Generaux v. Dobyns

• Decision Date: 26 April 2006
• Docket Number: 52-03-00464; A121734.
• Citation: 134 P.3d 983,205 Or. App. 183
• Parties: In the Matter of the Mary C. Dobyns Irrevocable Living Trust under Agreement dated July 31, 1995, between Mary C. Dobyns as Trustor and Joseph A. English as Trustee. Dorothy GENERAUX, Sharon Kalister, Sandra Kalister, and Scott Kalister, Appellants, v. Mary C. DOBYNS, Respondent.
• Court: Oregon Court of Appeals

134 P.3d 983

205 Or. App. 183

In the Matter of the Mary C. Dobyns Irrevocable Living Trust under Agreement dated July 31, 1995, between Mary C. Dobyns as Trustor and Joseph A. English as Trustee.

Dorothy GENERAUX, Sharon Kalister, Sandra Kalister, and Scott Kalister, Appellants, v. Mary C. DOBYNS, Respondent.

52-03-00464; A121734.

Court of Appeals of Oregon.

Argued and Submitted January 5, 2005.

Decided April 26, 2006.

Barry Adamson argued the cause for appellants. With him on the brief were Ron Greenen and Greenen & Greenen, PLLC.

Judith A. Giers argued the cause for respondent. With her on the brief were K. Patrick Neill, Arthur J. Clark, and Hershner, Hunter, Andrews, Neill & Smith, LLP.

Before HASELTON, Presiding Judge, and BREWER, Chief Judge,^* and ORTEGA, Judge.

BREWER, C.J.

This case concerns the attempted rescission of the Mary C. Dobyns Irrevocable Trust by petitioner, Mary C. Dobyns, who is both the trustor and a beneficiary of the trust. Petitioner sought rescission on the basis of an asserted mistake of law, namely, that the creation of the trust would result in tax savings to her estate. Beneficiaries objected.¹ The trial court entered a judgment rescinding the trust, and beneficiaries appeal. On de novo review, ORS 19.415(3), we affirm.

The pertinent facts are undisputed. Petitioner created the trust in 1995. By its terms, the trust provided that beneficiaries are beneficiaries of 50 percent of the residuary estate. The trust also made provision for petitioner during her lifetime:

"The Trustee shall pay or apply from income of the trust estate as the Trustor shall from time to time direct. Should the Trustee at any time consider the Trustor, by reason of illness or accident, or for any other reason, to be unable to direct it with respect to the disposition of such income, the Trustee shall expend for the Trustor such sums from the income and may invade principal, as it shall deem necessary or advisable for her care, support, maintenance and reasonable comforts."

The trust expressly stated that it is irrevocable: "Trustor specifically acknowledges that Trustor may not revoke this Trust in whole or in part once Trustor's assets have been delivered to Trustee." Petitioner delivered assets to the trust the day after the trust was created.

Petitioner did not testify before the trial court. Instead, the parties stipulated that, if she had testified, she would have stated that her sole purpose in creating the trust was to save estate taxes. Over beneficiaries' objection, the trial court admitted into evidence a letter that petitioner's then-attorney, Clark, wrote to petitioner a few months after the creation of the trust. In the letter, Clark reviewed petitioner's estate plan and encouraged her to place more assets in trust, stating that doing so would result in significant savings in estate taxes.

The parties further stipulated, however, that the trust as written would not save any estate taxes. Petitioner made that discovery after the trust was created, and she then filed an action against Clark for malpractice. Petitioner also attempted to rescind the trust, first by trying to secure the approval of all trust beneficiaries. After failing to do so, petitioner filed in the probate division of the trial court a petition for modification and rescission of trust under ORS 128.115 to 128.175. In the petition, petitioner described herself as "Trustor and Petitioner" in the caption, and as "trustor" throughout, and she stated that she is a beneficiary as well as the trustor of the trust. Petitioner also alleged that "[s]he ha[d] no adequate remedy at law[,]" and she requested rescission of the trust and "[s]uch further orders as may be just and equitable." In addition, petitioner requested that the court modify the trust by naming a new successor trustee and an alternate successor trustee.² After a hearing, the trial court entered a judgment rescinding the trust, but the judgment did not specify whether rescission was granted as a statutory or a common-law remedy. On appeal, beneficiaries assert a jurisdictional challenge, and they make two assignments of error on the merits.

We first consider beneficiaries' jurisdictional challenge, which consists of the following two issues: (1) the trial court lacked subject matter jurisdiction and (2) petitioner, in her role as trustor, lacked constitutional standing to rescind the trust. We address those arguments in turn.

