In re Estate of Reugh

• Decision Date: 20 August 2019
• Docket Number: c/w No. 35855-1-III,No. 35737-6-III,35737-6-III
• Parties: In the Matter of the Estate of K. WENDELL REUGH
• Court: Washington Court of Appeals

In the Matter of the Estate of K. WENDELL REUGH

No. 35737-6-III

c/w No. 35855-1-III

COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION THREE

August 20, 2019

PUBLISHED OPINION

FEARING, J. — The principal question in this appeal is whether the superior court committed error when removing appellants JoLynn Reugh-Kovalsky and Steve Gill as co-personal representatives of the estate of K. Wendell Reugh and as co-trustees of the Reugh revocable living trust. Nevertheless, the expanse of this opinion covers mainly the topics of subject matter jurisdiction and waiver by failure to assert an argument in the trial court. We uphold the trial court's removal of the co-personal representatives and cotrustees and the appointment of a successor personal representative and trustee.

FACTS

We introduce the parties. This complicated appeal concerns the estate of K. Wendell Reugh, who died in March 2015, at the age of 86. Wendell Reugh's wife, Mary Ann Reugh, died in 1996. Wendell and Mary Ann Reugh's three children, JoLynn Reugh-Kovalsky, Mark Reugh, and James Reugh, initiated this appeal. We refer to the three collectively as "the children."

The former co-personal representatives of Wendell Reugh's estate and former trustees of the K. Wendell Reugh revocable living trust (the Reugh trust), the daughter JoLynn Reugh-Kovalsky and Steve Gill, also appea trial court rulings. Gill is a long-time business associate of Wendell Reugh. We refer to the two alternatively as "Reugh-Kovalsky and Gill," "co-personal representatives," "personal representatives," and "co-trustees." Notice that we refer to JoLynn Reugh-Kovalsky differently depending on her role as a child or as a co-personal representative or co-trustee. The two respondents are Inland Northwest Community Foundation (Community Foundation), the purported residual beneficiary of the Reugh revocable living trust, and Northwest Trustee & Management Services (Northwest Trustee), the successor personal representative of the estate of K. Wendell Reugh and successor trustee of the Reugh trust.

Now the background. On January 4, 2011, K. Wendell Reugh, a successful Spokane businessman, executed a will and a revocable living trust. The will identified as heirs Reugh's three children, James Reugh, Mark Reugh, and JoLynn Reugh-Kovalsky and Reugh's close companion, Doreen Decker. The will bequeathed tangible personal property such as jewelry, household furniture, books, paintings, and automobiles to Reugh's heirs. The will then directed that the residuary estate pass to the "K. Wendell Reugh Revocable Living Trust" to be distributed in accordance with a separate trustagreement. Clerk's Papers (CP) at 337 (some capitalization omitted).

K. Wendell Reugh's January 2011 will named Dominic Zamora and James Simmons as personal representatives of the estate. Portions of Article IV of the will further read:

2. In the event either of said co-Personal Representatives is or becomes unwilling or unable to serve, then the other shall serve as co-Personal Representative and shall nominate three individuals to serve as co-Personal Representatives with him. My children shall, by majority vote, designate one of said nominees to serve as the other co-Personal Representative.

B. My estate shall be administered by my Personal Representative named in this Will without the intervention of any court and with all powers granted herein and by law to a Personal Representative acting with nonintervention powers. I direct that such nonintervention powers be unrestricted and that they may be exercised whether or not necessary for the administration of my estate. My Personal Representative shall act with full power to:

. . . .

2. Select any part of my estate in satisfaction of any partition or distribution hereunder, in kind, in money, or both (including the satisfaction of any pecuniary bequest), in shares which may be composed differently, and to do so without regard to the income tax basis of specific property allocated to any beneficiary (including any trust).

. . . .

D. Except to the extent fundamentally inconsistent with the provisions of this Will and of my estate plan, I hereby authorize my Personal Representative to disclaim, in whole or in part, any devise or legacy or any interest in any trust provided for my benefit under the Will of any person or under any trust instrument at any time within nine (9) months after the date of the transfer which created an interest in me.

