Estate of Draper v. Bank of America, N.A.

• Decision Date: 17 April 2009
• Docket Number: No. 96,060.,96,060.
• Citation: 205 P.3d 698
• Parties: ESTATE OF Ethel F. DRAPER, deceased, Appellee, v. BANK OF AMERICA, N.A., as Trustee of the Ethel F. Draper Irrevocable Voluntary Trust Agreement Dated April 8, 1982, Appellee/Cross-appellee, First Christian Church of Olathe, Kansas, Appellant, Janis M. Waleski Murphy and Mary H. Moeller, Appellees/Cross-appellants, UMB Bank, N.A., American Cancer Society Heartland Div., and Olathe Medical CTR, Appellees.
• Court: Kansas Supreme Court

205 P.3d 698

ESTATE OF Ethel F. DRAPER, deceased, Appellee, v. BANK OF AMERICA, N.A., as Trustee of the Ethel F. Draper Irrevocable Voluntary Trust Agreement Dated April 8, 1982, Appellee/Cross-appellee First Christian Church of Olathe, Kansas, Appellant Janis M. Waleski Murphy and Mary H. Moeller, Appellees/Cross-appellants UMB Bank, N.A., American Cancer Society Heartland Div., and Olathe Medical CTR, Appellees.

No. 96,060.

Supreme Court of Kansas.

April 17, 2009.

Kurt S. Brack, of Holbrook & Osborn, P.A., of Overland Park, argued the cause and was on the briefs for appellant First Christian Church of Olathe, Kansas.

Michael R. Ong, of Law Office of Michael Ong, P.A., of Leawood, argued the cause, and Michelle M. Krambeck Burge, of the same firm, was with him on the briefs for appellees/cross-appellants Janis M. Waleski Murphy and Mary H. Moeller.

Barry M. Martin, of Speer & Holliday, LLP, of Olathe, argued the cause and was on the briefs for appellee Estate of Ethel F. Draper.

The opinion of the court was delivered by LUCKERT, J.:

This case involves questions concerning the availability of a constructive trust remedy when an estate attempts to bring into the estate some assets that the decedent wrongfully transferred. In addition, issues are raised regarding the applicability of the nonclaim statute and various other statutes of limitation to claims brought by the estate against those who possess the assets.

We hold a constructive trust was appropriately imposed by the district court. Uncontroverted facts establish that the decedent executed an antenuptial agreement in which she promised to devise a specified portion of her entire estate to her husband's sons from a prior marriage. Decedent violated the duty of good faith implied in that agreement by placing almost all of her assets in irrevocable trusts that did not benefit her husband's sons. We further hold that the nonclaim statute does not apply to the Estate's action to marshal assets and the Estate's action did not accrue until the decedent's death, at the earliest.

Background

In April 1967, Clark Draper and Ethel Catlin executed an antenuptial agreement in contemplation of their marriage. Although Ethel had no children, Clark had three sons from a previous marriage. The antenuptial agreement stated that both Clark and Ethel had "substantial property and property rights" and provided that each would retain his or her separate assets and that neither would dispose of property without the consent of the other. Income from the assets would be shared in "a common fund for their mutual support and living expenses." The parties acknowledged that each of them had prepared wills to be executed after the marriage and agreed they would not revise or revoke the wills "during the lifetime of both the parties hereto without both parties hereto consenting to such change." Ethel agreed that she would consent to Clark's will and, if she survived Clark, she would maintain a valid will devising to Clark's sons "not less than one-fourth to each of them of her entire estate remaining after the payment of debts administrative expense, taxes or other obligations." Clark executed a will leaving a substantial portion of his estate to Ethel should she survive him.

Clark died testate in January 1977, and Ethel (Ethel F. Draper) received her share of his estate as Clark's surviving spouse. In September 1977, before Clark's estate was settled, Ethel created and funded an irrevocable trust whose successor trustee is UMB Bank, N.A. (UMB). This trust allowed Ethel to receive the income and corpus during her lifetime. Upon her death, the trust income and corpus were to be distributed to, among others: First Christian Church of Olathe, the Kansas City Chapter of the American Cancer Society (American Cancer Society), Olathe Medical Center, Mary Helen Moeller, and Janis M. Waleski Murphy. Clark's sons were not mentioned.

In April 1982, Ethel executed a will which divided her estate equally among Clark's three sons. That same day, Ethel created another irrevocable trust whose successor trustee is Bank of America. As with the other trust, Ethel was to receive income from the trust and could receive the corpus. The remainder beneficiaries of this trust were the same as those listed in the 1977 UMB trust. When Ethel died in October 2002, she left a probate estate of less than $10,000, while the total assets in the two irrevocable trusts exceeded $1 million. Ethel's will was admitted to probate in January 2003.

