Donahue v. Watson
| Decision Date | 30 October 1980 |
| Docket Number | No. 2-679A178,2-679A178 |
| Parties | Mary Cecile DONAHUE, in her Individual capacity, Mary Cecile Donahue, in her capacity as Trustee of the Trust Created under the Last Will and Testament of Ellen D. Watson, Deceased, Mary Cecile Donahue, in her capacity of Beneficiary of the Trust created under the Last Will and Testament of Ellen D. Watson, Deceased, Appellant (Defendant Below), v. Edward J. WATSON, Mary Ann Elliott, Francis D. Watson, Nancy Elizabeth Plaster, Sister Ellen Watson, Martha Connell, William C. Watson, Appellees (Plaintiffs Below). |
| Court | Indiana Appellate Court |
Thomas W. Munger, Lafayette, for appellant.
Lesley A. Meade, Hanna, Gerde & Meade, Lafayette, for appellees.
Mary Cecile Donahue, individually and as trustee of her mother's testamentary trust, appeals from adverse judgments removing her as trustee and ordering her individually to pay certain sums as reimbursement to the trust. One of the judgments arises from the civil docket of the Tippecanoe Circuit Court and the other from its probate docket. Although Mary took separate appeals we are consolidating them in accordance with Indiana Rules of Procedure, Appellate Rule 5(B) since there are common questions of law.
The common issues are:
(1) Whether Mary should have been removed as trustee and
(2) Did the trial court properly construe the trust instrument?
We affirm.
After Ellen's death, Francis and Mary acted as co-trustees and divided the income from the Trust as instructed. When Francis died on December 28, 1971, Mary assumed the position of sole trustee. In such capacity, she supervised the management of the Trust property, collected the Trust income and distributed the net income. She paid income one-half to herself and one-half to the children of Francis D. Watson: Edward J. Watson, Mary Ann Elliott, Francis D. Watson, Jr., Nancy Elizabeth Plaster, Sister Ellen Watson, Martha Connell, and William C. Watson.
As sole trustee, Mary sold several parcels of real estate which were part of the Trust principal. The net proceeds from the sales she then distributed as income.
On January 21, 1975, all of the grandchildren, except William C. Watson, sued Mary, individually and as trustee. The suit was filed in the Tippecanoe Circuit Court on the civil docket. Although William C. Watson was named as a defendant, he is represented by the grandchildren's attorney and joins with the other grandchildren's pleadings. He will be included in the group referred to in this opinion as "Grandchildren." The Grandchildren petitioned the court to 1) construe the Trust, 2) instruct the trustee, 3) find Mary in breach of her duties as trustee, 4) enjoin her from distributing the proceeds of any future sales of the Trust property, 5) order her to restore to the Trust the proceeds from the sale of the Trust property which she distributed as income, and 6) order her to pay their attorney's fees.
In her answer, Mary advanced a new construction of the Trust which would provide that she was the sole income beneficiary upon the death of her brother. Pursuant to this construction, she made a written demand upon the Grandchildren for the return of all the distributions of income she made to them. Since the Grandchildren failed to return the money, she filed a counter-claim and cross-complaint for the return of the proceeds. The Grandchildren filed a Motion for Summary Judgment on May 28, 1976. On September 20, 1977, they petitioned for the removal of Mary as trustee and the appointment of a temporary trustee.
On April 3, 1978, Mary filed her trustee's reports for the 17th, 18th and 19th trust years in the Tippecanoe Circuit Court, probate docket. On May 12, 1978, the Grandchildren filed their objections to the reports alleging she (1) failed to properly maintain separate accounts for principal and income, (2) improperly distributed principal to herself, (3) had not paid income quarterly, and (4) had not made annual written statements. Mary filed a motion to dismiss the objections alleging they were not timely filed under IC 30-4-5-14(b).
