Court Opinion

ID: 4435504
Source: CourtListenerOpinion
Date Created: 2019-09-03 15:06:06.28534+00
Date Added: 2024-06-11T14:53:12.690608
License: Public Domain

FILED
                                                                       Sep 03 2019, 8:41 am

                                                                           CLERK
                                                                       Indiana Supreme Court
                                                                          Court of Appeals
                                                                            and Tax Court

ATTORNEYS FOR APPELLANT                                    ATTORNEYS FOR APPELLEE –
Katherine Ridenour                                         STEVEN E. POST
Benjamin S.J. Williams                                     Karen T. Moses
Shambaugh, Kast, Beck, & Williams,                         Damian B. Gosheff
LLP                                                        Faegre Baker Daniels, LLP
Fort Wayne, Indiana                                        Fort Wayne, Indiana

                                                           Jeffrey L. Turner
                                                           Auburn, Indiana

                                                           ATTORNEYS FOR APPELLEE –
                                                           INDIANA ATTORNEY GENERAL
                                                           Curtis T. Hill, Jr.
                                                           Attorney General of Indiana

                                                           Frances Barrow
                                                           Deputy Attorney General
                                                           Indianapolis, Indiana

                                            IN THE
    COURT OF APPEALS OF INDIANA

Cheryl Barron Doll,                                        September 3, 2019
Appellant-Plaintiff,                                       Court of Appeals Case No.
                                                           19A-TR-715
        v.                                                 Appeal from the DeKalb Superior
                                                           Court
Steven E. Post, Trustee, and                               The Honorable Monte L. Brown,
Indiana Attorney General,                                  Judge
Appellees-Defendants.                                      Trial Court Cause No.
                                                           17D02-1810-TR-4

Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019                           Page 1 of 14
      Najam, Judge.

                                        Statement of the Case
[1]   This appeal asks us to consider the validity of the following residuary clause in

      a revocable living trust:

              The Trustee shall hold, distribute and pay the remaining
              principal and undistributed income in perpetuity; subject,
              however, to limitations imposed by law.

              All the powers given by law and the provision[s] of the [T]rust
              may be exercised in the sole discretion of the Trustee without
              prior authority above or subsequent approval by any court.

      Appellant’s App. Vol. II at 15. We hold that that language does not identify a

      beneficiary with reasonable certainty, and, as such, it fails as a matter of law.

      Accordingly, we conclude that the residue of the trust—$4,600,000—is to be

      held by the trustee on behalf of the settlor’s estate. As the settlor died without a

      will, the residue of the trust shall be distributed in accordance with the law of

      intestate succession.

                                  Facts and Procedural History
[2]   On July 1, 2010, Ollie Waid, Jr. established a revocable living trust (“the

      Trust”), which he subsequently amended on several occasions prior to his death

      in 2018. The final version of the Trust provides as follows:

                                                  ARTICLE I

      Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019       Page 2 of 14
        The Settlor[, Waid,] has delivered to the Trustee the property
        described in Schedule A, attached hereto . . . . That property and
        any other property that may be received by the Trustee from the
        Settlor as additions to this Trust shall be held and disposed of by
        the Trustee . . . on the terms stated in this Agreement. . . .

                                                 ***

                                           ARTICLE III

        During the life of the Settlor, the qualified and acting Trustee
        shall pay all the net income of the Trust estate and such portions
        of the principal as the Settlor may from time to time direct to the
        Settlor.

        Notwithstanding any other provisions of this Agreement, if at
        any time a qualified and acting Trustee determines in good faith
        that the Settlor, because of mental or physical incompetency, is
        unable to properly administer his affairs, the qualified and acting
        Trustee shall, within [his] sole discretion, use so much of the net
        income and any portions or all of the principal for the support,
        comfort, and welfare of the Settlor. . . .

                                           ARTICLE IV

        After the death of the Settlor, the Trustee shall administer the
        [T]rust individually and shall continue to hold title to all assets in
        the [T]rust until appropriate distribution can be lawfully made.

