Edmisten v. Sands

• Decision Date: 08 March 1983
• Docket Number: No. 439PA82,439PA82
• Court: North Carolina Supreme Court
• Parties: , 52 A.F.T.R.2d 83-6411 Rufus L. EDMISTEN, Attorney General of the State of North Carolina v. Alexander P. SANDS, III, Executor and Trustee Under the Last Will and Testament of Royal Ware Sands, Deceased, Mrs. Estelle S. Tatem, Mrs. Hugh S. White, Mrs. Edna S. Jarman, and William C. Stokes, Chairman of the Board of Trustees of the Main Street United Methodist Church, Reidsville, North Carolina, and Lillian P. Balsley, Lewis Vun Cannon, J. Earl Connolly, Clark M. Holt, Stanford Kallam, Larry G. Somers, Jerry W. Turpin, J. Thomas Williams, and Dean Craddock, Members of the Board of Trustees of the Main Street United Methodist Church, Reidsville, North Carolina.

Page 387

300 S.E.2d 387

307 N.C. 670, 52 A.F.T.R.2d 83-6411

Rufus L. EDMISTEN, Attorney General of the State of North Carolina v. Alexander P. SANDS, III, Executor and Trustee Under the Last

Will and Testament of Royal Ware Sands, Deceased, Mrs.

Estelle S. Tatem, Mrs. Hugh S. White, Mrs. Edna S. Jarman,

and William C. Stokes, Chairman of the Board of Trustees of

the Main Street United Methodist Church, Reidsville, North

Carolina, and Lillian P. Balsley, Lewis Vun Cannon, J. Earl

Connolly, Clark M. Holt, Stanford Kallam, Larry G. Somers,

Jerry W. Turpin, J. Thomas Williams, and Dean Craddock,

Members of the Board of Trustees of the Main Street United

Methodist Church, Reidsville, North Carolina.

No. 439PA82.

Supreme Court of North Carolina.

March 8, 1983.

Womble, Carlyle, Sandridge & Rice by Linwood L. Davis and Gregory L. Smith, Winston-Salem, for defendants-appellants.

Rufus L. Edmisten, Atty. Gen. by George W. Boylan and Marilyn R. Rich, Asst. Attys. Gen., for plaintiff-appellee.

Tuggle, Duggins, Meschan, Thornton & Elrod by Thomas W. Sinks and J. Reed Johnston, Jr., Greensboro, for defendant-appellee Alexander P. Sands, III, Executor and Trustee under the Last Will and Testament of Royal Ware Sands, Deceased.

Holt & Watt by Clark M. Holt, Reidsville, for defendants-appellees Mrs. Hugh S White and Larry W. Jarman, Executor of the Estate of Edna S. Jarman, Deceased.

Day, Summs & Epps by E. Kenneth Day, Virginia Beach, Va., for defendant-appellee Mrs. Estelle S. Tatem.

BRANCH, Chief Justice.

The sole question presented for review concerns the propriety of the trial court's judgment construing and reforming the will of Royal Ware Sands so as to require administration of the trust in accordance with technical administrative provisions set forth in Internal Revenue Service Regulations governing charitable remainder unitrusts.

In ordering the relief requested by the Attorney General in this proceeding, the trial court concluded as a matter of law that to the extent the federal estate and income tax liability would be increased by a failure of the trust to qualify as a charitable remainder unitrust, this would constitute a partial failure of the trust within the contemplation of G.S. 36A-53(a) and (b). He also concluded that the omission of the required administrative provisions would affect a partial voiding of the trust in violation of the public policy of this State as expressed in G.S. 36A-52.

This Court unquestionably concurs with the trial court's finding that the public policy of North Carolina is to preserve, to the fullest extent possible, the manifested intention of a testator or donor to bestow a gift for charitable purposes. The policy of protecting charitable trusts is repeatedly declared throughout the statutory provisions of Chapter 36A.

We must disagree, however, with the statutory analysis employed by the trial court in reaching the result in instant case.

