.                              CASE No.   CV 2010 05 3319

        Appellants

                                  DECISION AND JOURNAL ENTRY

Dated: April 5, 2017

        HENSAL, Judge.

        {¶1}     The Hearty Investment Trust, its trustee, the Hearty Investment Trust’s

beneficiaries, and the Hearty Credit Bypass Trust appeal from a judgment of the Summit County

Court of Common Pleas, granting judgment in favor of the executor of the estate of Hugh Hearty

and his widow. We reverse in part, vacate in part, and remand the matter for further proceedings

consistent with this opinion.

                                                        I.

        {¶2}     This case is again before this Court following our reversal and remand of the trial

court’s decision. Although the details of this case are fully set forth in Collins v. Hearty

Investment Trust, we will summarize the procedural posture and underlying issues. 9th Dist.

Summit No. 27173, 2015-Ohio-400.
                                                    2

          {¶3}   In 1996, five of the Hearty siblings pooled certain assets and created the Hearty

Investment Trust (the “Trust”), of which they were the grantors and beneficiaries. The Trust was

designed to provide quarterly income distributions to the beneficiaries. Two provisions of the

Trust are relevant to this appeal. First, the Trust contains a power-of-appointment provision

governing the manner in which the beneficiaries can transfer their interest in the Trust. The

beneficiaries amended that provision in 2007, which – as amended – provides:

          [E]ach of the Grantors may appoint his or her trust share by Last Will and
          Testament made before or after the effective date of the Trust Agreement in the
          manner provided below. * * * The Grantor’s Will must make specific reference to
          this limited power of appointment. * * *. If the exercise of the limited power of
          appointment is in the form of a trust, the trustee of this instrument shall also serve
          as trustee under the trust created in accordance with the power of appointment. In
          default of the exercise of this limited power of appointment, the Grantor’s trust
          share at death shall pass in accordance with the terms and provisions of Section 3
          [i.e., to the Hearty Credit Bypass Trust].

          {¶4}   The second relevant provision of the Trust allows the trustee to distribute funds

from the deceased beneficiary’s share of the Trust to his or her estate if the beneficiary’s estate

lacks sufficient non-Trust assets to pay certain debts. Specifically, that provision provides:

          Upon the Grantor’s death, there shall be distributed to the Grantor’s estate (to the
          extent the Trustee determines that non-trust assets are not available for such
          purpose) from his or her Trust Share such an amount as the Grantor’s executor or
          administrator certifies is not greater than [the amount of death taxes, and normal
          and usual costs of administering the estate and debts of the grantor or his estate].

          {¶5}   In 2007, Mr. Hearty contacted the executor of his estate1 and asked him to prepare

a codicil to his will because he wanted to transfer his interest in the Trust to his wife pursuant to

the amended power-of-appointment provision.             Mr. Hearty provided the executor with the

language he wanted the codicil to include, and the executor prepared same, titling it “Codicil to

the Last Will and Testament of Hugh G. Hearty.” Although Mr. Hearty signed the purported

1
    The executor of Mr. Hearty’s estate is attorney John C. Collins, a plaintiff/appellee herein.
                                                  3

codicil, there is no dispute that it was not signed by two witnesses as required under Revised

Code Section 2107.03.

       {¶6}    Mr. Hearty passed in 2008. Following his death, Mr. Hearty’s interest in the

Trust transferred to the Hearty Credit Bypass Trust, not to his widow. Additionally, pursuant to

the Trust provision allowing the use of Trust assets to pay certain debts of a beneficiary’s estate,

the attorney for Mr. Hearty’s estate submitted a notice of unpaid debts to the trustee of the Trust.

The trustee did not evaluate the estate’s claim for monies and Trust assets were not used to pay

those debts.

