First Interstate Bank of Washington v. Lindberg

• Citation: 746 P.2d 333,49 Wn.App. 788
• Decision Date: 02 December 1987
• Docket Number: No. 9492-4-II,9492-4-II
• Parties: FIRST INTERSTATE BANK OF WASHINGTON, as Trustee, Appellant, v. William B. LINDBERG; Barbara Lindberg; Martha Ann Lindberg Von Reichbauer; William H. Lindberg; Isabel Lindberg; The Lawful Issue of William B. Lindberg; Irene Prescott; Loren Prescott; D. Clinton Prescott, Jr.; John Prescott; Ann Prescott Maxwell; Carol Prescott Harris; et al, Respondents.
• Court: Washington Court of Appeals

Page 788

49 Wn.App. 788

746 P.2d 333

FIRST INTERSTATE BANK OF WASHINGTON, as Trustee, Appellant, v. William B. LINDBERG; Barbara Lindberg; Martha Ann Lindberg Von Reichbauer; William H. Lindberg; Isabel Lindberg; The Lawful Issue of William B. Lindberg; Irene Prescott; Loren Prescott; D. Clinton Prescott, Jr.; John Prescott; Ann Prescott Maxwell; Carol Prescott Harris; et al, Respondents.

No. 9492-4-II.

Court of Appeals of Washington Division 2.

Dec. 2, 1987.

Edward M. Lane, Paula K. Tuckfield, Johnson, Lane & Crawford, Tacoma, for appellant.

Richard D. Turner, Eisenhower, Carlson, Newlands, Reha, Henriot & Quinn, Tacoma, for Lindbergs.

Ray Graves, Dennis P. Greenlee, Jr., McGavick, Graves, Beale & McNerthney, Tacoma, for Prescotts, Maxwell and Harris.

Elvin J. Vandeberg, Kane, Vandeberg, Hartinger & Walker, Tacoma, for First Interstate Bank.

Douglas V. Alling, Smith, Alling, Hudson & O'Connor, Tacoma, for Von Reichbauer Children, and issue of Wm. Lindberg.

Martha A. Von Reichbauer, pro se.

WORSWICK, Judge.

In 1966, Hilding and Isabel Lindberg created an inter vivos trust naming First Interstate Bank (then known by another name) as trustee. The Lindbergs placed into the trust almost all of their community property, worth about $11 million and consisting of real estate, securities and personal property. The Lindbergs amended the trust instrument twice during Hilding's lifetime. The trust provided that if Hilding died first, the trustee was to hold and manage the trust assets, pay income to Isabel during her lifetime, and make a scheduled distribution of the remaining assets upon her death. The distribution schedule allocated a substantial portion of the final distribution to William Lindberg, Isabel's and Hilding's son.

When Hilding died in 1971, the Bank divided the trust into the "deceased spouse's share" (the 00 account) and the "surviving spouse's share" (the 02 account) in accordance with the terms of the trust. The assets initially were divided by allocating one-half interest in each asset to each account. However, in order to raise cash to pay Hilding's After Hilding's death, Isabel several times amended the trust as it applied to her share. She stated, in the eighth and last amendment (her sixth amendment), that "since the execution of all but the Seventh Amendment to said Living Trust, the Trustor has been alienated by the statements and conduct of WILLIAM B. LINDBERG, so that the Trustor no longer wishes him as an heir, beneficiary or devisee of her trust estate; ..." She then directed that her interest in the family home be distributed to Irene Prescott, her sister-in-law.

                death taxes, the Bank later sold all of the 00 account's real estate, including the interest in the family home, to the 02 account.   Thereafter, all of the real property except the family home was sold to third parties.   Isabel had prior notice of these sales and was instrumental in causing them
                

When Isabel died in December 1982, a dispute arose, primarily instigated by William, as to how the trust assets should be distributed. To resolve the conflict, the Bank filed a declaratory judgment action, naming as defendants all of the residual beneficiaries. William generally contested the Bank's interpretation of the trust, and he counterclaimed against the Bank for trust mismanagement and negligence. Also, he specifically acknowledged in his answer that he had contested the proposed distribution to his former wife, Barbara, and he affirmatively prayed that the court determine that she was not entitled to any distribution.

