Brenda Sue Gittings and Marc Richmond Gittings v. William H. Deal , 109 N.E.3d 963 ( 2018 )

FILED
Nov 02 2018, 9:42 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
IN THE
Indiana Supreme Court
Supreme Court Case No. 18S-TR-231
Brenda Sue Gittings and
Marc Richmond Gittings,
Appellants (Petitioners)
–v–
William H. Deal,
Appellee (Respondent)
Argued: April 24, 2018 | Decided: November 2, 2018
Appeal from the Spencer Circuit Court, No. 74C01-1305-TR-27
The Honorable Jonathan A. Dartt, Judge
On Petition to Transfer from the Indiana Court of Appeals,
No. 74A01-1611-TR-2551
Opinion by Chief Justice Rush
Justices David, Massa, Slaughter, and Goff concur.
Rush, Chief Justice.
Sibling squabbles are commonplace and can be mild. But when
disagreements arise over property after parents’ deaths, rifts may become
serious, with lengthy litigation separating family members. That is the
case for stepsiblings Brenda Sue Gittings and William Deal.
Under the original terms of mirrored trusts that Brenda’s father and
William’s mother created, once both parents died, the two stepsiblings
were to share land, mineral interests, and other assets placed in the trusts.
But after Brenda’s father died, property transfers and amended trust terms
left William with all the land and mineral interests upon his mother’s
death.
More than a decade later, the land started generating significant income
through oil and gas leases, and Brenda claimed a share of the property
and profits. William sought court approval of the property transfers that
led to his receipt of the profitable land, and Brenda (with her son Marc)
responded with numerous allegations challenging those property
transfers and seeking affirmative relief.
After examining the trust agreements and the trustees’ actions, we
reach three holdings. First, Brenda and Marc’s assertions are subject to
statutes of limitations to the extent those assertions seek affirmative
relief—but not to the extent they diminish or defeat William’s request for
declaratory relief. Second, fraudulent concealment did not toll the
limitation periods on the Gittingses’ claims seeking affirmative relief. And
third, William is not entitled to court approval of the property transfers, as
the transfers were improper.
Facts and Procedural History
Nile and Georgia Richmond married in 1985. They had no children
together, but each had a child from a previous marriage: Brenda Sue
Gittings (Nile’s daughter) and William Deal (Georgia’s son).
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A. The trust agreements.
As part of their estate planning, Nile and Georgia executed two trust
agreements, each identified by the settlor’s name: the Nile D. Richmond
Primary Trust Agreement (“NDR Trust Agreement”), with Nile as settlor;
and the Georgia L. Richmond Primary Trust Agreement (“GLR Trust
Agreement”), with Georgia as settlor. Each settlor, while alive, could
modify his or her respective agreement, but when Nile and Georgia
executed the agreements, the terms mirrored one another.
Each agreement set up a Primary Trust, a Trust A, and a Trust B. The
NDR Trust Agreement thus established the NDR Primary Trust, NDR
Trust A, and NDR Trust B. And the GLR Trust Agreement similarly
established the GLR Primary Trust, GLR Trust A, and GLR Trust B. After
executing the trust agreements, Nile and Georgia funded each primary
trust with, among other assets, undivided one-half interests in land and
minerals they owned in West Virginia and Indiana.
The primary trusts were inter vivos trusts, holding Nile’s and Georgia’s
primary trust estates during each of their lives. Once the settlor died, the
assets of that primary trust estate would be distributed to the respective
Trust A and/or Trust B.
The initial trustees were the settlor and the spouse. But if the settlor
died first, the surviving spouse would not be the sole trustee of Trust A
and Trust B. The trust agreements made this explicit: “In no event shall
the surviving spouse serve as sole Trustee after the death of [the] Settlor.”
Instead, after the settlor’s death, the surviving spouse, “along with
William H. Deal and Brenda Sue Gittings, shall serve as Co-Trustees of
Trust A and Trust B.”
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Trust A—a marital-deduction trust with provisions removing certain
discretion from the surviving spouse 1—was designed to provide for the
surviving spouse’s support, maintenance, and health. It was to receive no
less than the smaller of $100,000 or the balance of the settlor’s primary
trust. Once the surviving spouse died, assets remaining in Trust A would
go into Trust B.
Apart from receiving any Trust A leftovers, Trust B was set up to
receive two other classes of assets: those transferred directly to Trust B by
the decedent settlor’s last will, and those remaining in the settlor’s
primary trust estate after its distribution to Trust A.
