Estate of Dern Family Trust, Matter of, No. 95-368

• Docket Nº: No. 95-368
• Citation: 928 P.2d 123, 53 St.Rep. 1087, 279 Mont. 138
• Case Date: January 02, 1997
• Court: United States State Supreme Court of Montana

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928 P.2d 123 279 Mont. 138 In The Matter of the ESTATE OF the DERN FAMILY TRUST and
Clifford Dern, Deceased.
Mary R. DERN, Plaintiff, Respondent, and Cross-Appellant,
v.
Derril DERN, Darlene Adams, Janice Copley, and Beverly
Tubbs, Defendants, Counterclaimants, and Appellants. No. 95-368. Supreme Court of Montana. Submitted on Briefs Oct. 17, 1996.
Decided Nov. 14, 1996.
Rehearing Denied Jan. 2, 1997.

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[279 Mont. 141] Roger M. Sullivan, McGarvey, Heberling, Sullivan & McGarvey, Kalispell, for Defendants, Counterclaimants and Appellants.

Steven E. Cummings, Donald R. Murray, Murphy, Robinson, Heckathorn & Philips, Kalispell, for Plaintiff, Respondent, and Cross-Appellant.

NELSON, Justice.

Appellants Derril Dern, Darlene Adams, Janice Copley, and Beverly Tubbs (collectively, the Dern children) appeal from the September 20, 1993 order denying their Motion for Summary Judgment, from the May 17, 1994 Findings of Fact and Conclusions of Law, and from the April 21, 1995 Supplemental Findings of Fact, Conclusions of Law and Judgment of the District Court for the Eleventh Judicial District, Flathead County. The Dern children appeal the District Court's conclusions that there was nothing in Clifford Dern's Separate Trust Estate with which to fund the $10,000 bequests to each of the Dern children; that the fourth Trust Minute constituted a valid and enforceable amendment to the Dern Family Trust; and that Mary Dern did not breach her fiduciary duties in the administration of the Trust as trustee. The Dern children also appeal the District Court's valuation of the respective interests in the Family Bypass Trust.

Respondent Mary Dern cross-appeals from the May 17, 1994 Findings of Fact and Conclusions of Law and from the April 21, 1995 Supplemental Findings of Fact, Conclusions of Law and Judgment [279 Mont. 142] denying her costs and attorney's fees. We affirm in part and reverse in part.

We consider the following issues on appeal:

1. Did the District Court err in characterizing Clifford and Mary Dern's joint bank accounts and Certificates of Deposit as part of the Marital Trust Estate of the Dern Family Trust?

2. Did the District Court err in determining that the fourth Trust Minute was a validly executed amendment to the Trust document?

3. Did the District Court err in determining the parties' interests in the Family Bypass Trust?

We also consider the following issue on cross appeal:

4. Did the District Court err in denying Mary Dern her costs and attorney's fees?

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Factual and Procedural Background

This appeal involves the disposition of real and personal property from the Dern Family Trust (the Trust), a revocable living trust, on the death of Clifford Dern (Clifford), a settlor. The Dern children, are Clifford's adult children from a previous marriage. Mary Dern (Mary), is Clifford's surviving spouse and co-settlor and a trustee of the Trust.

At the time of Clifford's and Mary's marriage in 1976, Clifford was 65 years of age and Mary was 62 years of age. Each had adult children from previous marriages.

In 1990, Clifford and Mary purchased the Trust documents from William W. Thompson (Thompson), an agent of American Family Living Trusts. American Family, a California corporation, had been previously enjoined from selling trusts in the state of Washington and Thompson's license to sell insurance had been revoked by the state of Idaho due to his deceitful conduct in the sale of revocable trusts. Clifford and Mary learned of American Family through mail solicitation.

Clifford and Mary were the settlors and initial trustees of the Trust. Clifford's son, Derril, was the first successor trustee of Clifford Dern.

The Trust classified property as either "marital" or "separate." Marital property transferred to the Trust would become part of the Marital Trust Estate and would go to the surviving spouse on the death of either settlor. Separate property of either settlor transferred to the Trust would become part of the Separate Trust Estate and would be distributed according to the Trust with any residue going into the Family Bypass Trust. The Family Bypass Trust named the [279 Mont. 143] surviving spouse as the income beneficiary and the surviving spouse, together with the descendants of Clifford and Mary as the principal beneficiaries.

Clifford's Separate Trust Estate provided that his real property (which included two 160-acre parcels of timber, one-half of a 360-acre parcel of timber, and the 120-acre farm on which he and Mary lived) to be distributed among his four children if he predeceased Mary. Mary owned property that was held in joint tenancy with her two children that was never transferred to the Trust. The Trust further provided that the trustee distribute from Clifford's Separate Trust Estate, $10,000 to each of the Dern children.