        The Trustee may prepare or supervise the preparation of all tax
        returns that are due as a result of the Settlor’s death. . . . After
        the appropriate tax returns are filed and the taxes paid, then the
        Trustee shall proceed to distribute the residuary trust estate as
        outlined in Article VII.

Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019           Page 3 of 14
                                                 ***

                                            ARTICLE V

        [The Trustee] shall have all powers enumerated under the
        Indiana Code and[/]or State of Florida [sic] and any other power
        that may be granted by law, to be exercised without the necessity
        of Court approval, as the Trustee, in his sole discretion,
        determines to be in the best interests of the beneficiaries. Said
        powers are to be construed in the broadest possible manner . . . .

                                                 ***

                                           ARTICLE VII

        Upon the death of the Settlor and upon receipt of final and
        complete clearances showing payment in full and final
        acceptance of all inheritance, estate, transfer or succession taxes,
        the remainder of the [T]rust shall be held and disposed of as
        follows:

        Section 1. [Deleted.]

        Section 2. I give, devise and bequeath to CHRISTINA
        GAITAN DENGLER on the condition she survives me the sum
        of Ten Thousand Dollars ($10,000.00).

        Section 3. I give, devise and bequeath to MOLLY
        MOCHAMER on the condition she survives me the sum of Ten
        Thousand Dollars ($10,000.00).

Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019           Page 4 of 14
         Section 4. I give, devise and bequeath to CHERYL BARRON
         DOLL on the condition she survives me the sum of Ten
         Thousand Dollars ($10,000.00).

                                                    ***

         Section 9. I give, devise and bequeath to MASONIC LODGE
         #214, Auburn, Indiana, the sum of Ten Thousand Dollars
         ($10,000.00).

         Section 10. I give, devise and bequeath to SHRINERS
         HOSPITAL FOR CRIPPLED CHILDREN the sum of Ten
         Thousand Dollars ($10,000.00).

                                                  * * *[ 1]

                                   Residue of Trust Property[ 2]

         The Trustee shall hold, distribute and pay the remaining
         principal and undistributed income in perpetuity; subject,
         however, to limitations imposed by law.

         All the powers given by law and the provision[s] of the [T]rust
         may be exercised in the sole discretion of the Trustee without
         prior authority above or subsequent approval by any court.

1
  Sections 5 through 8 and 11 through 17 of Article VII also bequeathed gifts to specifically identified
beneficiaries.
2
  The residuary clause of the Trust appears to be within Article VIII, and Waid subsequently repealed Article
VIII in its entirety. See Appellant’s App. Vol. II at 17. However, the parties on appeal do not dispute that the
residuary clause was in fact intended to be a freestanding, unrepealed provision of the Trust, and the trial
court lamented that the Trust was poorly drafted. Accordingly, we proceed in accordance with the parties’
shared understanding that the residuary clause of the Trust remains in effect.

Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019                               Page 5 of 14
      Appellant’s App. Vol. II at 9-30.

[3]   Steven E. Post became the successor Trustee (“the Trustee”) over the Trust and,

      following Waid’s death, filed a petition to docket the trust with the trial court.

      In that petition, the Trustee stated as follows:

              7.     The Trust makes provision for several specific distributions
              of cash to various individuals, which distributions have been
              made by the Trust, with the exception of the specific distribution
              of $10,000.00 to Christina Gaitan Dengler. The Trustee has been
              unable to locate this beneficiary and will continue to make
              reasonable efforts to do so.

                                                       ***

              9.    The remaining balance of the Trust Estate consists of cash
              and investments that are readily convertible to cash[] in an
              approximate amount of $4,600,000.

              10. The remaining balance . . . is to be distributed pursuant to
              the residue clause . . . of the Trust Agreement . . . .

              11. The [Trustee] has reviewed the Trust Agreement and was
              told by [Waid’s prior] attorney that [Waid] intended the Trust’s
              residuary share [to] be distributed to or for the benefit of tax
              exempt charities strictly for charitable purposes, within the sole
              discretion of the Trustee.