Trust B would be distributed after both the settlor’s and the spouse’s
deaths. Each trust agreement originally instructed that the assets collected
in its Trust B be distributed in thirds: one third to Brenda, one third to
William, and one third divided equally among Nile’s and Georgia’s
grandchildren.
B. The amended agreement and the property transfers.
Nile died in January 1995, leaving Georgia as the surviving spouse and
co-trustee—with Brenda and William—of NDR Trust A and NDR Trust B.
About six months later, Brenda gave birth to her son, Marc. Concerned
about whether Marc—having been born after Nile’s death—was part of
the beneficiary class of grandchildren, Brenda asked Georgia for a copy of
“the trust.” At this point, although Brenda’s understanding was that Nile
and Georgia had each created a separate trust, she didn’t know details
about their terms; she had neither received a copy of the NDR Trust
Agreement from Nile nor seen a copy of the GLR Trust Agreement. Based
1These provisions are known as Qualified Terminable Interest Property, or Q-TIP, provisions.
See 26 U.S.C. § 2056(b)(7) (2012). Congress added Tax Code section 2056(b)(7)—defining and
governing qualified terminable interest property—“primarily to allow a decedent to provide
for a surviving spouse while controlling the ultimate disposition of the property after the
surviving spouse’s death.” Estate of Spencer v. Comm’r, 43 F.3d 226, 229 (6th Cir. 1995).
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on what her father told her, Brenda thought that “[a]fter [Nile’s] death
whatever was in his trust would go into Georgia’s for safekeeping.”
Soon after Brenda requested “the trust,” Georgia distributed the NDR
Primary Trust estate to NDR Trust A and NDR Trust B, and amended the
GLR Trust Agreement, removing Brenda and Marc as beneficiaries.
Georgia next sent Brenda a copy of the NDR Trust Agreement along
with four deeds, a lease assignment, and a note asking Brenda to sign and
return the deeds and assignment. The deeds and assignment referenced
the GLR Trust Agreement and purported to convey the one-half interests
in West Virginia and Indiana property from NDR Trust A to “Georgia L.
Richmond, as Trustee . . . under a Trust Agreement . . . known as the [GLR
Trust Agreement].” Georgia did not, however, send Brenda a copy of the
GLR Trust Agreement, original or amended.
Seeking advice, Brenda turned to legal counsel at the office where she
worked as a paralegal. Brenda’s counsel sent a letter to Georgia’s attorney,
explaining that Brenda sought to determine “her status under her father’s
Will and his Primary Trust Agreement,” and acknowledging that Brenda
had received a copy of “the Trust Agreement” from Georgia. In the letter,
Brenda’s counsel also asked Georgia’s attorney for documents “bearing
materially upon Brenda’s interest as trustee or beneficiary.”
Georgia’s attorney responded with documents related to the NDR trust
assets. He listed the assets in NDR Trust A, explained that “[NDR] Trust B
contains the rest and remainder of the Primary Trust,” and set out the
assets in Trust B. But he did not include the GLR Trust Agreement,
believing that he was not authorized to disclose Georgia’s information to a
third party.
Although neither Brenda nor her counsel had seen the GLR Trust
Agreement that the deeds and assignment referenced, Brenda signed the
deeds and assignment, and her attorney sent them to Georgia’s counsel.
Georgia and William signed similar deeds—not the same documents that
Brenda signed, but ones that likewise purported to transfer the West
Virginia and Indiana property from NDR Trust A to Georgia as trustee
under the GLR Trust Agreement.
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Georgia died in March 1997. Her death triggered distribution of the
NDR trust estate through NDR Trust B—in thirds to Brenda, William, and
the grandchildren, including Marc. In June 1997, Brenda signed the final
account and petition to settle and close NDR Trust B. This document
showed that the trust estate would be completely depleted upon the “final
distribution” of the “balance in trust” to Brenda, William, Marc, and the
other grandchildren. Under that distribution—outlined in the
accounting—Brenda and William each received almost $91,000 and each
grandchild received approximately $22,710 placed in individual trusts.
Not long after Brenda signed the final account, an attorney who helped
administer NDR Trust B and who handled the administration of Georgia’s
estate sent Brenda a copy of the amended GLR Trust Agreement. When
Brenda received it around July 14, 1997, she learned that she and Marc
had been eliminated as beneficiaries and that everything in the GLR trust
would go to William. As the GLR trust’s sole beneficiary, William received
the property that the deeds—both the ones that Brenda signed and the
ones that William and Georgia signed—purported to transfer in 1995 from
NDR Trust A to Georgia as trustee of the GLR Primary Trust.