First, we note that G.S. 36A-53(b) has no application to this trust and cannot therefore be the basis for ordering a construction of the instrument to comply with applicable IRS Regulations. G.S. 36A-53(b) applies only to wills and trusts created prior to 31 December 1978. The will before us was executed on 23 August 1979.

We are of the opinion that the situation here presented falls squarely within the terms of G.S. 36A-53(a) and (d). G.S. 36A-53(a) provides, in pertinent part:

If a trust for charity is or becomes illegal, or impossible or impracticable of fulfillment or if a devise or bequest for charity, at the time it was intended to become effective is illegal, or impossible or impracticable of fulfillment, and if the settlor, or testator, manifested a general intention to devote the property to charity, any judge of the superior court may, on application of any trustee, executor, administrator or any interested party, or the Attorney General, order an administration of the trust, devise or bequest as nearly as possible to fulfill the manifested general charitable intention of the settlor or testator.... This section shall not be applicable if the settlor or testator has provided, either directly or indirectly, for an alternative plan in the event the charitable trust, devise or bequest is or becomes illegal, impossible or impracticable of fulfillment. However, if the alternative plan is also a charitable trust or devise or bequest for charity and such trust, devise or bequest for charity fails, the intention shown in the original plan shall prevail in the application of this section.

Under this statute, all that need be shown to enable a superior court judge to order an administration of the trust is that: (1) the trust is a charitable trust, i.e., that the "settlor, or testator, manifested a general intention to devote the property to charity"; (2) the trust "is or becomes illegal, or impossible or impracticable of fulfillment"; and (3) no alternative disposition is made of the corpus in the event the charitable trust fails. ¹

This record reflects, without question, that Royal Ware Sands intended for the trust assets to be devoted to a charitable purpose. In his will, he lamented that he was unable to experience the joys of summer camp and that he was not presented with the opportunity to attend college. So that others might enjoy these opportunities, he entrusted the bulk of his estate to the trustees of the Main Street United Methodist Church, confident in the belief that they would carry out his wishes to provide scholarships for Methodist children desiring to attend camps and institutions of higher learning in North Carolina. Mr. Sands' intent in this endeavor could hardly be more manifestly expressed.

The record reveals that the third requirement of G.S. 36A-53(a) is also met in this case in that the will does not provide for an alternate disposition of the corpus in the event the trust fails as a charitable trust. Thus, we focus our inquiry on the meaning of the words "illegal, or impossible or impracticable of fulfillment" as they are used in the statute to determine whether G.S. 36A-53(a) is appropriately applied in this case.

The phrase "impracticable of fulfillment" is defined in G.S. 36A-53(d). That statute provides as follows:

The words "impracticable of fulfillment," as used in this section shall include, but shall not be limited to, the failure of any trust for charity, testamentary or inter vivos, (including, without limitation, trusts described in section 509 of the Internal Revenue Code of 1954 or corresponding provisions of any subsequent federal tax laws and charitable remainder trusts described in section 664 of the Internal Revenue Code of 1954 or corresponding provisions of any subsequent federal tax laws) to include, if required to do so by section 508(e) or section 4947(a) of the Internal Revenue Code of 1954 or corresponding provisions of any subsequent federal tax laws, the provisions relating to governing instruments set forth in section 508(e) of the Internal Revenue Code of 1954 or corresponding provisions of any subsequent federal tax laws.

In sum, this statute provides that the term "impracticable of fulfillment" includes, but is not limited to, the failure of any charitable remainder unitrust to expressly include a provision prohibiting the trustee from engaging in any act of self-dealing. See 26 U.S.C. § 508(e)(1)(B). The legislature's obvious purpose in enacting G.S. 36A-53(d) was to make clear that the imposition of additional federal tax liability as a result of a failure to include the "boilerplate" required by IRS Regulations would constitute impracticability of fulfillment so as to invoke the application of G.S. 36A-53(a).

The legislature has also clearly indicated that the prohibition against self-dealing is not the only administrative requirement the omission of which will invoke the application of the statute. G.S. 36A-53(d) specifically mentions the prohibition against self-dealing and then refers to "corresponding provisions of any subsequent federal tax laws." In addition to the...