       {¶7}    As a result of these events, the executor of Mr. Hearty’s estate and Mr. Hearty’s

widow (collectively, “Plaintiffs”) filed a declaratory judgment action against the Hearty

Investment Trust, its trustee, and the grantors/beneficiaries of the Trust (Mr. Hearty’s siblings)

(collectively, “Defendants”). Plaintiffs later amended their complaint to include the Hearty

Credit Bypass Trust as a defendant. In summary, Plaintiffs’ amended complaint asked the trial

court to declare that Mr. Hearty effectively exercised the power of appointment in favor of his

widow, and to declare that the estate was entitled to payment of certain debts from Mr. Hearty’s

share of the Trust. Plaintiffs also claimed that the trustee breached his fiduciary duties by not

accepting the purported codicil as an effective means of exercising the power of appointment,

and by failing to provide Trust monies to cover the unpaid debts of Mr. Hearty’s estate.

       {¶8}    The case proceeded to a bench trial. Plaintiffs presented evidence indicating that,

despite the fact that his purported codicil was not signed by two witnesses, Mr. Hearty intended

to execute the power of appointment in favor of his widow. Plaintiffs also presented evidence

indicating that, at the time the estate demanded funds from the trustee, Mr. Hearty’s estate lacked

sufficient non-Trust assets to cover the debts of the estate.
                                                    4

        {¶9}    The trial court entered judgment in favor of Plaintiffs, concluding, in part, that

principles of equity mandated a determination that Mr. Hearty effectively exercised the power of

appointment in favor of his widow by way of the purported codicil. In doing so, the trial court

noted that the language of the Trust “does not specify a single manner or way a beneficiary must

appoint his or her trust share[,]” and that the evidence indicated that Mr. Hearty intended to

transfer his interest in the Trust to his widow. Accordingly, the trial court declared Mr. Hearty’s

widow as a beneficiary of the Trust and concluded that she was entitled to distributions

thereunder.

        {¶10} The trial court also concluded that Mr. Hearty’s estate submitted a timely notice

of unpaid debts to the trustee and that the trustee “improperly denied and otherwise refused” to

pay those debts through Mr. Hearty’s share of the Trust. The trial court, therefore, ordered

$164,513.51 (the amount of unpaid debts at the time of presentment minus the non-Trust assets

available to the estate at that time) plus statutory interest to be paid to the estate.

        {¶11} Defendants appealed the trial court’s order, arguing that the trial court erred by:

(1) declaring that Mr. Hearty effectively exercised the power of appointment in favor of his

widow; (2) granting judgment in favor of Plaintiffs for payment of estate debts; and (3) entering

a money judgment against the individual defendants.

        {¶12} On appeal, this Court reversed and remanded the trial court’s decision. Collins v.

Hearty Invest. Trust, 9th Dist. Summit No. 27173, 2015-Ohio-400, ¶ 32.                    We sustained

Defendants’ first assignment of error (i.e., that the trial court erred by declaring that Mr. Hearty

effectively exercised the power of appointment in favor of his widow) on the basis that it was

unclear whether the trial court determined that the relevant Trust provision was ambiguous and,

absent such a determination, the trial court improperly relied upon extrinsic evidence in
                                                  5

interpreting that provision. Id. at ¶ 19-24. We sustained Defendants’ second assignment of error

(i.e., that the trial court erred by granting judgment in favor of Plaintiffs for payment of estate

debts) on a similar basis. Id. at ¶ 27-30. Because we sustained Defendants’ first and second

assignments of error, we declined to address the merits of their third assignment of error (i.e.,

that the trial court erred by entering a money judgment against the individual defendants), noting

that the trial court must also reconsider whether to enter a monetary judgment against Defendants

on remand. Id. at ¶ 31.

       {¶13} In response to this Court’s decision, the trial court entered a new judgment entry,

holding that: (1) the power-of-appointment provision was, in fact, ambiguous and the evidence

indicated that Mr. Hearty intended to exercise the power of appointment in favor his widow; and

(2) the provision allowing for the use of Trust assets to pay estate debts was not ambiguous and

the trustee had an obligation to evaluate the estate’s claim in that regard. In light of these

holdings, the trial court’s disposition of the matter remained unchanged.           Defendants have

appealed, raising three assignments of error for our review.

                                                  II.

                                   ASSIGNMENT OF ERROR I

       THE TRIAL COURT ERRED IN DECLARING THAT PLAINTIFF LISA
       SIEGENTHALER WAS MADE A BENEFICIARY OF THE HEARTY
       INVESTMENT TRUST BY MEANS OF AN INVALID CODICIL – ONE
       THAT DID NOT CONFORM TO THE WITNESS AND ATTESTING
       REQUIREMENTS OF OHIO LAW.