After the Trust was created, Clifford and Mary transferred five bank accounts and Certificates of Deposit to the Trust. At the time of Clifford's death, these accounts totaled $73,922.77.

On November 14, 1991, Clifford and Mary deeded five parcels of real property to the Trust by means of a quitclaim deed, properly executed and recorded November 15, 1991. In addition they amended the Trust by use of four Trust Minutes, specifying the beneficiaries of each of the parcels of property. These properties included the four parcels owned by Clifford and left to his children by way of the Separate Trust Estate in the original Trust document, and a farm acquired by Mary prior to her marriage to Clifford.

The first three Trust Minutes left Mary's farm to her two children, Clifford's two 160-acre parcels of timberland to his daughters, and one-half of the 360-acre parcel to Clifford's son. These parcels were necessarily removed from the assets of Clifford's Separate Trust Estate as they were specifically bequeathed through the Trust Minutes. These three Trust Minutes are not in dispute. The fourth Trust Minute left the 120-acre farm, then occupied by Clifford and Mary, to Mary. The fourth Trust Minute was signed by Clifford alone as were the second and third Trust Minutes leaving Clifford's other properties to his children. The validity of this fourth Trust Minute is disputed.

By the time Clifford and Mary signed the Trust Minutes Clifford had been suffering from several serious health problems for several months. Clifford died on December 9, 1991, after undergoing heart catheterization.

After Clifford died, Thompson went over the Trust with Mary and Clifford's children. Mary signed deeds as trustee of the Trust conveying the real estate in the manner provided for in the Trust. At that time she had not consulted a lawyer and did not realize that the Trust provided that Derril would succeed Clifford as co-trustee of the Trust, [279 Mont. 144] and that, consequently, his signature was

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required on the deeds. After she consulted an attorney, new deeds were prepared for both Mary's and Derril's signatures. Derril refused to sign the deeds and this litigation ensued.

The Dern children appeal the District Court's conclusion that Clifford's one-half interest in various bank accounts constituted part of the Marital Trust Estate and was therefore not available to satisfy the $10,000 bequests. They also appeal the District Court's conclusion that the fourth Trust Minute, leaving the farm to Mary, was a validly executed amendment to the Trust.

Standard of Review

The standard of review of a district court's findings of fact is whether they are clearly erroneous. Daines v. Knight (1995), 269 Mont. 320, 324, 888 P.2d 904, 906 (citing Columbia Grain Intern. v. Cereck (1993), 258 Mont. 414, 417, 852 P.2d 676, 678).

This Court adopted a three-part test in Interstate Production Credit v. DeSaye (1991), 250 Mont. 320, 820 P.2d 1285, to determine whether the findings are clearly erroneous. This test provides:

First, the Court will review the record to see if the findings are supported by substantial evidence. Second, if the findings are supported by substantial evidence, we will determine if the trial court has misapprehended the effect of evidence. [Citations omitted.] Third, if substantial evidence exists and the effect of the evidence has not been misapprehended the Court may still find that "[a] finding is 'clearly erroneous' when, although there is evidence to support it, a review of the record leaves the court with the definite and firm conviction that a mistake has been committed." [Citations omitted.]

DeSaye, 820 P.2d at 1287. See also Daines, 888 P.2d at 906.

The standard of review of a district court's conclusions of law is whether the court's interpretation of the law is correct. Carbon County v. Union Reserve Coal Co., Inc. (1995), 271 Mont. 459, 469, 898 P.2d 680, 686. See also Kreger v. Francis (1995), 271 Mont. 444, 447, 898 P.2d 672, 674; Steer, Inc. v. Department of Revenue (1990), 245 Mont. 470, 474-75, 803 P.2d 601, 603-4.

Issue 1

Did the District Court err in characterizing Clifford and Mary Dern's joint bank accounts and Certificates of Deposit as part of the Marital Trust Estate of the Dern Family Trust?

[279 Mont. 145] The Dern children contend that Clifford's share in the various bank accounts and Certificates of Deposit (CDs) is a part of Clifford's Separate Trust Estate and is thus available for partial satisfaction of the $10,000 bequests to each of his children. The Declaration of Trust distinguishes between the marital property and the separate property of Clifford and Mary and provides in part:

Any marital property of Clifford Dern and Mary R. Dern transferred to the trust shall remain marital property after its transfer and shall be called the "marital trust estate." ... Either Clifford Dern's or Mary R. Dern's separate property transferred to the trust shall be called the "separate trust estate" with reference to the contributing settlor.

Trust, Article 1, page 1.

This definition is circular and not very...