After receiving the GLR Trust Agreement and learning that she and
Marc were not beneficiaries, Brenda was “pretty downtrodden for quite a
while.” But she did not turn to her legal counsel for advice about the GLR
Trust Agreement and its amendments. Nor did she bring any claims at
that time or object to the executor’s final account and petition to settle
Georgia’s estate.
Sometime around that fall at a family gathering, Brenda’s husband—
with Brenda there—asked William about any more inheritance. William
responded that there wasn’t anything left after Georgia’s medical, nursing
home, and funeral bills had been paid.
About thirteen years later, in 2010, the property in West Virginia that
William received from the GLR trust began producing significant
income—hundreds of thousands of dollars annually—from oil and gas
leases. Over the next couple of years, Brenda consulted with an attorney
and sent William a letter, making claims on the property.
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William found among his mother’s things the deeds that Brenda signed
in 1995 and, after consulting with his own attorney, recorded them in June
2012.
C. Court proceedings.
In 2013, William petitioned the trial court to docket the NDR Trust
Agreement and to grant him declaratory relief by approving the transfers
of the land and mineral interests from NDR Trust A to Georgia as trustee
under the GLR Trust Agreement. He also asked the court to find that
Brenda knew about and consented to the transfers, and—based on that
consent and the statutes of limitations—to preclude Brenda from bringing
claims for breach of trust and for recovery of real estate.
The court allowed Marc Gittings (Brenda’s son) to intervene, and the
Gittingses responded to William’s petition with defenses and
counterclaims. They alleged in part that the property transfers violated the
terms of the NDR Trust Agreement, making the transfers void or
voidable, and that Brenda’s actions did not validate the transfers because
Georgia and William transferred the property without giving Brenda all
material information. They also asked the court to—among other things—
deny William court approval of the transfers, void the transfers, and
award the Gittingses compensation for acts that led to William’s sole
receipt of the property.
After a bench trial, the court issued findings of fact and conclusions of
law and entered judgment in William’s favor. It determined that the
property transfers were proper under the terms of the NDR Trust
Agreement and under Indiana law. It also concluded that the Gittingses’
counterclaims were time barred. The Gittingses appealed.
A panel of the Court of Appeals affirmed judgment for William,
concluding that the statutes of limitations bar the Gittingses’ claims.
Gittings v. Deal, 84 N.E.3d 749, 761 (Ind. Ct. App. 2017). Although the
panel found the statutes-of-limitations issue dispositive, it nonetheless
addressed the validity of the property transfers, out of concern about the
trustees’ conduct. Id. at 758. In doing so, it concluded that the transfers
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were improper under the NDR Trust Agreement and the Trust Code. Id. at
759–61.
The Gittingses petitioned to transfer. After hearing oral argument, we
granted transfer—vacating the Court of Appeals decision, Ind. Appellate
Rule 58(A)—and referred the case to mediation, App. R. 20. The parties
participated in mediation but did not reach an agreement.
Standard of Review
Because the trial court entered findings of fact and conclusions of law,
we review the findings and the judgment for clear error. Ind. Trial Rule
52(A). This means that the evidence must support the findings and the
findings must support the judgment. Oil Supply Co. v. Hires Parts Serv.,
Inc., 726 N.E.2d 246, 248 (Ind. 2000). We set aside the findings only if the
record contains no supporting evidence, but we review the court’s legal
conclusions de novo. Gertiser v. Stokes (In re Marriage of Gertiser), 45 N.E.3d
363, 369 (Ind. 2015).
We also review de novo the court’s interpretations of statutes and trust
instruments, as they are matters of law. Fulp v. Gilliland, 998 N.E.2d 204,
207 (Ind. 2013).
Discussion and Decision
We first confront a threshold issue: whether the Gittingses’ responses to
William’s petition are subject to statutory time limits. After observing that
the Gittingses’ responses bear characteristics of both actions and defenses,
we conclude that their responses are subject to statutory time limits to the
extent they pursue affirmative relief, but not to the extent they seek to
defeat or diminish William’s claim to declaratory relief.
We next address whether fraudulent concealment tolled the limitation
periods for the Gittingses’ claims seeking affirmative relief. We conclude
that because the asserted causes of action were not concealed, fraudulent
concealment did not toll the limitation periods to make the claims timely.
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What remains, then, are the Gittingses’ attempts to diminish or defeat
William’s claim for court approval of the property transfers. After
evaluating the propriety of the transfers that led to William’s receipt of the
property, we determine that William is not entitled to the declaratory
relief he seeks.