       {¶14} In their first assignment of error, Defendants argue that the trial court erred by

declaring that Mr. Hearty effectively exercised the power of appointment in favor of his widow.

Defendants argue that the language of the Trust is unambiguous and provides two ways for a

beneficiary to transfer his or her interest: (1) by will; or (2) by trust prepared in connection with a
                                                  6

will. They argue that if a beneficiary does not transfer his or her interest in the Trust by either of

these means, then the beneficiary’s interest passes by default to the Hearty Credit Bypass Trust.

Because Mr. Hearty’s purported codicil was not signed by two witnesses, they argue that it was

an ineffective means of exercising the power of appointment and, accordingly, Mr. Hearty’s

interest properly transferred to the Hearty Credit Bypass Trust. Regarding the trial court’s

finding of ambiguity, Defendants note that the trial court’s judgment entry fails to identify what

language it determined was ambiguous as well as what extrinsic evidence it considered in

resolving the alleged ambiguity.

       {¶15} In response, Plaintiffs acknowledge that the power-of-appointment provision

allows a beneficiary to transfer his or her interest in the Trust by will or trust, but argue that it

does not prohibit other means of exercising that power. Further, to the extent that a beneficiary

exercises that power by will, they argue that the Trust does not require the will to be duly

executed or probated. To that end, Plaintiffs do not dispute that Mr. Hearty’s purported codicil

was not signed by two witnesses, but argue that the trial court was authorized to use its inherent

equitable powers to deem the document as an effective means of exercising the power of

appointment under the terms of the Trust.

       {¶16} We will begin our analysis with a review of the trial court’s judgment entry as it

relates to its finding of ambiguity.     We review a trial court’s determination regarding the

ambiguity of a trust term under a de novo standard of review. Collins v. Hearty Invest. Trust, 9th

Dist. Summit No. 27173, 2015-Ohio-400, ¶ 23. The trial court found, without any explanation or

analysis, that the power-of-appointment provision was ambiguous. Our own review of that

provision, however, yields the opposite conclusion. As provided above, the amended power-of-

appointment provision provides the following:
                                                  7

       [E]ach of the Grantors may appoint his or her trust share by Last Will and
       Testament made before or after the effective date of the Trust Agreement in the
       manner provided below. * * * The Grantor’s Will must make specific reference to
       this limited power of appointment. * * *. If the exercise of the limited power of
       appointment is in the form of a trust, the trustee of this instrument shall also serve
       as trustee under the trust created in accordance with the power of appointment. In
       default of the exercise of this limited power of appointment, the Grantor’s trust
       share at death shall pass in accordance with the terms and provisions of Section 3
       [i.e., to the Hearty Credit Bypass Trust].

       {¶17} A plain reading of this provision indicates that a beneficiary may exercise the

power of appointment by will or trust2 only, and that the failure to do so results in the

beneficiary’s interest passing by default to the Hearty Credit Bypass Trust. Nothing in this

provision indicates that a beneficiary may exercise the power of appointment through an

alternative means. The limiting language contained in the provision (i.e., “this limited power of

appointment”) supports this conclusion. To hold otherwise would require this Court to add

language that is simply not there. We, therefore, hold that the trial court erred as a matter of law

by finding that the power-of-appointment provision was ambiguous.

       {¶18} Notably, while the trial court found that the power-of-appointment provision was

ambiguous and indicated that it could consider extrinsic evidence regarding what the parties

intended the terms of the Trust to mean, it did not do so. Rather than citing extrinsic evidence

relating to what the beneficiaries intended the power-of-appointment provision to mean (e.g.,

whether they intended the execution of a will or trust to be the exclusive means by which a

beneficiary could exercise the power of appointment), the trial court focused on evidence

indicating that Mr. Hearty intended to exercise the power of appointment in favor of his widow.

