Brock v. Premier Trust, Inc. (In re Frei Irrevocable Trust Dated Oct. 29, 1996), 68029
| Decision Date | 02 March 2017 |
| Docket Number | No. 68029,68029 |
| Citation | 390 P.3d 646 |
| Parties | In the MATTER OF FREI IRREVOCABLE TRUST DATED OCTOBER 29, 1996. Stephen Brock, Appellant, v. Premier Trust, Inc.; Lawrence Howe ; and Elizabeth Mary Frei, Respondents. |
| Court | Nevada Supreme Court |
The Law Office of Mike Beede, PLLC, and Michael N. Beede and Zachary Clayton, Las Vegas, for Appellant.
Gerrard Cox & Larsen and Douglas D. Gerrard and Richard D. Chatwin, Henderson, for Respondent Premier Trust, Inc.
Hutchison & Steffen, LLC, and Michael K. Wall, Las Vegas, for Respondents Lawrence Howe and Elizabeth Mary Frei.
BEFORE THE COURT EN BANC.1
In this opinion, we address whether an irrevocable spendthrift trust may be modified by the survivor of two settlors and interested beneficiaries. NRS Chapter 166, which governs spendthrift trusts, does not address this issue. We have, however, allowed modification of irrevocable trusts in certain circumstances. See, e.g., Ambrose v. First Nat'l Bank of Nev., 87 Nev. 114, 119, 482 P.2d 828, 831 (1971) (). Moreover, Restatement (Second) of Trusts § 338 (Am. Law Inst. 1959) provides that an irrevocable trust may be amended by a settlor and beneficiary as long as any nonconsenting beneficiaries' interests are not prejudiced. We adopt Restatement (Second) of Trusts § 338 (Am. Law Inst. 1959) and hold that an irrevocable trust, spendthrift or not, may be modified with the consent of the surviving settlor(s) and any beneficiaries whose interests will be directly prejudiced.
Emil Frei, III, and his wife, Adoria, created the Frei Irrevocable Trust in 1996 (1996 Trust). Emil and Adoria each had five children from prior relationships, and all ten children were named equal beneficiaries under the 1996 Trust. The 1996 Trust contained a restraint on alienation clause, making it a spendthrift trust. Shortly after Adoria died in 2009, her son, Stephen Brock, successfully petitioned to modify the trust with Emil's consent (2009 modification). The petition proposed to alter the language controlling distribution of the trust property, granting any beneficiary the right to compel distribution of his or her share of the trust. Specifically, the proposed language provided in pertinent part:
Upon an election in writing by any child of ours delivered to our Trustee, the trust share set aside for such child shall forthwith terminate and our Trustee shall distribute all undistributed net income and principal to such child outright and free of the trust.
All of Stephen's siblings and step-siblings were notified of the modification petition, and none objected. Because no interested party objected, the district court granted Stephen's petition to modify the trust. Subsequently, Premier Trust, Inc., became the co-trustee of the 1996 Trust.
In 2010, Stephen settled several lawsuits that Emil and his children had brought against him for alleged mismanagement of an alternate family trust (2010 settlement). Before agreeing to the settlement, Stephen conferred with counsel and responded to the district court's oral canvassing. In the settlement, Stephen denied any wrongdoing, but he agreed to pay $415,000 through monthly payments to the alternate family trust. Stephen also agreed to pledge his interest in the 1996 Trust as security for his payment obligation. Stephen made only one $5,000 payment to the alternate family trust.
After Emil died in 2013, the other nine beneficiaries requested and received their shares of the 1996 Trust funds. Stephen was the only beneficiary who did not receive his share. The trustees of the alternate trust demanded that Premier use Stephen's share of the 1996 Trust to pay his 2010 settlement debt. Premier made three $100,000 payments before Stephen demanded that it stop. Stephen then filed the underlying petition to construe the terms of the 1996 Trust, compel repayment of the $300,000 Premier paid out on his behalf, and to remove Premier as trustee. The district court denied Stephen's petition, finding that: (1) Stephen was the only beneficiary whose interest was affected; (2) the initial intent of the two settlors was to treat their children as equal beneficiaries, and to allow Stephen to renege on his promise would disadvantage the other nine children; (3) the settlement money was to repay money that would benefit the other beneficiaries of the 1996 Trust; and (4) Emil and the other children relied upon Stephen's promise in the 2010 settlement when dismissing the various lawsuits against Stephen.2
Standard of review
In a probate matter, we "defer to a district court's findings of fact and will only disturb them if they are not supported by substantial evidence." Waldman v. Maini, 124 Nev. 1121, 1129, 195 P.3d 850, 856 (2008). "Substantial evidence is evidence that a reasonable mind might accept as adequate to support a conclusion." In re Estate of Bethurem, 129 Nev. 869, 876, 313 P.3d 237, 242 (2013) (quoting Winchell v. Schiff, 124 Nev. 938, 944, 193 P.3d 946, 950 (2008) ). We review legal questions, including matters of statutory interpretation, de novo. Waldman, 124 Nev. at 1129, 195 P.3d at 856.