I. Claims are subject to statutory time limits to the
extent they seek affirmative relief, but not to the
extent they function as defenses.
After William petitioned in 2013 for court approval of the property
transfers, the Gittingses responded with “affirmative defenses” and ten
counterclaims. In both their defenses and their counterclaims, the
Gittingses maintained that the transfers were improper. In their
counterclaims, they asserted causes of action including breach of trust,
breach of fiduciary duties, tortious interference with expectancy interest,
fraud, negligent misrepresentation, and conversion. They also asked for
affirmative relief, including an order compelling William to distribute
shares of the property and income to Brenda and Marc.
William argues that both the Gittingses’ “affirmative defenses” and
their “counterclaim[s]” are time barred by statutes of limitations and
nonclaim statutes. He reasons that the Gittingses’ responses to his petition
are like claims initiated against an estate, and the limitation periods
applicable to those claims have expired.
The Gittingses argue that their responses are not procedurally barred.
Without addressing nonclaim statutes, they maintain that (1) statutes of
limitations do not apply to defenses, and (2) fraudulent concealment
tolled the limitation periods, making their counterclaims timely.
We therefore must address this question: To what extent may statutes
of limitations preclude the Gittingses’ responses to William’s petition?
As “practical and pragmatic devices” crafted by the legislature, statutes
of limitations encourage prompt presentation of claims and spare the
courts from litigation of stale claims. Havens v. Ritchey, 582 N.E.2d 792, 794
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(Ind. 1991) (quoting Rohrabaugh v. Wagoner, 274 Ind. 661, 663–64, 413
N.E.2d 891, 893 (1980)). Observing these purposes, this Court long ago
announced that statutes of limitations bar actions but not defenses—with
the caveat that this rule applies only to “pure defenses,” not to “matters
which may be relied upon as forming a foundation for a counter-claim or
cross complaint.” Robinson v. Glass, 94 Ind. 211, 216 (1884). In other words,
whether a statute of limitations applies to a claim depends on the claim’s
function as an action or as a defense, not on the claimant’s label of the
claim as one or the other. Id.; see Chauffeurs, Local Union No. 135 v. Jefferson
Trucking Co., 628 F.2d 1023, 1027 (7th Cir. 1980).
To identify how a claim functions, we look to the facts alleged and the
relief sought. See Good v. Clinton Circuit Court, 503 N.E.2d 1218, 1220 (Ind.
1987). A claim is a “pure defense”—to which statutes of limitations do not
apply—when it contests the opposing party’s claim; but if a claim is a
basis for affirmative relief, then it “form[s] a foundation for a counter-
claim or cross complaint,” and is thus subject to statutes of limitations.
Robinson, 94 Ind. at 216; see Ind. Dept. of State Revenue v. Estate of Daugherty,
938 N.E.2d 315, 320 (Ind. T.C. 2010), review denied; Chauffeurs, 628 F.2d at
1027. Compare Defense, Black’s Law Dictionary 509 (10th ed. 2014), with
Counterclaim, Black’s Law Dictionary 427 (10th ed. 2014).
So asserted “defenses” may actually be counterclaims and vice-versa;
or the allegations can have “a dual character, being adapted both to
offensive and defensive warfare.” C. Aultman & Co. v. Forgy, 10 Ind. App.
397, 400, 36 N.E. 939, 940 (1894). When they have that dual character,
Indiana Trial Rule 13(J) governs:
The statute of limitations, a nonclaim statute or other discharge
at law shall not bar a claim asserted as a counterclaim to the
extent that:
(1) it diminishes or defeats the opposing party’s claim if it
arises out of the transaction or occurrence that is the subject-
matter of the opposing party’s claim . . . .
This rule recognizes that statutes of limitations may preclude offensive
claims—that is, claims seeking affirmative relief—but they do not
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preclude defensive claims that arise out of the same transaction or
occurrence as the opposing party’s claim. See Daugherty, 938 N.E.2d at 320;
Crivaro v. Rader, 469 N.E.2d 1184, 1187 (Ind. Ct. App. 1984), trans. denied.
For the Gittingses, this means that statutes of limitations may bar their
“affirmative defenses” and counterclaims to the extent they seek
affirmative relief, but not to the extent they contest William’s claim that he
is entitled to affirmative relief.
With these standards in hand, we next address whether fraudulent
concealment makes the Gittingses’ claims for affirmative relief timely.
II. Fraudulent concealment did not toll the statutes of
limitations.
The Gittingses asserted causes of action based on alleged acts and
omissions that resulted in the Gittingses losing their interests in property
that William received from the GLR Primary Trust.