The trial court analyzed this issue as follows:

       2
         We decline to address whether this provision requires the trust to be prepared in
connection with a will, as doing so is not necessary for purposes of our disposition of this appeal.
                                                 8

       There is no testimony or evidence that provides any indication that, at any time
       throughout their marriage that Hugh Hearty intended to exclude his wife as his
       sole beneficiary. There is no question Hugh Hearty intended to exercise the
       power of appointment in favor or Lisa Hearty. It is within the power of this Court
       to determine if Hugh Hearty effectively carried out that intent if by reason of
       mistake, accident, or ignorance the power was defectively executed. If it was
       defectively executed, it is within the power of this Court to make it effectual. This
       Court finds that Lisa S. Hearty is a beneficiary under The Hearty Investment Trust
       having all rights and benefits under the Trust and to the same effect as the other
       beneficiaries.

       (Emphasis added.)

       {¶19} Thus, the trial court’s order indicates that the trial court used its “power” to make

Mr. Hearty’s ineffective codicil “effectual.”3    Importantly, it did not hold that the power-of-

appointment provision permitted Mr. Hearty to exercise that power through a means other than

by valid will4 or trust. Relatedly, it did not hold that Mr. Hearty’s purported codicil, while not

effective as a codicil, was nevertheless an effective power of appointment under the terms of the

Trust. The trial court simply used its “power” to make Mr. Hearty’s ineffective codicil effective

based upon what the court determined Mr. Hearty intended to do. A trial court, however, cannot

disregard the statutory attestation requirement and validate a codicil based upon the testator’s

intent. See R.C. 2107.03 (requiring attestation by two witnesses); Sears v. Sears, 77 Ohio St.

104 (1907), syllabus (stating that “a will that is not executed as required by statute is invalid,

3
  To the extent that the trial court’s order can be interpreted as rendering the ineffective power of
appointment effectual (rather than the ineffective codicil effectual), the analysis herein still
applies. See Toledo Trust Co. v. Santa Barbara Found., 6th Dist. Lucas No. L-85-293, 1986 WL
5373, *2, rev’d on other grounds, 32 Ohio St.3d 141 (1987) (stating that “the validity of the
special power of appointment is to be determined under the law governing the validity of the
instrument under which the power was created.”).
4
  See Restatement of Property 3d, Wills & Donative Transfers, Section 19.9, Comment b (2011)
(“A power of appointment that is exercisable ‘by will’ * * * is a testamentary power and is
exercisable by an instrument that is formally sufficient to be admitted to probate under applicable
law.”).
                                                 9

notwithstanding the intention of the testator.”). This is critical because “the validity of the

special power of appointment is to be determined under the law governing the validity of the

instrument under which the power was created.” Toledo Trust Co., 6th Dist. Lucas No. C.A. L-

85-293, 1986 WL 5373, at *2, rev’d on other grounds, 32 Ohio St.3d 141 (1987); see also

Restatement of Property 3d, Wills & Donative Transfers, Section 19.9 (2011) (“In order for an

attempted exercise of a power of appointment to be effective, the document purporting to

exercise the power must be executed in compliance with (i) the formalities required by law for

the transfer by the donee of owned property of a similar type and (ii), * * * any additional

formalities required by the donor.”); Restatement of Property 3d, Wills & Donative Transfers,

Section 19.1, Comment a (2011) (“In order for an exercise of a power of appointment to be

effective, the writing purporting to exercise the power must be contained in an otherwise

effective document.”).    Because the purported codicil failed to comply with the statutory

attestation requirement, it was not valid as a will and, accordingly, was an invalid exercise of the

power of appointment under the Trust. Thus, even if the power-of-appointment provision was

ambiguous, the trial court erred by relying on evidence of Mr. Hearty’s intent to make his

purported codicil “effectual” and, consequently, holding that Mr. Hearty effectively executed the

power of appointment in favor of his widow.

       {¶20} In light of the foregoing, we sustain Defendants’ first assignment of error.

                                  ASSIGNMENT OF ERROR II

       THE TRIAL COURT ERRED IN GRANTING JUDGMENT IN PLAINTIFFS’
       FAVOR ON THE CLAIM FOR PAYMENT OF ESTATE DEBTS AND
       EXPENSES.