The trial court tried the case in three phases: (1) issues concerning trust interpretation; (2) issues concerning the interest of William's former wife, Barbara; and (3) issues concerning trust management. In Phase One, the court held that the trust agreement gave Isabel the power to amend the distribution schedule as to her share. It also held that in her will Isabel had exercised a power of appointment given her by the trust. In Phase Two, the court held that Barbara was a trust beneficiary in her own right, and that she had not waived her interest by entering into a property settlement agreement with William. The court held in Phase Three that the Bank had failed to protect the trust's interest in Isabel's life insurance policies, to marshal certain assets into the trust accounts and properly to sell certain real property. It entered money judgments against the Bank accordingly. The court rejected all other contentions of negligence and mismanagement by the Bank. Finally, the court awarded the parties percentages of their attorney fees and costs and designated the specific trust accounts from which these should be paid. ¹

William appeals every finding of fact, conclusion of law and portion of the judgment adverse to his contentions against the Bank and Barbara Lindberg. The Bank cross-appeals the court's conclusions and judgment concerning Phase One: Trust Interpretation

                the insurance policies.   We affirm on William's appeal except for one item;  we reverse on the Bank's cross-appeal.   We will discuss most of the issues raised in Phase One, both issues raised in Phase Two, and selected issues raised in Phase Three.   As to any issues not discussed, we agree with the trial court's resolution and adopt the position of the responding party. 2
                

(a) Amendments

William first contends that, because the trust became irrevocable when Hilding died, the trial court erred in holding that Isabel's trust amendments were effective. The court did not err.

William points to Article IX of the trust agreement as originally executed, which states:

Amendment or revocation

As long as both of the Trustors are living, they reserve the right, without the consent of the Trustee or any other person, to withdraw from the trust all or any portion of the trust property or any net income therefrom, to amend or revoke this instrument in whole or in part, but the Trustee's duties and responsibilities shall not be increased without its consent. Upon the death of either of the Trustors, or upon either being incapable of handling his own affairs, this agreement shall become irrevocable.

William correctly observes that this language makes the trust irrevocable. However, Article XIII provides:

Disposition of Surviving Spouse's Share

A. Income. Trustee shall pay such portions of the net income to the surviving spouse and at such times as he may request.

B. Principal.

1. In the event WILMER HILDING LINDBERG shall be the surviving spouse, he shall have the power to invade the principal at any time, in any amount, for his own benefit or for any purpose whatsoever. In the event ISABELPRESCOTT LINDBERG shall be the surviving spouse, the Trustee may invade the principal in order to maintain the surviving spouse in that standard of living to which she has been accustomed.

2. The remainder shall be distributed as he or she shall appoint by his or her Last Will or as he or she may herein designate and upon his or her failure to appoint or designate, shall be added to the deceased spouse's share.

(Italics ours.)

William fails to distinguish between revocation and amendment. A trust can be irrevocable but still subject to amendment so long as the amendment does not accomplish the result of a revocation. In re Tyler's Estate, 109 F.2d 421 (3rd Cir.1940); Avery v. Bender, 119 Vt. 313, 126 A.2d 99 (1956). Amendment, not revocation, is what we have here. Isabel did not attempt to revest the trust assets in herself or otherwise to destroy the trust by amending it; she simply altered the distribution of her share of the assets. The distribution of Hilding's share was unaffected.

We are satisfied that the language of Article XIII(B)(2) empowers Isabel to amend the distribution of her assets as she did. First, the provision contemplates that the surviving spouse could designate his or her share beneficiaries at any time up through the probate of his or her will, because designation was to be either in the trust or in the will by exercise of a power of appointment. Reference to the power to designate in the trust would be superfluous had the trustors only intended that the surviving spouse have a power of appointment with no power to amend the trust. We prefer to construe the trust so as to give meaning to all words used. Wagner v. Wagner, 95 Wash.2d 94, 621 P.2d 1279 (1980); Seattle-First Nat'l Bank v. Westlake Park Assoc., 42 Wash.App. 269, 711 P.2d 361 (1985), review denied, 105 Wash.2d 1015 (1986). Next, the existence in the trust of a power of appointment fortifies our conclusion, because it would be senseless to give the surviving spouse such a power while withholding the power to accomplish the same result by simply amending the trust. Finally, the language of Article

XIII(B)(2) permitting designation of beneficiaries only could mean that such designation could be accomplished by amendment, because at the time the trust agreement was signed, a designation already had been made in the schedules, and it would have been pointless to refer any [746 P.2d 338] further to a designation that could not be accomplished by amendment. ³

(b) Power of Appointment

William concedes that the trust agreement gave Isabel a power of appointment by will over her share of trust assets. Also, it is apparent that she attempted to exercise it because of her uncertainty as to the validity of her trust amendments. William contends that either she did not attempt to exercise it at all, or that her attempt to do so was ineffective. Although we need not discuss this issue because of our conclusion as to Isabel's power to amend the trust, we elect to do so. We hold that had the trust amendments been ineffective, Isabel's attempt to exercise the power of appointment would have been effective.

Isabel's will stated in part, as follows:

ARTICLE III

I have transferred to a Living Trust established with the Pacific National Bank of Washington, as trustee,...