BMO Harris Bank N.A. v. Towers
| Decision Date | 23 October 2015 |
| Docket Number | 1–13–3635.,Nos. 1–13–3351,s. 1–13–3351 |
| Citation | 43 N.E.3d 1131 |
| Parties | BMO HARRIS BANK N.A., as Trustee of the Mary A. Cornelius Trust Dated November 18, 1972, f/b/o Martin P. Cornelius, Jr., and as Trustee of the Martin P. Cornelius, Sr. Trust, f/b/o Martin P. Cornelius, Jr., Plaintiff and Counterdefendant–Appellee, v. Richard S. TOWERS, as Successor Trustee of the Martin P. Cornelius, Jr. Revocable Living Trust, Harry H. Cornelius, Camilla Anne Cornelius, and Martin P. Cornelius III, Defendants and Counterplaintiffs–Appellants (Dagmar Cornelius, Defendant–Appellee). |
| Court | United States Appellate Court of Illinois |
Norman J. Lerum, P.C., Chicago (Norman J. Lerum and Catherine E. Lerum, of counsel), for appellants.
Chapman & Cutler LLP, Chicago, (Rebecca Wallenfelsz and Bryan E. Jacobson, of counsel), for appellee BMO Harris Bank N.A.
Harrison & Held, LLP, Chicago (Robert S. Held and George N. Vurdelja, Jr., of counsel), for appellee Dagmar Cornelius.
delivered the judgment of the court, with opinion.
¶ 1 This cause arose when plaintiff BMO Harris Bank N.A. (Bank), as trustee of two trusts, filed a petition seeking instructions from the court regarding the validity of the exercise of the testamentary powers of appointment by Martin Cornelius, Jr., (Martin Jr.) over the two trusts, which were created by his parents. Thereafter, the trustee of Martin Jr.'s revocable living trust and three of Martin Jr.'s four living children (collectively, the Towers defendants) filed a counterpetition against the Bank, alleging that Martin Jr.'s exercise of his powers of appointment was valid and the Bank violated its fiduciary duties by filing its petition. Another defendant, Martin Jr.'s daughter Dagmar Cornelius, moved for partial summary judgment in her favor on certain counts of the Bank's petition.
¶ 2 The trial court granted Dagmar Cornelius's partial motion for summary judgment, held that Martin Jr. improperly exercised the powers of appointment granted to him by his parents, and instructed the Bank to distribute the trust funds held in the parents' two trusts per stirpes to Martin Jr.'s four living children. The trial court also granted the Bank's motion for judgment on the pleadings and dismissed the Towers defendants' counterpetition, and granted Dagmar's petition for attorney fees.
¶ 3 On appeal, the Towers defendants contend Martin Jr. properly exercised his powers of appointment over his parents' two trusts using his revocable living trust as a conduit; the trial court erred in granting the Bank's motion to dismiss the Towers defendants' counterpetition; and the trial court erred by summarily granting Dagmar's petition for attorney fees.
¶ 4 For the reasons that follow, we affirm the judgment of the circuit court. We hold that: (1) As the trust donee, Martin Jr.'s exercise of his limited testamentary powers of appointment in favor of himself was ineffective and therefore void because he was not a permissible appointee; (2) as the trustee, the Bank acted within its fiduciary duties by filing a petition seeking instruction from the court regarding the proper distribution of the trusts; and (3) the trial court did not err in awarding Dagmar attorney fees without conducting an evidentiary hearing.
¶ 6 Mary and Martin Cornelius, Sr., created two trusts with the Bank as trustee that were to be administered for the benefit of their son, Martin Jr., during his lifetime. Each trust granted Martin Jr. a limited testamentary power of appointment. Under the terms of the Mary trust, Martin Jr. could appoint assets to or in further trust for his spouse, Mary's descendants other than Martin Jr., or the spouses of such descendants. Under the terms of the Martin Sr. trust, Martin Jr. could appoint assets to or in further trust for his spouse, his lineal descendants and their spouses, Martin Sr.'s other lineal descendants and their spouses, or any charitable organization. Under the terms of the Mary trust and Martin Sr.'s will, if the powers of appointment were not effectively exercised, then distributions would be made to the descendants of Martin Jr. living at the time of his death.
¶ 7 During his lifetime, Martin Jr. created a revocable living trust (the Martin Jr. trust). Martin Jr. died a resident of North Carolina in 2006 and was survived by his spouse and four children, Harry, Martin III, Camilla, and Dagmar. Martin Jr.'s last will and testament, dated 1991, was admitted to probate in North Carolina. Section 1.1 of Martin Jr.'s will directed: “that all of my legal debts, the expenses of the administration of my estate and the expenses of my last illness, funeral and interment be paid out of my estate, but not from any marital assets which are exempt from federal estate tax unless there are no other assets available.” In sections 2.2 and 2.3 of his will, Martin Jr. exercised his limited powers of appointment under the Mary and Martin Sr. trusts by appointing all the property to the trustee of the Martin Jr. trust. Section 3.1 of the will provided that Martin Jr. devised “the residue of [his] estate, including [his] property over which [he] may have any general power of appointment at the time of [his] death” to the trustee of the Martin Jr. trust “to be administered as part of the principal of the Trust.”