       {¶21} In their second assignment of error, Defendants argue that insufficient evidence

existed to support the trial court’s finding that Mr. Hearty’s estate’s assets were insufficient to
                                                  10

pay the debts of his estate. They further argue that the trial court’s ruling in this regard was

against the manifest weight of the evidence.

       {¶22} As quoted in full above, the relevant provision of the Trust provides that the

trustee shall distribute monies from the decedent-beneficiary’s share of the Trust to pay certain

debts of his or her estate “to the extent the Trustee determines that non-trust assets are not

available * * *.” The record indicates that the attorney for Mr. Hearty’s estate submitted a notice

of unpaid debts to the trustee in August 2008. At trial, the trustee admitted that he did not

evaluate the estate’s claim, partly because of the unknown potentiality of the estate’s interest in

another family entity. In this regard, the trustee testified as follows:

       Q: Let me ask you this. At any point in time in evaluating the claims of the
       estate, did you ever consult with or refer to the probate court or its docket?

       A: I did not evaluate the claim.

       {¶23} The trial court determined that the relevant provision of the Trust was not

ambiguous and required the trustee to evaluate the estate’s demand for monies at the time of

presentment. In light of the trustee’s failure to evaluate the estate’s claim, the trial court held

that Mr. Hearty’s estate was entitled to the amount of unpaid debts and expenses that existed at

the time of presentment ($166,033.24) less the amount of estate assets available at that time

($1,519.73), for a total of $164,513.51, plus statutory interest.

       {¶24} While we agree with the trial court to the extent it found that the trustee was

required to evaluate the estate’s claim, we disagree with its conclusion that the estate was entitled

to money damages. The appropriate remedy under these circumstances would have been for the

trial court to order the trustee to evaluate the estate’s claim. Instead, the trial court assumed the

role of trustee and evaluated the estate’s claim as of the time of presentment. We hold that the

trial court erred in doing so, and sustain Defendants’ second assignment of error on that basis.
                                                  11

Accordingly, we hereby vacate the trial court’s award of money damages and remand this matter

for proceedings consistent with this opinion.

                                 ASSIGNMENT OF ERROR III

       THE TRIAL COURT ERRED IN ENTERING A MONEY JUDGMENT
       AGAINST THE INDIVIDUAL DEFENDANTS – PARTIES WHO HAD NO
       CUSTODY OR CONTROL OVER HUGH HEARTY’S SHARE.

       {¶25} In their third assignment of error, Defendants argue that the trial court erred by

entering a money judgment against the individual defendants. In light of our disposition of the

first and second assignments of error, Defendants’ third assignment of error is rendered moot and

is overruled on that basis. App.R. 12(A)(1)(c).

                                                  III.

       {¶26} Defendants-Appellants’ first and second assignments of error are sustained.

Defendants-Appellants’ third assignment of error is overruled.        The damages award in the

amount of $164,513.51, plus statutory interest, is hereby vacated. The judgment of the Summit

County Court of Common Pleas is reversed in part, vacated in part, and remanded for further

proceedings consistent with this opinion.

                                                                        Judgment reversed in part,
                                                                                  vacated in part,
                                                                            and cause remanded.

       There were reasonable grounds for this appeal.

       We order that a special mandate issue out of this Court, directing the Court of Common

Pleas, County of Summit, State of Ohio, to carry this judgment into execution. A certified copy

of this journal entry shall constitute the mandate, pursuant to App.R. 27.
                                                12

       Immediately upon the filing hereof, this document shall constitute the journal entry of

judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the

period for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is

instructed to mail a notice of entry of this judgment to the parties and to make a notation of the

mailing in the docket, pursuant to App.R. 30.

       Costs taxed to Appellees.

                                                     JENNIFER HENSAL
                                                     FOR THE COURT

SCHAFER, J.
CONCURS.

CARR, P. J.
DISSENTS.

APPEARANCES:

ROBERT L. TUCKER, JOHN R. CHLYSTA, and FRANK G. MAZGAJ, Attorneys at Law, for
Appellants.

MICHAEL J. ELLIOT and LAWRENCE J. SCANLON, Attorneys at Law, for Appellees.

THOMAS F. HASKINS, JR., Attorney at Law, for Appellee.