The trial court agreed with William that the Gittingses’ claims are
statutorily time barred by statutes of limitations and nonclaim statutes—in
part because fraudulent concealment did not toll the statutes of
limitations.
The Gittingses argue only that the trial court erred in concluding that
fraudulent concealment did not toll the limitation periods. They maintain
that the statutes of limitations do not bar their causes of action because
William fraudulently concealed those claims until 2011, when Brenda
discovered that William was profiting from the property that had once
been part of the NDR Primary Trust estate.
William responds that the trial court properly found no fraudulent
concealment and correctly concluded that the Gittingses’ asserted causes
of action are untimely because they accrued on July 14, 1997, at the latest.
We agree.
A cause of action accrues, and thus the limitations period begins to run,
when the claimant “knew or, in the exercise of ordinary diligence, could
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have discovered that an injury had been sustained as a result of the
tortious act of another.” Wehling v. Citizens Nat’l Bank, 586 N.E.2d 840, 843
(Ind. 1992). Consistent with this rule, Indiana’s tolling statute provides
that the limitations period does not run while a person liable to an action
conceals the cause of action from the party entitled to bring it. See Ind.
Code § 34-11-5-1 (2018).
“[W]hen a cause of action accrues is generally a question of law.”
Cooper Indus., LLC v. City of South Bend, 899 N.E.2d 1274, 1280 (Ind. 2009).
But it can involve questions of fact, including whether fraudulent
concealment prevented a party from discovering a cause of action,
triggering tolling. See Lyons v. Richmond Cmty. Sch. Corp., 19 N.E.3d 254,
262 (Ind. 2014); Hughes v. Glaese, 659 N.E.2d 516, 521–22 (Ind. 1995).
Here, the trial court found that the Gittingses’ causes of action were not
concealed until 2011 as the Gittingses allege. More specifically, the court
found that by July 14, 1997, Brenda had copies of both trust agreements,
with the GLR amendments, and knew the following:
• The land and mineral interests had been transferred from NDR
Trust A to the GLR Primary Trust;
• Brenda and Marc had been removed as beneficiaries of the GLR
Primary Trust;
• The GLR Primary Trust’s sole beneficiary was William;
• Because the property had been transferred from NDR Trust A to the
GLR Primary Trust, there was nothing left in the NDR Primary
Trust after NDR Trust B was distributed to Brenda, William, and the
grandchildren; and
• Under the terms of the GLR Trust Agreement, Brenda was excluded
from receiving any more property.
The court also found that William’s statement at the family gathering in
the fall of 1997—that there was nothing left after Georgia’s end-of-life
expenses—was not fraudulent concealment and was accurate as to both
NDR Trust A and NDR Trust B after its distribution.
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We hold that these findings are not clearly erroneous and affirm the
trial court’s decision that fraudulent concealment did not toll the
Gittingses’ claims to make them timely.
The party alleging fraudulent concealment bears the burden to prove
that tolling applies. Alldredge v. Good Samaritan Home, Inc., 9 N.E.3d 1257,
1262 (Ind. 2014). This burden requires showing that the cause of action
was concealed from the claimant until a certain time. See id.; Guy v.
Schuldt, 236 Ind. 101, 108–09, 138 N.E.2d 891, 895–96 (1956). It also requires
showing that either (1) the alleged wrongdoer actively concealed the cause
of action and the claimant exercised due diligence to discover the cause of
action, or (2) the parties’ relationship—such as a fiduciary relationship—
imposed on the alleged wrongdoer a duty to disclose the cause of action
to the claimant. Alldredge, 9 N.E.3d at 1262; Malachowski v. Bank One,
Indianapolis, 590 N.E.2d 559, 563 (Ind. 1992); Hinds v. McNair, 235 Ind. 34,
45, 129 N.E.2d 553, 560–61 (1955).
Here, we need not determine whether the Gittingses carried their
burden to show that William and Brenda remained in a fiduciary
relationship after NDR Trust B closed. That is because both forms of
fraudulent concealment—active and failure-to-disclose—exist only if the
cause of action is concealed from the party entitled to bring it. See Guy, 236
Ind. at 108, 138 N.E.2d at 895. And by mid-July 1997, the Gittingses’ causes
of action were not concealed. Brenda had everything she needed—in the
deeds, the trust agreements, and the final accounting—to know about not
only Georgia’s and William’s alleged wrongdoing but also the injury that
the Gittingses now claim they sustained as a result: the loss of Brenda’s
and Marc’s interests in the property.
