Flowers v. Boolos (In re Estate of Smith)

• Decision Date: 01 September 2016
• Docket Number: NO. 2014-CA-00829-SCT,2014-CA-00829-SCT
• Citation: 204 So.3d 291
• Parties: In the Matter of the Estate of James Oldrum Smith, Jr., Deceased : Lela Smith Flowers, Christopher Stanton Smith, and Christy Noah as Administrator of the Estate of Jinx P. Smith, Jr. v. Todd A. Boolos as Successor Trustee of the J.O. Smith, Jr., Family Trust, Patrick Raymond Smith, Ernest Lane, III, Trustmark National Bank, Big River Shipbuilders, Inc., Yazoo River Towing, Inc., Steve Sessums, and Vicksburg Plant Food, Inc.
• Court: Mississippi Supreme Court

204 So.3d 291

In the Matter of the Estate of James Oldrum Smith, Jr., Deceased : Lela Smith Flowers, Christopher Stanton Smith, and Christy Noah as Administrator of the Estate of Jinx P. Smith, Jr.

v.Todd A. Boolos as Successor Trustee of the J.O. Smith, Jr., Family Trust, Patrick Raymond Smith, Ernest Lane, III, Trustmark National Bank, Big River Shipbuilders, Inc., Yazoo River Towing, Inc., Steve Sessums, and Vicksburg Plant Food, Inc.

NO. 2014-CA-00829-SCT

Supreme Court of Mississippi.

September 1, 2016

ATTORNEYS FOR APPELLANTS: DAVID M. SESSUMS, PATRICIA PETERSON SMITH

ATTORNEYS FOR APPELLEES: A. SPENCER GILBERT, III, DAVID RYAN LYNCH, LAWRENCE MATTHEW QUINLIVAN, JUDY LYNN BURNTHORN, WILLIAM F. RAY, STEPHANIE M. RIPPEE, LISA ANDERSON REPPETO, FRANK G. VOLLOR, KAYTIE MICHELLE PICKETT, LINDSAY THOMAS DOWDLE

BEFORE DICKINSON, P.J., COLEMAN AND BEAM, JJ.

COLEMAN, JUSTICE, FOR THE COURT:

¶1. James Oldrum Smith Jr. (Father) died on August 24, 2006. The present appeal stems from his adult children's discord over the handling of Father's estate (Estate), and, as is common in estate cases, the children's discord over the Estate has resulted in lengthy litigation. The Estate is complicated by the fact that, prior to his death, Father created a family trust (Trust); however, he died within three years from the creation of the Trust. Father's death within three years meant that the money in the Trust became taxable to the Estate, leaving the Estate otherwise unable to pay its taxes due to liquidity issues. Therefore, the Estate borrowed $2,020,000 from the Trust, secured by a promissory note and deed of trust, to help pay the taxes. Some of the siblings, who would receive a greater amount of money from the Trust than from the Estate, later took issue with the loan, specifically that the amount now owed on the loan was much greater than what the other siblings, the trustee, and the co-executors claimed. As a result, the aggrieved siblings filed several actions challenging the trustees' and the co-executors' decisions, particularly as related to the loan between the Trust and the Estate. The special chancellor appointed to the case determined that the trustees and co-executors did not breach any duty owed to the beneficiaries and that the loan was valid in the amount of $2,523,004.83 plus four percent interest per annum. The present appeal is the result of the chancellor's judgment, and finding no error, we affirm. We also grant Steve Sessums's motion for appellate attorneys' fees and costs, remand for the chancery court to determine the appropriate amount owed, and for the chancery court to enter a judgment for that amount.

FACTS AND PROCEDURAL HISTORY

¶2. The instant case is not a traditional estate case in the sense that the judgment below does not address a challenge to or the distribution of a will. Instead, the judgment narrowly addressed the actions of the co-executors and the trustees and the validity and amount of one loan. Due to the number of parties involved, we provide a brief synopsis of the parties to the action and their relations to one another. Father had four children: Lela Smith Flowers, James Oldrum Smith, III (J.O.), Jinx Smith, and Patrick Smith. Jinx predeceased Father but had three surviving children that are a part of the case: Jinx Smith Jr., Christopher Stanton Smith, and Patricia Stafford Smith. Jinx Jr. died in 2012, but his estate is a party through his mother Christy Noah. Noah also is Christopher's mother; therefore, with regard to Jinx Jr.'s and Christopher's interests and actions throughout the case, and will be referred to cumulatively as Noah. Patricia and her mother Lyn Smith are not a party to the appeal but collectively will be referred to as Lyn. Also of interest is that Father's ex-wife Petesy Smith represented Lyn in the litigation; however Petesy represents Noah on appeal. Petesy is the mother of the adult children. To summarize, the family members involved in the appeal are: Lela, J.O., Noah (as representative of Jinx Jr. and Christopher), and Patrick. Again, Lyn is not a party to the appeal.