On October 17, 1977, a hearing was held on the petition to remove Mary as trustee filed on the civil docket. On October 24, 1978, the court granted Grandchildren's "Motion for Summary Judgment and Petition to Remove Trustee" and made the following findings and order:
"That the Plaintiffs are beneficiaries of the Ellen D. Watson Trust, having vested interests in the income and principal of said trust;
That the plaintiffs are entitled to share equally in one-half ( 1/2) of the net income of the trust and that the defendant, Mary Cecile Donahue, is entitled to receive one-half ( 1/2) of the net income of the trust for the rest of her natural life;
That the grandchildren of Ellen D. Watson have vested remainder interests in the trust estate, or principal, of said trust;
That Mary Cecile Donahue's beneficial interest in said trust is limited to one-half ( 1/2) of the net income of the trust and does not extend to any part or parcel of the principal of said trust;
That the defendant, Mary Cecile Donahue, as trustee, sold various tracts of trust property, the principal of the trust, and declared, treated, and distributed the proceeds of the various sales as income of the trust, contrary to the terms of the trust and the law applicable thereto;
That such abuse of her discretionary power by the defendant has resulted in improper distributions of trust principal and in dissipation and waste of the trust estate;
That Mary Cecile Donahue, as trustee, has failed to discharge her duties under the trust in that she has failed to pay one-half ( 1/2) of the net income of the trust to the plaintiffs since January of 1975 and that the plaintiffs are entitled to the receipt of said income;
That the trustee has established permanent residence outside the State of Indiana;
That the trustee has committed a breach of trust by having caused various charges to be made against principal which should have been made against income, and the sums so charged against principal should be restored to principal by the trustee; and
That Mary Cecile Donahue is personally liable to the trust, and to plaintiffs for breach of trust and for attorney fees and should be removed as Trustee and a successor appointed.
IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED that the proper interpretation of the trust established by the Last Will and Testament of Ellen D. Watson, deceased, is in accordance with the findings, as set out above and that the Trustee, Mary Cecile Donahue, has removed her residence from the State of Indiana, failed to maintain separate accounts for principal and income, commingled funds, made improper distributions and improper charges against principal, whereby she should be, and is hereby, removed as Trustee.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Mary Cecile Donahue is personally liable to the Trust, and to petitioners, for funds improperly distributed to herself and for improper dissipation of trust principal during the period covered by her Reports for the 17th, 18th and 19th trust years and for attorney fees.
An order entered this date in Estate No. 7015 of this Court, (infra) granting summary judgment is incorporated herein and made a part hereof."
On the same day the court entered the following on the probate docket:
"The Court ... now finds for the Petitioners upon their objections to said report of Mary Cecile Donahue, Trustee, as follows:
The Court finds that Mary Cecile Donahue, trustee:
Has removed her residence from the State of Indiana;
Has failed to maintain separate accounts for principal and income and has improperly commingled trust funds;
Has made improper distributions of trust principal and income; and
Has made improper charges of expenses against principal.
Whereby, the said Mary Cecile Donahue has become personally liable to the Trust, and to petitioners and should be removed as Trustee.
The Court further finds:
That for the period January 1, 1972, to December 31, 1977, the Trust experienced a gross income of $172,613.64, during which period, the Trust incurred $62,322.73 in expenses properly chargeable to income;
That as a result, the total net income of the Trust for this period was $110,290.91;
That of this sum, the Trustee, Mary Cecile Donahue, as beneficiary, was entitled to receive $55,145.46(,) and the petitioners were collectively entitled to receive $55,145.45;
That during said period, Mary Cecile Donahue did, in fact, receive the sum of $85,026.04, which exceeded the amount to which she was entitled by $29,880.58;
That Mary Cecile Donahue is personally liable to the Trust and to the petitioners for all sums improperly or wrongfully distributed by her as Trustee and should be required to return the sum of $29,880.58 to the Trust;
That during this same period that the petitioners were collectively entitled to receive $55,145.45, there was, in fact, distributed to them only $46,792.28;
That the petitioners should receive the sum of $8,353.17 to be paid from the Trust by the new and successor trustee;
That as of December 31, 1977, the Trustee, Mary Cecile Donahue, should have been holding in the Trust the sum of $121,953.84, which sum represents the net proceeds...
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