More specifically, Brenda had been informed that after part of the NDR
Primary Trust was distributed to NDR Trust A, NDR Trust B “contain[ed]
the rest and remainder of the Primary Trust.” In her testimony, Brenda
acknowledged that she had signed the deeds stating that the disputed
property would be transferred from NDR Trust A to Georgia as trustee
under the GLR Trust Agreement. By July 14, 1997, Brenda had copies of
both the NDR Trust Agreement and the amended GLR Trust
Agreement—agreements showing that the GLR Primary Trust was
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separate from the NDR trusts and governed by different terms. The
agreements also showed that Brenda and Marc were not beneficiaries of
the GLR trust, since Georgia had removed Brenda and Marc as
beneficiaries under the GLR Trust Agreement. Brenda also signed the final
account and petition to settle and close trust for NDR Trust B, and she
acknowledged that the final account indicated that there was nothing left
in that trust after the outlined “final distribution” to Brenda, William,
Marc, and the other grandchildren took place.
In other words, Brenda either signed or possessed documents showing
that the disputed property would be transferred from NDR Trust A to the
GLR Primary Trust and would thereafter no longer be treated as if it were
in NDR Trust A—and because of that transfer and the amendment to the
GLR Trust Agreement, Brenda and Marc would not receive any of that
property. With this information exposed, William did not conceal the
Gittingses’ causes of action by failing to disclose more.
Nor did William actively conceal the Gittingses’ causes of action with
misinformation after NDR Trust B was closed. William’s statement that
there was nothing left to distribute after Georgia’s end-of-life expenses
was accurate as to the NDR trusts—the only trusts in which the Gittingses
had any interest after Georgia amended the GLR Trust Agreement.
William did not need to remind them that their “inheritance” did not
include any property in the GLR Primary Trust; the amended GLR Trust
Agreement revealed that information. As Brenda acknowledged in her
testimony, “It was pretty clear what was written [in the amendment],
what [Georgia] had done.”
In sum, the evidence supports the trial court’s findings, and those
findings support the trial court’s conclusion that fraudulent concealment
did not toll the limitation periods beyond July 14, 1997—when Brenda
received the amended GLR Trust Agreement. Because the Gittingses
argue only fraudulent concealment as a basis for timeliness, we affirm the
court’s judgment against the Gittingses on their claims for affirmative
relief.
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But a final question remains: whether the Gittingses’ defenses and
counterclaims defeat or diminish William’s petition for court approval of
the property transfers.
III. William is not entitled to court approval of the
property transfers.
In his petition, William asked the court to approve the transfers of
property from NDR Trust A to Georgia—as trustee of the GLR Primary
Trust—as being within the terms of the NDR Trust Agreement and thus
proper under Indiana law. He also asked the court to find that Brenda
knew of and consented to the transfer.
The Gittingses first argue that William has the burden to establish his
right to the relief he requests. We agree.
Although William filed a petition and not a complaint, neither the Trust
Code nor our trial rules indicate that we should treat his petition
differently than a complaint. See Ind. Code § 30-4-6-5 (2018); T.R. 3, 4, 41.
The Trust Code provides that proceedings “may be initiated on either a
petition or complaint and upon notice” to all persons known to claim an
interest in the trust estate. I.C. § 30-4-6-5. 2 The general rule for complaints
is that the party asserting the claim for relief bears the burden to move the
litigation forward and to prove the asserted claim. See T.R. 41(B), (C), (E);
Petrovski v. Neiswinger, 85 N.E.3d 922, 925 (Ind. Ct. App. 2017). Since the
Trust Code and trial rules do not instruct otherwise, William bears this
burden.
The Gittingses next argue that William failed to carry his burden
because the following were improper: (1) Georgia’s amendment to the
2The Trust Code also relies on the trial rules for the form and manner of service for the
required notice. I.C. § 30-4-6-6(a)–(c). It specifically refers to service of summons, I.C. § 30-4-6-
6(b), (c), which under the trial rules is prepared contemporaneously with the commencement
of a civil action, T.R. 4(B), by the filing of “a complaint or such equivalent pleading or
document,” T.R. 3.
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GLR Trust Agreement, removing Brenda and Marc as beneficiaries of the
GLR trust; (2) Georgia’s distribution of property from the NDR Primary
Trust to NDR Trust A and NDR Trust B; and (3) the transfers of property
from NDR Trust A to the GLR Primary Trust. Their reasons include that
the NDR Trust Agreement and the GLR Trust Agreement were part of a
mutual estate plan that created a single, implied trust, binding each settlor
to the terms of the spouse’s trust.
