Cook v. Brateng

• Decision Date: 06 December 2010
• Docket Number: No. 39463–4–II.,39463–4–II.
• Court: Washington Court of Appeals
• Parties: John E. COOK, a married man, Respondent,v.A. Diane BRATENG, a widow concerning her interest in realty subject to partition action, and A. Diane Brateng, as Successor Sole Trustee of the Elmer J. Cook Living Trust, Appellant.

158 Wash.App. 777

262 P.3d 1228

John E. COOK, a married man, Respondent,

v.A. Diane BRATENG, a widow concerning her interest in realty subject to partition action, and A. Diane Brateng, as Successor Sole Trustee of the Elmer J. Cook Living Trust, Appellant.

No. 39463–4–II.

Court of Appeals of Washington, Division 2.

Oct. 20, 2010.Publication Ordered Dec. 6, 2010.

James Dewitt McBride II, Julin & McBride PS, Redmond, WA, for Appellant.David Allen Nelson, Nelson Law Firm PLLC, Longview, WA, for Respondent.BRIDGEWATER, P.J.

[158 Wash.App. 781] ¶ 1 A. Diane Brateng appeals the trial court's division of Elmer Cook's trust property. We hold that Diane,¹ who was both a beneficiary and trustee of Elmer's trust, did not breach her fiduciary duties when she: (1) did not inform John Cook, her brother and also a beneficiary of Elmer's trust, that she decided to claim and defer charges against Elmer's estate for providing Elmer's care; and (2) decided not to encumber Elmer's house to pay for his care. We reverse the trial court's finding that Diane breached her fiduciary duties, hold that she is entitled to reasonable compensation for providing Elmer's care, and remand to determine her compensation and to redistribute the property. We hold that Diane is entitled to funds she spent to repair and remodel a portion of Elmer's home, and we do not disturb the trial court's use of a 2007 appraisal it used to determine the value of Elmer's home. Finally, we vacate John's award of attorney fees below and remand to set Diane's reasonable attorney fees for both the trial and the appeal.

FACTS

¶ 2 The following facts are undisputed. Diane and John are siblings. In November 1995, their father, Elmer, executed a living trust, naming himself and Diane as trustees. Elmer's health deteriorated; two years later, in November 1997, he was declared incompetent, and Diane became sole trustee of his trust.

¶ 3 With Elmer declared incompetent, the trust required Diane, the sole remaining trustee, to apply all trust property exclusively for Elmer's benefit. Specifically, the trust required Diane to “provide as much of the principal and net income of [the] trust as is necessary or advisable, in [Diane's] sole and absolute discretion, for my health, support, maintenance, and general welfare.” CP at 36. The trust also required Diane to make information available to the beneficiaries:

My trustee shall report, at least semiannually, to the beneficiaries then eligible to receive mandatory or discretionary distributions of the net income from the various trusts created in this agreement all of the receipts, disbursements, and distributions occurring during the reporting period along with a complete statement of the trust property.

CP at 60. Upon Elmer's death, the trust directed Diane, as the trustee, to divide all remaining trust property among herself, John, the Salvation Army, and the Finnish Assembly of God Church. The trust allocated to each Diane and John a 9/20th share and to each charity a 1/20th share.² The trust also directed Diane to distribute the home to herself, “AS PART OF, AND NOT IN ADDITION TO, that share of [the] trust distributed to [Diane].” CP at 46.

¶ 4 In November 1997, after Elmer was declared incompetent, Diane decided to move Elmer from his home in Ilwaco, Washington, into her home in Kirkland, Washington, where she could more easily care for him. Elmer died in January 2000.

¶ 5 During the time Diane cared for Elmer from November 1997 to January 2000, she used $59,176.67 ³ from the trust's liquid funds to pay for Elmer's medical expenses and personal expenses, as well as maintaining, repairing, and remodeling the Ilwaco home. Diane spent $20,319.75 of the trust funds to repair water damage to the Ilwaco home and to remodel its kitchen. At the time of Elmer's death, the trust had $16,439.62 in liquid funds remaining. The only other remaining trust asset was Elmer's Ilwaco home.

¶ 6 Diane kept meticulous records of her time and expenses related to caring for Elmer and her time and expenses related to driving from Kirkland to Ilwaco. She carefully recorded her time spent caring for him from 1996 [158 Wash.App. 784] to 1997 ⁴—before she moved him to Kirkland—and she recorded her time spent caring for him while he lived with her in Kirkland as “24 hour In-home Care.” Ex. 26. She also kept track of the fuel used to drive to Ilwaco, her meals along the way, and the cost per mile. Finally, she recorded bills that she personally paid for Elmer, recording the exact amount and method of payment. Diane's claim against the estate for acting as Elmer's care giver totaled $142,171.10.