Beneficiaries argue that the statutory provisions that authorize changes to trusts do not authorize petitions for relief by trustors and that, because petitioner filed her petition solely in her status as trustor, the trial court therefore lacked subject matter jurisdiction. We disagree. Subject matter jurisdiction exists when a court has authority to adjudicate the general subject involved. Greeninger v. Cromwell, 127 Or.App. 435, 438, 873 P.2d 377 (1994). That authority may be granted by constitution, statute, or common law. Weatherspoon v. Allstate Ins. Co., 193 Or.App. 330, 334, 89 P.3d 1277, rev. den., 337 Or. 327, 99 P.3d 291 (2004). Under the Oregon Constitution, jurisdiction is invested in the circuit courts unless a statute or rule of law states otherwise. Or. Const., Art. VII (Original), § 9; Or. Const., Art. VII (Amended), § 2; Greeninger, 127 Or.App. at 438, 873 P.2d 377. Here, petitioner's status as a trustor does not affect the trial court's jurisdiction. Circuit courts have the authority to deal with the general subject involved in petitioner's petition, that is, trusts. See ORS 111.055(1) (transferring probate jurisdiction to the circuit court in Lane and other counties); ORS 111.085 (stating that the jurisdiction of the probate courts "includes, but is not limited to" a variety of matters relating to wills, personal representatives, and trustees); see also Stipe v. First National Bank, 208 Or. 251, 301 P.2d 175 (1956) (applying common-law principles to evaluate the purported revocation of a trust and assuming that the circuit court had jurisdiction). Accordingly, we reject beneficiaries' argument that the trial court lacked subject matter jurisdiction.

Beneficiaries also argue that petitioner lacked constitutional standing to seek rescission of the trust because, as the trustor of an irrevocable trust, she has no continuing interest in the trust. Again, we disagree. A person has standing if resolution of the issues presented will have a practical effect on his or her rights. Utsey v. Coos County, 176 Or.App. 524, 543, 32 P.3d 933 (2001), rev. dismissed as moot, 335 Or. 217, 65 P.3d 1109 (2003). Depending on the outcome of the case, petitioner will have either sole and complete control over the trust assets or limited rights to the income and principal from the trust. For that reason, petitioner has constitutional standing.

We turn to beneficiaries' arguments on the merits. We begin with beneficiaries second assignment of error. Beneficiaries' argue that the trial court erred in admitting into evidence the letter from Clark to petitioner reviewing the status of her estate plan. Beneficiaries argue that Clark's assertion in the letter that the purpose of the trust was to save estate taxes constituted inadmissible hearsay. Petitioner replies that the letter was offered not for the truth of that assertion; indeed, the parties have agreed that the assertion of tax savings was not true. Rather, petitioner argues, the letter was offered as evidence of petitioner's belief that the creation of the trust would save estate taxes. That asserted fact was relevant to establish a disputed element of petitioner's claim, namely, that she was mistaken as to the legal effect of the trust. It follows, petitioner reasons, that the assertion of intended tax savings was not offered for its truth and, therefore, was not hearsay.

Petitioner is correct. "An important nonhearsay use of out-of-court statements is to prove their effect upon a person who heard the statement, where such effect is relevant." Laird C. Kirkpatrick, Oregon Evidence § 801.01[3][d][iii]4, Art. VIII (4th ed. 2002); see State v. Thomas, 167 Or.App. 80, 83-84, 1 P.3d 1058 (2000) (evidence that person told someone in defendant's presence that bike was not stolen before giving bike to the defendant was not hearsay when offered to show that the defendant believed that bike was not stolen). Because the letter was offered to show that, based on her attorney's advice, petitioner believed that the trust would save estate taxes and that belief was relevant to establish that she made a mistake of law in creating the trust, the trial court did not err by admitting it into evidence over beneficiaries' hearsay objection.

We turn to beneficiaries' first assignment of error, in which they assert that the trial court erred by rescinding the trust. The central premise of their argument is that an irrevocable trust cannot be rescinded by its trustor on the basis of a mistake of law. Petitioner counters that the trial court had authority to rescind the trust under both a statute, former ORS 128.135(2)(d),³ and general equitable principles. Although petitioner relied on both sources of authority before the trial court, that court granted rescission without specifying the legal basis for its decision.

We begin our analysis with petitioner's statutory argument. Former ORS 128.135(2) provided, in part:

"Any beneficiary of a trust * * * may petition the circuit court * * * for the purpose of any of the following:

"* * * * *

"(d) Making any modification of the trust that the parties could make by agreement under the provisions of ORS 128.177."

Former ORS 128.177(1)(d), in turn, authorized agreements to "[m]odify [] the trust instrument, including extending or reducing the period of the trust's operation, if the modification is not inconsistent with any dominant purpose or objective of the trust[.]" Petitioner reasons that if she could seek a modification of the trust to reduce the...