We agree with the trial court that the NDR Trust Agreement and the
GLR Trust Agreement did not create a single, implied trust and that
Georgia’s amendment of the GLR Trust Agreement—removing Brenda
and Marc as beneficiaries—did not violate the terms of either trust
agreement. But based on our de novo review of the trust terms and
Indiana statutes, we disagree with the trial court that the transfers of
property from NDR Trust A to the GLR Primary Trust were proper. So
William is not entitled to court approval. We address each of these matters
in turn, starting with the amended GLR Trust Agreement.
A. The trust agreements permitted Georgia to amend the
GLR Trust Agreement to make William the sole
beneficiary.
The NDR Trust Agreement and the GLR Trust Agreement did not
include language incorporating the terms of the other. See Care Group
Heart Hosp., LLC v. Sawyer, 93 N.E.3d 745, 754–55 (Ind. 2018) (“For
incorporation to occur, the incorporating contract must include a clear and
explicit expression of intent to be bound by the auxiliary content.”). On
the contrary, each trust agreement specified that “[t]his Trust Agreement
contains the entire trust agreement between the parties hereto,” without
even referencing the spouse’s comparable trust agreement. Although the
NDR Trust Agreement’s merger provision enabled consolidating the
estate of one trust with the estate of another trust if certain conditions
were met, that provision did not incorporate terms of another agreement.
It instead required that the terms of the trusts with commingled estates be
substantially the same, and it specified that the merging of the trust
estates would not amend or revoke any terms of the trusts.
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Nor did either agreement prohibit its settlor from amending or
revoking his or her agreement after the settlor’s spouse died. Rather, each
agreement permitted the settlor to revoke or amend his or her agreement
during the settlor’s lifetime:
[D]uring the life of the Settlor, the Settlor shall have the power
to completely revoke or terminate this Trust Agreement, at any
time, by an instrument signed by the Settlor and delivered to
the Trustees during the life of the Settlor. In addition, during
the life of the Settlor, the Settlor shall have the power to alter or
amend this Trust Agreement, in whole or in part, at any time
and from time to time, by an instrument signed by the Settlor,
and delivered to the Trustees.
The Gittingses correctly note that the GLR Trust Agreement permits
modification “only by a written agreement of the parties hereto.” But the
“parties hereto” could dwindle down to the settlor alone, under certain
circumstances. Here’s how: The “parties hereto” explicitly refers to “[t]he
Settlor and the Trustees.” The agreement identifies the “Trustees” as the
settlor and the spouse. It also recognizes that if the spouse becomes
unqualified during the settlor’s life, “then the remaining Trustee shall be
the sole Trustee” of the primary trust. And it indicates that Brenda and
William would be co-trustees of Trust A and Trust B “[u]pon the death of
the settlor.” Under these provisions—regardless of whether new trustees
to a trust become parties to the agreement at the settlor’s death—the
Settlor/Trustee becomes the only party to the agreement if and while the
settlor survives the spouse.
That’s what happened here. Nile died before Georgia, leaving Georgia
as the settlor and sole trustee, and thus the only party to the GLR Trust
Agreement, while she remained alive. So under the terms of the GLR
Trust Agreement, Georgia could—and did—modify that agreement in
writing and signed by her as Settlor and Trustee.
We now turn to the propriety of the property transfers.
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B. The property transfers from NDR Trust A to the GLR
Primary Trust were improper, so William is not entitled
to court approval of them.
The trial court concluded that the transfers of property from the NDR
Primary Trust to NDR Trust A, and from NDR Trust A to Georgia as
trustee of the GLR Primary Trust, were proper. On this basis, it granted
William court approval of the transfers from NDR Trust A to the GLR
Primary Trust.
We disagree with the trial court that the transfers from NDR Trust A to
Georgia, as trustee under the GLR Trust Agreement, were proper. So
William is not entitled to the court approval he requested. Three separate
Trust Code sections in force when the transfers occurred in 1995 inform
our analysis.
First, the Trust Code required that the transfers be authorized by a
court because Georgia’s interest as trustee of the GLR Primary Trust
conflicted with her duty as trustee of NDR Trust A. Specifically, Indiana
Code section 30-4-3-5 (1993) provided the following:
(a) If the duty of the trustee in the exercise of any power
conflicts with his individual interest or his interest as trustee
of another trust, the power may be exercised only with
court authorization.
(b) For the purposes of subsection (a) of this section, the
interest of an affiliate of the trustee will be deemed to be the
interest of the trustee.