The 2009 modification was a valid modification of the 1996 Trust, and the 2010 settlement is valid
On appeal, Stephen argues that the district court's finding that the 2009 modification and the 2010 settlement were valid modifications of the 1996 Trust was erroneous because irrevocable trusts cannot be terminated and the death of a settlor precludes modification of the trust. In response, respondents argue that the trust modifications were effective and a spendthrift clause becomes invalid once a beneficiary is entitled to compel distribution of his or her share of the trust.
Nevada law does not categorically preclude the modification of an irrevocable trust
Stephen first argues that the word "irrevocable" in an "irrevocable trust" should be interpreted literally so that irrevocable trusts can never be terminated or modified. We disagree.
"A trust is irrevocable by the settlor except to the extent that a right to amend the trust or a right to revoke the trust is expressly reserved by the settlor." NRS 163.004(2) ; see also NRS 163.560 (). We have also held, however, that irrevocable trusts may be amended or terminated in certain circumstances. See, e.g., Ambrose v. First Nat'l Bank of Nev., 87 Nev. 114, 119, 482 P.2d 828, 831 (1971) (). Accordingly, as Nevada law provides for modification of irrevocable trusts in limited circumstances, Nevada law does not categorically preclude modifying an irrevocable trust.
Nevada law does not provide that the death of a settlor precludes modification
Stephen also argues that any modification of the 1996 Trust after Adoria's death was categorically forbidden because all settlors must consent to a modification. We disagree.
This is an issue of first impression in Nevada because neither the state's statutes nor this court's caselaw explicitly define when and by whom an irrevocable trust may be modified or if the death of one of several settlors precludes modification altogether.
A trust may be modified, without regard to its original purpose, if the settlor and all beneficiaries consent. Restatement (Second) of Trusts § 338(1) (Am. Law Inst. 1959) ;3 see also In re Green Valley Fin. Holdings, 32 P.3d 643, 646 (Colo. App. 2001) ; Hein v. Hein, 214 Mich.App. 356, 543 N.W.2d 19, 20 (1995). Even if all beneficiaries do not consent, those who desire modification may, together with the settlor, modify the trust unless the nonconsenting beneficiaries' interests will be prejudiced. Restatement (Second) of Trusts § 338(2) (1959) ; see also Mus ic k v. Reynolds, 798 S.W.2d 626, 630 (Tex. App. 1990).
A spendthrift clause, in and of itself, does not prevent modification. Restatement (Second) of Trusts § 338 cmts. d, h. (Am. Law Inst. 1959); see also Hein, 543 N.W.2d at 20. Moreover, "[t]he restraint on the alienation of the interest by the beneficiary can be removed by the consent of the beneficiary and of the settlor." Restatement (Second) of Trusts § 338 cmt. h. (Am. Law Inst. 1959). After considering the parties' arguments and the authorities above, we adopt the Restatement (Second) of Trusts § 338 (Am. Law Inst. 1959), including comments d and h, governing trust modification.
In this case, Emil and Stephen, on their own, and on Adoria's behalf,4 affirmatively consented to the 2009 modification. Stephen and Emil later consented to the 2010 settlement. Stephen pledged his interest in the 1996 Trust to secure his debt from the 2010 settlement with Emil, the sole surviving settlor. Most importantly, in this case, no other beneficiaries' interests under the 1996 Trust were prejudiced when Stephen modified the 1996 Trust in 2009 and entered into the 2010 settlement.5 Accordingly, we conclude that both the 2009 modification and the 2010 settlement were valid.6
The spendthrift clause became invalid upon modification in 2009
Premier argues that a spendthrift clause becomes invalid once the beneficiary is entitled to compel distribution of his or her share of the trust and that is precisely what happened in the 2009 modification. We agree.
A spendthrift trust is a trust containing a "valid restraint on the voluntary and involuntary transfer of the interest of the beneficiary." NRS 166.020 (emphasis added). A settlor does not need any specific language to create a spendthrift trust as long as the intent to do so is clear in the writing. NRS 166.050. If the spendthrift provisions are...
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