¶ 7 Although Diane kept these meticulous records, she did not disclose her intention to claim reimbursement to John until he filed suit and requested an accounting. Before Elmer's death, Diane never discussed with John her expenses as a care giver, the value of her services as a care giver, or her decision not to encumber Elmer's Ilwaco house to pay for his care.

¶ 8 John filed suit against Diane in October 2001, which led to mediation and arbitration under the “Trust and Estate Dispute Resolution Act”.⁵ John appealed the arbitrator's decision and requested a trial de novo. The trial court issued a memorandum opinion on June 20, 2008, followed by findings of fact and conclusions of law on May 26, 2009.

¶ 9 The trial court concluded that Diane, as trustee of her father's estate, had a duty to inform John that (1) she decided to claim and defer charges against Elmer's estate for providing Elmer's care, and (2) she decided not to encumber Elmer's Ilwaco house to pay for Elmer's care. The court further concluded that she breached her fiduciary duties and, thus, could not compensate herself for providing Elmer's care. The trial court awarded the Ilwaco house to Diane, but gave John a 9/20th interest in its 2007 appraised value. The court also awarded Diane a credit for one-half the value of a property adjacent to the Ilwaco house that is not part of this appeal. ⁶ Finally, the court awarded John all of his requested fees, totaling $24,425, and awarded Diane one-half of her requested fees, or $12,358.17. The net result of the trial court's decision resulted in a $20,716.83 lien in favor of John.

ANALYSIS

I. Duty to Inform

¶ 10 Diane argues that she did not have a duty to inform John that she was claiming and deferring her charges for providing Elmer's care until his death because neither the trust nor the applicable statutes required her to provide her brother with accounting statements. She also argues, for the same reason, that she did not have a duty to inform John that she decided to refrain from encumbering the Ilwaco house to pay for Elmer's health costs. We agree.

¶ 11 A trustee, as a fiduciary, owes beneficiaries the “highest degree of good faith, care, loyalty and integrity.” Esmieu v. Schrag, 88 Wash.2d 490, 498, 563 P.2d 203 (1977). “It is the duty of a trustee to administer the trust in the interest of the beneficiaries.” Tucker v. Brown, 20 Wash.2d 740, 768, 150 P.2d 604 (1944). A trustee's duties and powers are determined by the terms of the trust, by common law, and by statute. In re Estate of Ehlers, 80 Wash.App. 751, 757, 911 P.2d 1017 (1996). At common law, Washington courts have defined a trustee's duty of care, skill and diligence to be that degree of care, skill and diligence that an ordinary prudent man exercises in similar affairs. In re Nontestamentary Trust of Parks, 39 Wash.2d 763, 767, 238 P.2d 1205 (1951); Monroe v. Winn, 16 Wash.2d 497, 508, 133 P.2d 952 (1943).

¶ 12 Diane first contends that the trust did not require her to provide John with an accounting during Elmer's life. Without any analysis, she cites the following language of the trust to support her contention:

My Trustee shall report, at least semiannually, to the beneficiaries then eligible to receive mandatory or discretionary distributions of the net income from the various trusts created in this agreement all of the receipts, disbursements, and distributions occurring during the reporting period along with a complete statement of the trust property.

CP at 60 (emphasis added); Br. of Appellant at 14. The crux of her argument is that the trust language does not require Diane to provide John with an accounting because he was not “eligible” as a remainder beneficiary to receive distributions. CP at 60.

¶ 13 We ascertain a settlor's intent and purpose from the four corners of the trust instrument, construing all of its provisions together. Templeton v. Peoples Nat'l Bank, 106 Wash.2d 304, 309, 722 P.2d 63 (1986). Here, Diane had sole and absolute discretion to use the trust assets to provide for Elmer if he was incapacitated, as article four, section 3 of the trust stated:

My Trustee shall provide as much of the principal and net income of my trust as is necessary or advisable, in its sole and absolute discretion, for my health, support, maintenance, and general welfare.

CP at 36. Only the trust property not distributed to Elmer during his lifetime was to be divided between Diane and John as beneficiaries. Neither Diane nor John was eligible to receive their distributions during Elmer's lifetime, as the clear intent of the trust instrument was to provide for his needs. Therefore, any mandatory accounting was primarily intended to benefit Elmer, as the sole income beneficiary; we agree with Diane that the trust did not require her to report receipts, disbursements, and distributions to John while Elmer was still living. The trust required Diane to provide Elmer, as the sole income beneficiary, with an accounting only upon distribution. John does not argue that Diane failed to report to Elmer.

[158 Wash.App. 787] ¶ 14 Diane also correctly notes that the law did not require her to provide John with an accounting. Under RCW 11.106.020, a trustee must provide at least an annual accounting to “each adult income trust beneficiary ... of all current receipts...