              12. The [Trustee] requests docketing the Trust because there is
              a lack of specific direction on the face of the Trust Agreement as
              to the intended purpose of the residuary share of the Trust Estate.
              The [Trustee] seeks Court interpretation of the Trust and a

      Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019         Page 6 of 14
              determination that the purpose of the [T]rust was solely
              charitable.

      Id. at 7.

[4]   Thereafter, Doll moved to intervene. In her motion and accompanying

      memorandum, Doll asserted that the Trust’s residuary clause failed as a matter

      of law because it did not identify a beneficiary with reasonable certainty. She

      further asserted that, without a reasonably certain residual beneficiary, the

      Trust’s residue would pass to her at least in part through intestate succession.

      After a hearing, the trial court concluded that the residuary clause of the Trust

      was ambiguous; that extrinsic evidence, namely, various affidavits, established

      that Waid’s intent in establishing the Trust was for the Trust to be a charitable

      trust as defined by Indiana law; and that, as a charitable trust, the residuary

      clause lawfully empowered the Trustee to distribute the residue to a charity or

      charities to be identified by the Trustee in the Trustee’s sole discretion. The

      court thus concluded that no property could pass to Doll, and it denied her

      motion to intervene accordingly. This appeal ensued.

                                      Discussion and Decision
[5]   Doll appeals the trial court’s denial of her motion to intervene. The dispositive

      issue in this appeal is whether the trial court erred when it interpreted the

      Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019       Page 7 of 14
      residuary clause of the Trust.3 We review such issues de novo. Gittings v. Deal,

      109 N.E.3d 963, 970 (Ind. 2018). As our Supreme Court has explained:

                 Our primary purpose in construing a trust instrument is to
                 ascertain and give effect to the settlor’s intention. We look at the
                 trust as a whole and cannot take individual clauses out of
                 context. If the trust is capable of clear and unambiguous
                 construction, we must give effect to the trust’s clear meaning.
                 Finally, after interpreting the terms of the Trust, we must ensure
                 that its application does not violate the Trust Code.

      Fulp v. Gilliland, 998 N.E.2d 204, 207 (Ind. 2013) (citations and quotation

      marks omitted).

[6]   The Indiana Code provides that:

                 (a) A trust in either real or personal property is enforceable only
                 if there is written evidence of the terms of the trust bearing the
                 signature of the settlor or the settlor’s authorized agent.

                 (b) Except as required in the applicable probate law for the
                 execution of wills, no formal language is required to create a
                 trust, but the terms of the trust must be sufficiently definite so
                 that the trust property, the identity of the trustee, the nature of
                 the trustee’s interest, the identity of the beneficiary, the nature of

      3
          The Indiana Attorney General has also filed a brief in this appeal. That brief states:
                 The trust in this case has both charitable and non-charitable beneficiaries[] and is thus a
                 split-interest trust, which is within the statutory definition of a trust for a benevolent
                 public purpose. Ind. Code § 30-4-1-2(2[4]).
                 The Attorney General’s role in this case concerns only the nature of the trust . . . . The
                 Attorney General does not take a position with respect to the validity of the residuary
                 clause of the Waid Trust.
      Ind. Attorney General’s Br. at 4. We thank the Attorney General for his submission of a brief.

      Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019                                     Page 8 of 14
              the beneficiary’s interest and the purpose of the trust may be
              ascertained with reasonable certainty.

                                                       ***

              (e) A trust has a beneficiary if the beneficiary can be presently
              ascertained or ascertained in the future, subject to any applicable
              rule against perpetuities.

              (f) A power of a trustee to select a beneficiary from an indefinite
              class is valid. . . .