¶ 8 Section 1.1 of the Martin Jr. trust agreement stated that the “Trust assets shall consist of assets previously transferred by [Martin Jr.] to the trustee, and such other assets as [Martin Jr.] may transfer to the trustee, or which the trustee shall receive and accept from other sources, including [Martin Jr.'s] estate, and any other assets substituted therefor or added thereto.” Section 4.1 of the trust agreement addressed the trustee's administration of the trust during Martin Jr.'s lifetime and provided that all income not distributed during Martin Jr.'s lifetime would be added to the principal.
¶ 9 Section 5.1 of the trust agreement instructed the trustee that, if Martin Jr.'s spouse survived him, then the trustee would divide the trust estate, “both income and principal, which shall include any additions made to the Trust by reason of [Martin Jr.'s] death (such as transfers under [Martin Jr.'s] Will, or life insurance policies on [Martin Jr.'s] life),” into a marital share and a credit shelter share. If Martin Jr.'s spouse did not survive him, then the credit shelter would consist of the entire estate. The marital share would be designated the Marital Deduction Share and the credit shelter share would be designated the Martin Phelps Cornelius, Jr. Family Trust.
¶ 10 Section 5.3 of the trust agreement directed the trustee, upon Martin Jr.'s death, to pay from the “original trust * * * all debts, expenses of administration, and death taxes (estate, inheritance, and like taxes, including interest and penalties but not including any generation-skipping transfer taxes) that are payable as a result of [Martin Jr.'s] death.” According to section 8.1 of the trust agreement, the “original Trust” created by the trust agreement may be referred to as the Martin Phelps Cornelius, Jr. Revocable Living Trust dated July 29, 1987, whereas the family trust may be referred to as the Cornelius Family Trust, followed by the date of the trust's initial funding. Section 5.5 of the trust agreement provided that “[a]t any time during the continuance of the original Trust after [Martin Jr.'s] death, the trustee may distribute to [Martin Jr.'s] probate estate, as a beneficiary of the Trust, cash or other property out of any assets then held by the Trust.” Section 5.7 of the trust agreement stated that “[w]hen all of the properties of the original Trust have been so divided and distributed, the original Trust shall be deemed terminated.” After the death of Martin Jr.'s spouse, the remaining assets of the trust would be paid in equal shares to Martin Jr.'s son Harry and three of Martin Jr.'s grandchildren. Martin Jr. explicitly stated that his children Dagmar and Martin III were omitted as residuary beneficiaries.
¶ 11 The estate of Martin Jr. was closed in December 2007, and his trustee contacted the Bank in 2009 and transmitted information relating to the administration of the Martin Jr. estate for the purpose of transferring the assets held by the Bank in the Mary and Martin Sr. trusts to the Martin Jr. trust. However, the assets of the Mary and Martin Sr. trusts were never transferred to the Martin Jr. trust.
¶ 12 In October 2012, the Bank filed with the trial court a petition for instructions and approval of accounts and other relief. The Bank stated that, under the terms of the Mary and Martin Sr. trusts, the Bank was unsure whether or to what extent Martin Jr.'s exercise of the powers of appointment over his parents' two trusts was valid due to the possibility of impermissible appointees receiving property from the parents' two trusts.
¶ 13 In February 2013, the Towers defendants, i.e., Harry Cornelius, Martin Cornelius III, Camilla Cornelius, and the trustee of the Martin Jr. trust, filed a counterpetition for instructions, declaratory relief and money damages. The Towers defendants argued that the Bank should have transferred the funds in the Mary and Martin Sr. trusts to the Martin Jr. trust, the exercise of the powers of appointment in the Martin Jr. trust was valid and consistent with the provisions of the Mary and Martin Sr. trusts, and the Bank breached its fiduciary duties to the beneficiaries of the Martin Jr. trust by filing a petition for instructions and unnecessarily generating legal expenses.
¶ 14 Thereafter, defendant Dagmar Cornelius moved the court for partial summary judgment under section 2–1005(d) of the Code of Civil Procedure
(Code) (735 ILCS 5/2–1005(d) (West 2012)), arguing there was no genuine issue of material fact to be resolved concerning the counts of the Bank's petition requesting instructions on the validity of Martin Jr.'s exercise of the powers of appointment. Dagmar contended that...
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