Here, there was a clear conflict of interest: Georgia could designate her
son William as sole beneficiary of the GLR Primary Trust. But because she
was not the settlor of the NDR Trust Agreement, Georgia could not
remove Brenda and Marc as beneficiaries of NDR Trust B—the trust that
would receive leftover assets from NDR Trust A after Georgia’s death.
Thus, Georgia’s transfer of property from NDR Trust A to the GLR
Primary Trust required court approval, which Georgia did not obtain.
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William does correctly note that a 2006 amendment to the Trust Code
provides an exception to the court-approval requirement. He argues that
this provision should apply retroactively here.
Under the amendment, court approval is not required before a trustee
exercises a power that conflicts with the trustee’s individual interest if the
terms of the trust “specifically authorized” the exercise of that power. P.L.
61-2006, § 7 (codified at Ind. Code § 30-4-3-5(a)(3) (2018)). William argues
that the NDR Trust Agreement specifically authorized Georgia’s actions
as co-trustee of NDR Trust A. He reasons that the agreement permits the
trustees to make principal distributions to Georgia for her support,
maintenance, and health, and the agreement states that if any trustees
disagree about the distribution of principal, “the decision of the Settlor’s
spouse shall, in all events, control.”
Even if the amendment applies retroactively, the NDR Trust
Agreement did not specifically authorize Georgia to make a distribution
to herself without providing material information to the other co-trustees.
Rather, the agreement gave Georgia overriding authority in distribution
decisions only “[i]n the event there is any disagreement.” Here, the record
shows no disagreement among the trustees, so Georgia could not have
exercised this authority in transferring the property from NDR Trust A to
the GLR Primary Trust. Thus, whether or not the 2006 amendment applies
retroactively, the transfers required court authorization.
Second, the Trust Code required that the transfers be fair and
reasonable, with all material facts disclosed to beneficiaries:
Unless the terms of the trust provide otherwise, the trustee may
sell, exchange, or participate in the sale or exchange of trust
property from one (1) trust to himself as trustee of another trust,
provided the sale or exchange is fair and reasonable with respect
to the beneficiaries of both trusts and the trustee discloses to the
beneficiaries of both trusts all material facts related to the sale or
exchange which the trustee knows or should know.
I.C. § 30-4-3-7(d) (1993).
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It is undisputed that when Georgia asked Brenda to sign the deeds to
transfer the property in 1995, Georgia did not provide Brenda with the
GLR Trust Agreement, which contained material information about how
the transfer would affect Brenda’s and Marc’s interests (or lack thereof) in
the property. Thus, the transfer was improper for this separate reason.
Third, and finally, the Code stated that consent is not a defense to
liability for breach of trust under certain circumstances:
The consent, acquiescence, agreement to release or discharge,
affirmance, or participation by a beneficiary will not relieve the
trustee from liability if [one of the following conditions is met]:
....
(2) at the time it was given the beneficiary did not know of his
rights or all of the material facts which the trustee knew or
should have known;
(3) it was induced by the trustee’s improper conduct;
(4) the trustee had an adverse interest in the transaction and
the transaction was not fair and reasonable;
....
I.C. § 30-4-3-19(b) (1993).
Here, the transfer was not defensible on grounds of consent: Georgia
had an adverse interest in the transaction, and Brenda lacked material
information about her rights when she signed the deeds.
In sum, the transfers of property from NDR Trust A to Georgia, as
trustee of the GLR Primary Trust, required court authorization and took
place without all material facts disclosed to Brenda, a trustee and
beneficiary under the NDR Trust Agreement. William is therefore not
entitled to a court order approving those transfers.
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Conclusion
Although the Gittingses’ claims are subject to statutes of limitations to
the extent they seek affirmative relief, the statutes do not prevent the
Gittingses’ claims from diminishing or defeating William’s request for
court approval of the property transfers. And because the transfers were
improper, William is not entitled to court approval of them.
We therefore affirm in part, reverse in part, and remand to the trial
court for proceedings consistent with this opinion.
David, Massa, Slaughter, and Goff, JJ., concur.
ATTORNEYS FOR APPELLANTS
James D. Johnson
Jackson Kelly PLLC
Evansville, Indiana
Matthew P. Heiskell
Spilman Thomas & Battle PLLC
Morgantown, West Virginia
ATTORNEYS FOR APPELLEE
David L. Jones
David E. Gray
Jones · Wallace, LLC
Evansville, Indiana
John G. Wetherill
Wetherill Law Office
Rockport, Indiana
Indiana Supreme Court | Case No. 18S-TR-231 | November 2, 2018 Page 21 of 21