      Ind. Code § 30-4-2-1 (2019). Further:

              “A trust beneficiary is the person named, or a member of the
              class designated, in the terms of the trust for whose benefit the
              title to the trust property is held and for whom the trust is to be
              administered.” See Ind. Code §§ 30-2-14-2, 30-4-1-2(3); 28 ILE
              Trusts § 15 (1999). The designation of beneficiaries as a class
              may be sufficiently certain to uphold the trust. 28 ILE Trusts §
              27 (1999). Moreover, that the trustee is given complete
              discretion in the selection of beneficiaries from the class named will
              not invalidate the trust. Hulet v. Crawfordsville Trust Co., 117 Ind.
              App. 125, 69 N.E.2d 823, 825 (1946).

      Hays v. Harmon, 809 N.E.2d 460, 468 (Ind. Ct. App. 2004) (emphasis added),

      trans. denied.

[7]   On appeal, Doll asserts that the residuary clause of the Trust, which is the only

      provision left for the Trustee to apply, unambiguously fails to identify a

      beneficiary with reasonable certainty. We agree. Again, the residuary clause

      states as follows:

      Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019          Page 9 of 14
              The Trustee shall hold, distribute and pay the remaining
              principal and undistributed income in perpetuity; subject,
              however, to limitations imposed by law.

              All the powers given by law and the provision[s] of the [T]rust
              may be exercised in the sole discretion of the Trustee without
              prior authority above or subsequent approval by any court.

      Appellant’s App. Vol. II at 15. The residuary clause does not confer unfettered

      authority on the Trustee to distribute the residue “in the sole discretion of the

      Trustee.” Rather, the residuary clause is circumscribed by the “limitations

      imposed by law.” And, here, the limitation imposed by our Trust Code is the

      requirement that a settlor identify a beneficiary with reasonable certainty.

[8]   A trustee is the legal title holder of trust property. I.C. § 30-4-2-6. The

      beneficiaries are the equitable title holders. I.C. § 30-4-2-7. While the settlor

      need not identify a beneficiary with exact precision, the settlor must give the

      trustee the ability to determine an intended beneficiary. Specifically, Indiana

      Code Section 30-4-2-1(b) directs the settlor to identify a beneficiary with

      “reasonable certainty.” Indiana Code Section 30-4-2-1(e) states that a

      beneficiary must be capable of being “ascertained.” And Indiana Code Section

      30-4-2-1(f) states that a trustee can select a beneficiary “from an indefinite

      class,” which itself requires that the settlor first limit the trustee’s discretion by

      identifying an indefinite class.

[9]   Nothing close to such an identification even broadly exists here. The residuary

      clause instead simply directs the Trustee to do with the residue as he sees fit.

      Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019         Page 10 of 14
       There is no reasonably certain, ascertainable, or even an indefinite class of

       beneficiary identified. There is no beneficiary at all. There is no equitable title

       holder for whom the Trustee can hold legal title. 4

[10]   Nonetheless, the Trustee asserts that we should disregard the unambiguous

       language of the residuary clause on the ground that the Trust is a charitable

       trust, which rationale the trial court found persuasive. But the Trustee is

       incorrect. A “charitable trust” under our Trust Code is defined as “a trust in

       which all the beneficiaries are the general public or organizations . . . operated

       wholly for religious, charitable, scientific, public safety testing, literary, or

       educational purposes.” I.C. § 30-4-1-2(5) (emphasis added). The term

       expressly excludes trusts, such as Waid’s, that are “of split-interest” with “at

       least one (1) noncharitable beneficiary.” Id. Accordingly, the Trust is not a

       charitable trust.

[11]   That said, the Trust is fairly labeled as a “[t]rust for a benevolent public

       purpose,” which includes “a split-interest trust . . . that has both charitable and

       noncharitable beneficiaries.” I.C. § 30-4-1-2(24). As a trust for a benevolent

       purpose, the cy pres doctrine might apply to the residue. The cy pres doctrine is

       an “equitable doctrine under which a court reforms a written instrument with a

       gift to charity as closely to the donor’s intention as possible, so that the gift does

       4
         In his brief on appeal, the Trustee asserts that he is the “ascertainable residuary beneficiary” under the
       Trust. Appellee’s Br. at 10. We reject that assertion. Had Waid intended to have the residue of the Trust
       revert to the Trustee as his own property, the residuary clause would have more plainly stated as much.

       Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019                              Page 11 of 14
       not fail.” Black’s Law Dictionary 470 (10th ed. 2014). According to Indiana

       Code Section 30-4-3-27(a):

                If property is given to a trust for a benevolent public purpose and
                the property is to be applied to a particular charitable purpose,
                and it is or becomes impossible, impracticable, wasteful, or illegal
                to carry out the particular purpose, and if the settlor manifested a
                more general intention to devote the property to charitable purposes, the
                trust need not fail, but the court may direct the application of the
                property to some charitable purpose which falls within the general
                charitable intention of the settlor.

       (Emphases added.)

[12]   The cy pres doctrine does not apply to the residue of the Trust. Again, the

       residuary clause here lacks any requirement that the residue “is to be applied to

       a particular charitable purpose” and also lacks any manifestation that Waid had

       “a more general intention” to devote the residue to charitable purposes. See id.

       Accordingly, the residuary clause offers no basis from which the court “may

       direct the application of the [residue] to some charitable purpose which falls

       within the general charitable intention of the settlor.” See id. Moreover, the

       benevolent public purposes for which the Trust exists have already been fulfilled

       by the distributions to the specifically named charities in Article VII of the

       Trust.

[13]   Accordingly, while in an ordinary sense of the word the residuary clause may

       appear “ambiguous”—that is, uncertain—on its face, in fact it unambiguously

       fails to designate a beneficiary with reasonable certainty or a beneficiary

       Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019           Page 12 of 14
       capable of being ascertained and thus fails as a matter of law. See Pavy v. Peoples

       Bank & Trust Co., 135 Ind. App. 647, 655, 195 N.E.2d 862, 866 (1964) (“Any

       attempt to create an express trust . . . that omits these essential [statutory]

       elements automatically fails.”). The trial court’s denial of Doll’s motion to

       intervene based on the court’s interpretation of the residuary clause is reversed.

[14]   We thus turn to the consequence of the failure of the residuary clause. Where,

       as here, the express terms of a trust are fully performed but there remains a

       residue and no valid residuary clause, a resulting trust is created by operation of

       law over the residue. See Melloh v. Gladis, 261 Ind. 647, 655, 309 N.E.2d 433,

       438 (1974) (recognizing that “a resulting trust” arises “where an express trust

       fails in whole or in part” or “where an express trust is fully performed without

       exhausting the trust estate,” among other circumstances). As our Supreme

       Court has made clear: “If there is no provision in the terms of the trust . . . as to

       who shall receive the trust property on the termination of the trust, the trustee

       will ordinarily hold the trust property upon a resulting trust for the settlor or his

       successors in interest.” Colbo v. Buyer, 235 Ind. 518, 530, 134 N.E.2d 45, 51

       (1956) (quotation marks omitted). Likewise, as we stated in Pavy:

               It is an elementary rule of law that[,] when a person attempts to
               create an express trust and fails to for any reason, a resulting trust
               arises in favor of [the settlor] and[,] if he be deceased, then in
               favor of his estate, and the trust property . . . reverts to the settlor
               or his estate, as the case may be.
195 N.E.2d at 867.

       Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019          Page 13 of 14
[15]   Accordingly, on remand the trial court is instructed to grant Doll’s motion to

       intervene and to direct the Trustee to hold the residue of the Trust for Waid’s

       estate. As Waid died intestate, the court is further instructed to direct the

       Trustee to distribute the residue to Waid’s heirs at law pursuant to our intestate

       succession statutes. See I.C. §§ 29-1-2-0.1 to -15. In sum, the trial court’s

       judgment denying Doll’s motion to intervene based on the court’s interpretation

       of the residuary clause is reversed, and we remand with instructions as stated in

       this opinion.

[16]   Reversed and remanded with instructions.

       Bailey, J., and May, J., concur.

       Court of Appeals of Indiana | Opinion 19A-TR-715 | September 3, 2019      Page 14 of 14