In December 2003, Clark's son Gerald T. Draper, executor of the Estate of Ethel F. Draper, deceased (Estate), filed this action on behalf of the Estate against Bank of America and UMB. In the petition and a subsequently filed first-amended petition, the Estate alleged Ethel "was beyond her authority and capacity under the constraints of the antenuptial agreement" when she transferred most of her assets into the two irrevocable trusts. As a result, the transfers were void and the assets "remain assets of her probate estate." More specifically, the Estate alleged that Ethel committed intentional fraud and "fraud implied in the law" and that she breached the antenuptial contract and her fiduciary duties. All of these claims are based on the obligations imposed on Ethel in the antenuptial agreement, which according to the Estate made Ethel a "continuous trustee of all of her assets" and created a special, fiduciary duty to act in good faith to preserve the assets for disposition by will. The requested remedy was primarily the imposition of a constructive trust on three-quarters of the trust assets and to place these assets in the Estate. Later, the petition was amended to add the trust beneficiaries as defendants.

In its answer to the petition, the American Cancer Society claimed that the Estate's action was barred by the statutes of limitation and repose in K.S.A. 60-511, K.S.A. 60-513, and K.S.A. 60-515. It also claimed that the limitations period under K.S.A. 59-2239 for filing estate claims had expired. The American Cancer Society filed a motion to dismiss based on these statutes, and the other named defendants joined in this motion.

The Estate's response to the motion to dismiss was that none of the statutes cited could apply to the Estate, which exists as a separate entity from Ethel herself. The district court agreed with the Estate and denied the defendants' motion to dismiss, stating that this was "an action on behalf of the estate to marshal the assets, period." Following this ruling, the Estate reached a settlement with Olathe Medical Center and American Cancer Society. Next, First Christian, Waleski Murphy, and Moeller filed a motion for summary judgment, and the Estate did as well. In its memorandum decision, the district court concluded that the antenuptial agreement contained an implied duty which prevented Ethel from divesting Clark's sons of their share of the trust assets. In the district court's view, the antenuptial agreement had created a life estate for Ethel in the marital property.

The district court also found that Ethel's transfers to the irrevocable trusts were void because the transfers exceeded her authority under the agreement. The court granted the Estate's summary judgment motion and ordered that the property be placed in a constructive trust for Clark's sons. The defendants' motions for summary judgment were denied.

First Christian, Waleski Murphy, and Moeller appealed the district court's decision. UMB and Bank of America were also parties to the appeal because of their roles as trustees. First Christian contended on appeal that (1) the district court erred in ordering a constructive trust in favor of the Estate on the assets of the irrevocable trusts because it did not make a finding of fraud; (2) K.S.A. 60-515 barred the action since it was commenced more than 1 year after Ethel's death; and (3) Clark's sons knew of Ethel's trusts as early as 1985, which barred the Estate's claims pursuant to the statute of repose. Waleski Murphy and Moeller argued that the nonclaim statute and various statutes of limitation barred the action, which they contended accrued in 1977 when Ethel first transferred assets into an irrevocable trust. In response, the Estate raised claims involving the interpretation of the antenuptial agreement and Ethel's action.

In a split decision, the Court of Appeals reversed the district court. Estate of Draper v. Bank of America, 38 Kan.App.2d 183, 164 P.3d 827 (2007). The Court of Appeals concluded that the antenuptial agreement did not restrict Ethel with respect to gifting or inter vivos transfers of her property; further, no language in the agreement restricted Ethel from creating irrevocable trusts. Consequently, the panel determined that Ethel complied with the clear language of the antenuptial agreement and did not breach the contract. 38 Kan.App.2d at 189, 164 P.3d 827.

Regarding K.S.A. 59-2239, the nonclaim statute, the majority stated that none of Clark's sons were disputing what was contained in the Estate. The entire purpose of this lawsuit, the majority concluded, was to collect assets which were outside of the Estate—in Ethel's irrevocable trusts. The majority held that compliance with K.S.A. 59-2239 is "wholly unrelated to this action" and, therefore, any action against the Estate would have been futile. 38 Kan.App.2d at 190, 164 P.3d 827.

Judge Green wrote a concurring opinion in which he agreed with most of the majority's discussion, but he disagreed with the majority's holding regarding K.S.A. 59-2239. 38 Kan.App.2d at 191-92, 164 P.3d 827. Judge Green pointed out that the remedies sought by the Estate were based on Ethel's alleged breach of the antenuptial agreement. Further, it was undisputed that Clark's sons were the intended third-party beneficiaries of that agreement. Thus, in Judge Green's view, Clark's sons had a claim against Ethel to the extent she failed to fulfill her...