Estate of Alden v. Dee

• Decision Date: 22 September 2011
• Docket Number: No. 10–205.,10–205.
• Citation: 2011 VT 64,35 A.3d 950
• Parties: In re Estate of Nancy B. ALDEN v. Julia Dodge Alden DEE and Todd Howard Alden v. Seth Alger Alden and Cornelia Dodge Alden.
• Court: Vermont Supreme Court

2011 VT 64

35 A.3d 950

In re Estate of Nancy B. ALDEN

v.Julia Dodge Alden DEE and Todd Howard Alden

v.Seth Alger Alden and Cornelia Dodge Alden.

No. 10–205.

Supreme Court of Vermont.

July 8, 2011.Motion for Reargument Denied Sept. 22, 2011.

Kevin M. Henry, Jon R. Eggleston, and Gary F. Karnedy of Primmer Piper Eggleston & Cramer PC, Burlington, for Plaintiffs–Appellees.

James B. Anderson of Ryan Smith & Carbine, Ltd., Rutland, for Defendants–Appellants.

Present: DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ., and CRAWFORD, Supr. J., Specially Assigned.

SKOGLUND, J.

¶ 1. This case stems from a dispute over the 1973 William C. Alden Trust (the Trust) benefitting grantor's second wife Nancy Alden, his two children by Nancy, and his three children from his first marriage. Todd Alden and Julia Alden Dee, two of grantor's children by his first marriage, allege that Nancy, in her capacity as trustee, acted fraudulently and in violation of her fiduciary duties in her administration of the Trust and invaded trust principal through self-dealing, concealment, and misrepresentations, thereby damaging Todd and Julia's trust interests. They sought to hold Nancy and her two children liable for damages resulting from the alleged improprieties. The parties filed cross-motions for summary judgment, and the trial court granted that of the plaintiff/counterclaim-defendant, Estate of Nancy B. Alden. Julia Dee and Todd Alden, collectively defendants, appeal. We affirm.

¶ 2. The case began in December 2006, when Nancy Alden, as co-trustee and beneficiary of the Trust, filed a complaint for declaratory judgment seeking to release and replace the Trust's two other co-trustees. Julia and Todd withheld their consent to the substitution. In February 2007, Nancy Alden filed a revised complaint naming them as defendants.

¶ 3. In April 2007, the trial court issued an order confirming the parties' stipulated agreement to replace the co-trustees. The order reserved all of defendants' claims related to the operation of the Trust, and against Nancy in particular. Then, on May 24, 2007, defendants filed their answer to the complaint and counterclaim, wherein they alleged Nancy breached her fiduciary duties in the administration of the Trust. In September 2007, Nancy's two children filed a complaint for declaratory judgment terminating the Trust and distributing one-third of the Trust assets to Nancy and the remaining two-thirds in equal shares to William's five children. The court terminated the Trust in a final order in November 2008 and mandated distribution of Trust assets as requested.

¶ 4. In February 2009, defendants moved to amend their counterclaim to include their half-siblings, Seth and Cornelia Alden, as counterclaim defendants and to add a count alleging that: (1) Nancy fraudulently concealed and misrepresented material facts in the appointment of a trustee, Smith, in order to obtain Trust distributions, and (2) Nancy fraudulently transferred those distributions to trusts for her benefit and the benefit of Seth and Cornelia Alden.

¶ 5. Nancy died in September 2009. The court allowed the counterclaims brought against Nancy to continue against the Estate of Nancy Alden by its Executor Seth Alden. The counterclaims against the Estate and Seth and Cornelia Alden, collectively plaintiffs, were the subject of the motions for summary judgment. We affirm the court's decision granting the plaintiffs summary judgment.

¶ 6. Before we turn to the specifics of the claimed improprieties, we set forth the terms and conditions of the Trust. William Alden died in August of 1980. At that time, Nancy was thirty-six years old, Julia was seventeen, Todd was sixteen, Cornelia was six, and Seth was almost three years old. At the time of his death, William was domiciled in Massachusetts, and his will was probated in Berkshire County. Nancy was named executor of William's estate and was represented in this capacity by attorney Brockelman. She was also named as a trustee of the Trust.