¶3. The nonfamily parties are: Trustmark National Bank and Ernest Lane III, original co-executors of the Estate; Steve Sessums, trustee of the Trust at the time of Father's death; Todd Boolos, successor trustee of the Trust; and Big River Shipbuilders, Yazoo River Towing, Inc., and Vicksburg Plant Food, Inc., three of the family/Estate-owned companies.

¶4. Prior to his death, Father executed a will and three codicils. Pursuant to his will, each of his children would receive an equal share of Father's estate. However, the third codicil to Father's will left J.O. forty-one percent of Father's shares in Big River Shipbuilders, Yazoo River Towing, and Vicksburg Plant Food. Lela and Patrick were to receive, equally, the remaining thirty-nine percent of Father's shares in Big River Shipbuilders and Vicksburg Plant Food and twenty-nine percent of his Yazoo River Towing shares.¹ Then, in December 2003, Father created the Trust, funded by life insurance policies, in which each of the children received equal shares of the funds. According to the testimony of Steve Sessums, the Trust's original trustee² and the Trust's and Estate's certified public accountant (CPA), if Father had lived for three years following the creation of the Trust, the life insurance proceeds would have been excluded from Father's Estate; however, Father did not live three years. Therefore, though the Trust assets remained in the Trust and unlikely would be subject to an IRS lien, the value of the assets was included in the calculation of the Estate's taxes. After Father's death, Sessums contacted Ernest Lane and Trustmark, the co-executors of the Estate, and all three began to gather Father's assets—approximately $16 million—and prepare the tax return. Additionally, Sessums, Lane, and Trustmark hired James K. Dossett, a tax attorney, to help advise them on handling the Estate and Trust. The estimated tax liability for the Estate, including the Trust, was approximately $6 million.

¶5. According to Sessums, the Estate did not have many liquid assets with which to pay the estate taxes. The bulk of the Estate was real estate and stock in the Estate/family-owned companies, which was not easily liquidated. The Trust paid approximately $1,180,000 for its portion of the Estate's taxes and loaned the Estate an additional $2,020,000 to help the Estate pay the taxes. The loan was secured by promissory notes and deeds of trust that listed the collateral as real estate owned by the Estate with an appraisal value of close to $2,500,000. Sessums admitted that the loan was made without prior court approval but said that he had told Bill Shappley, an attorney who handled the loan transaction by preparing the promissory note and deeds of trust, to coordinate obtaining any necessary court orders with Lane.

¶6. Sessums testified that a justification for the loan was that the alternative was to have an Internal Revenue Service (IRS) lien on all of the assets, and no other source of liquid assets was available to the Estate. Dossett's testimony was consistent with Sessums's testimony that it was "common and prudent for the life insurance trust to loan money to the estate to pay the taxes[, and it] would be a common prudent action of the trustee to loan the money." Additionally, Sessums explained: "I felt like it was better if the [T]rust was the creditor versus the IRS being the creditor. ... [T]he cash in the [T]rust was going to the IRS one way or the other. ... I wanted to be a secured creditor versus an unsecured creditor." Also according to Sessums, an IRS lien was less desirable than the loan because the lien would affect the Estate/family-owned companies' abilities to operate. Dossett testified that the IRS has a provision that would allow deferment of a portion of the taxes and installment payments made; however, the process of deferring and implementing the installment payments was less desirable because it was a very difficult process and included liens on the Estate's assets. Further, installment payments would prevent the closing of the Estate until all payments had been made, and being on the installment-payment option makes it difficult to get approval to distribute Estate assets/income. Dossett also testified that it was unlikely that the IRS could seize or put a lien on the Trust's assets.

¶7. A year passed and by May 2008, the Estate had not made any payments on the loan, nor were any quarterly interest payments made. Sessums testified that the Estate did not have the liquidity to pay the note. Sessums requested that Shappley prepare another one-year promissory note. The difference between the original note and the renewal note was that simple interest at 8.25% for one year was added to the total for a new total of $2,186,650. The interest rate on the renewal note changed from 8.25% to 5%. Sessums testified that the 5% interest rate was fair to both the Trust and the Estate at the time. The renewal, though dated May 23, 2008, but not actually signed until 2009, extended the maturity date until May 2009. The loan was renewed again in May 2009 with the total, including simple interest, of $2,295,982.50.

¶8. In January 2009, the Trust then advanced the Estate another $60,000, and another $50,000 in January 2010 to pay taxes. The advances were not rolled into the balance of the note based on the first and second renewals.

¶9. Around late 2010 or early 2011 things begin to get interesting for the Estate and the Trust. Sessums made a claim that the deed of trust from the original loan needed to be renewed, or alternatively, that the property be foreclosed due to the running of a three-year statute of limitations. However, in March 2011, the siblings removed Sessums as trustee and appointed Boolos as successor trustee. Sessums took no further action on behalf of the Trust after his removal. The chancery court entered an order on March 30, 2011,...