¶ 7. The Trust was intended to provide for the “comfort, support, education and happiness” of Nancy and the five children during Nancy's lifetime, with the Trust to be split into equal shares for each of William's children after Nancy's death. It allowed the co-trustees to pay “such part or all of the income and principal as the Trustee[s] deem[ ] proper in [their] absolute discretion to or for the benefit of the Grantor's wife, Nancy B. Alden, during her lifetime ... and to or for the benefit of the Grantor's children.” The Trust was to be administered by three trustees: one corporate trustee, State Street Bank, and two individual trustees, Nancy and a Mr. Greaves. Any action taken by the trustees, including distributions, required the approval of two of the three trustees. Nancy was not permitted by the independent trustees to participate in any decision regarding the distribution of Trust assets to herself. Thus distributions for Nancy required the approval of the other two trustees.

¶ 8. The Trust also provided that “[c]ommencing at such time when the Trust has assets valued at $100 or more” an accounting of the administration of the Trust was to be provided to each beneficiary annually. This accounting was performed by the corporate trustee. Under the terms of the Trust, any objection to an item on the accounting had to be made within sixty days from the mailing of the accounting, and “[i]n the absence of such objection all beneficiaries, whether or not in being or ascertained, shall be barred from objecting thereto.”

¶ 9. Todd and Julia were both parties to the probate proceedings but assert that they knew nothing of their father's estate plan, or the existence of the Trust at that time. Plaintiffs asserted that defendants were aware of the Trust in 1982 when they, as eighteen- and twenty-year-old adults, signed the 1973 William C. Alden Trust Agreement as to Compensation. It is undisputed that Todd and Julia received copies of the Trust from attorney Brockelman, in early 1993, and, in November of that same year, they received their first accounting from State Street Bank.

¶ 10. One of the issues circling this case concerns a reformation action brought in Massachusetts to cure a scrivener's error in the trust document. William Alden had amended the Trust in 1973 to provide that the laws of the State of Vermont would govern the interpretation of the instrument. Because the terms of the Trust did not expressly restrict Nancy's authority to distribute Trust assets to herself, this amendment created a general power of appointment in Nancy under Vermont law which would cause the Trust assets to be included in her federal taxable estate if she died holding the power. This was contrary to the intention of William, as evidenced by the Trust itself.

¶ 11. In 1999, trustee Greaves resigned for health reasons, and for two years Nancy and State Street Bank were the only trustees. In June of 2001, attorney Newman, retained by Nancy to assist her with Trust issues, wrote to defendants informing them of the scrivener's error and the need to bring a reformation action to correct same. He also informed them that it was necessary to fill the trustee vacancy before the reformation action could be brought. The letter proposed a temporary trustee be appointed until reformation could be accomplished at which time that trustee would step down in favor of Julia Alden Dee. Then, in August of 2001, attorney Newman and an additional attorney, Quinn, wrote to defendants proposing Smith, a CPA licensed in Vermont and Massachusetts who had served as trustee of many trusts, as replacement individual trustee. Smith had not met Nancy or any of the Alden children before agreeing to serve as trustee. All the beneficiaries were asked to consent to Smith's appointment. Attorney Quinn explained that without a stipulation the probate court could decide whether to appoint Smith with no expectation that he would resign in the future. All the beneficiaries agreed and signed the assent and stipulation except defendant Todd Alden. In September 2001, the Massachusetts Probate Court appointed Smith as successor co-trustee. There was no appeal of this decision. The appointment of Smith is the basis of defendants' claim of fraud and forms part of their claim of breach of fiduciary duty.

¶ 12. The Trust brought the reformation action to correct the scrivener's error. The Supreme Judicial Court of Massachusetts ultimately declined to reform the Trust, finding it was governed by Vermont law. To fix the tax problem created by the error, Nancy purchased a life-insurance policy which she placed in an irrevocable life-insurance trust, the proceeds of which would be used to pay any estate tax at Nancy's death resulting from the scrivener's error. In May 2000, Nancy requested an increase in her monthly distributions from the Trust in order to pay the premiums on that insurance policy. Eventually her request was approved by the other two trustees, State Street Bank and Smith. This increase in monthly distributions is one of the distributions contested by defendants.

¶ 13. The second distribution being challenged, upon which defendants also base their claim of breach of fiduciary duty, concerns Nancy's purchase of land in Williamstown, Massachusetts. In 1979, William Alden, together with two other individuals, purchased a sixty-five-acre parcel of land adjoining William and Nancy's residence. Each purchaser owned an undivided one-third interest in the property. William Alden's one-third interest was included in the inventory of his probate estate and, pursuant to his will, was distributed to the Trust. In 1982, Nancy purchased the remaining two-thirds interest in the property from the other owners. She was both executor of William's estate and a trustee at the time, but she purchased and took title to the property in her individual capacity. In March 2000, Nancy requested that the Trust distribute to her its...