CP at 337-38 (emphasis added).

Also, on January 4, 2011, K. Wendell Reugh signed a revocable living trustagreement. The trust agreement also identified K. Wendell Reugh's three children. The trust instrument listed Wendell Reugh as both settlor and initial trustee of the trust. The document read that "[t]he Settlor hereby transfers to the Trustee the sum of One Hundred Dollars ($100.00)." CP at 342. Reugh, however, never transferred the $100 or any other property into the trust, at least during his lifetime. On Reugh's death, the trust, according to the terms of the trust agreement, would convert to an irrevocable trust. The trust instrument directed the trust to pay funeral expenses, costs of administration, estate taxes and other taxes resulting from Reugh's death and any debts owed by Reugh from the trust estate before any distribution to the residuary beneficiary.

The revocable living trust instrument listed gifts to be paid before any distribution of the trust assets to the residual beneficiary. The gifts included $250,000 to Wendell Reugh's sister, $20,000 to Reugh's niece, $20,000 each to two nephews, $10,000 to the Spokane Shriner's Hospital for Crippled Children, $25,000 to Spokane's United Central Methodist Church, $50,000 to Reugh's former daughter-in-law unless she had remarried, and $1.5 million to each of Reugh's three children. The Trust also directed that $1 million be transferred to a charitable remainder trust for the benefit of Doreen Decker.

The K. Wendell Reugh's Trust instrument anticipated that Wendell Reugh would establish a charitable foundation or a charitable donor-advised fund before his death. The revocable living trust agreement directed that the residuary of the trust estate, after payment of gifts, pass to either Reugh's charitable foundation, the donor-advised fund, orboth if Reugh had created both. The trust instrument read:

2. If Settlor established neither a charitable foundation nor a charitable donor advised fund, said remainder shall be distributed to the Inland Northwest Community Foundation, to be held as an endowed donor-advised fund known as the Wendell and MaryAnn Reugh Family Fund. Such fund shall have Settlor's three children as its initial advisors. Upon the death, disability or resignation of any such advisors, a replacement shall be appointed by the Board of Directors of the Inland Northwest Community Foundation from among the descendants (including descendants by adoption) of the Settlor. Settlor wishes that charitable distributions be made from the fund primarily to the kinds of charitable organizations Settlor has given to during his lifetime, serving the people of the Inland Northwest.

CP at 347-48 (emphasis added).

Similar to the will's identification of personal representatives for the estate of K. Wendell Reugh, Wendell Reugh named Dominic Zamora and James Simmons to serve as co-trustees "of this Trust and of any testamentary trusts established by the terms of this Trust." CP at 349. If the trustees were unable or did not wish to serve, the Trust provided for the selection of successor trustees through the same process that the will established for appointment of successor personal representatives, by which process the children would, by majority vote, choose among nominees.

K. Wendell Reugh died on March 22, 2015. Dominic Zamora and James Simmons thereafter declined their appointments as co-personal representatives of the estate of K. Wendell Reugh and co-trustees of the Reugh trust. On March 27, 2015, pursuant to Wendell Reugh's will and the revocable living trust instrument, the childrenof Reugh appointed JoLynn Reugh-Kovalsky and Steve Gill as successor co-personal representatives and co-trustees.

On March 27, 2015, co-personal representatives JoLynn Reugh-Kovalsky and Steve Gill petitioned, under Spokane County Superior Court cause no. 15-4-00471-1, for probate of the will and the grant of nonintervention powers afforded in the will. The trial court entered an order admitting the will to probate, declared the estate solvent, and granted nonintervention powers to the co-personal representatives.

The estate of K. Wendell Reugh's administration has been complex due to Reugh's high net worth. The co-personal representatives toiled for two and one-half years to value the estate and to file an estate tax return. Beginning in 2016, the Internal Revenue Service fastidiously examined estate records.

JoLynn Reugh-Kovalsky and Steve Gill, as co-trustees of the revocable living trust, distributed to each beneficiary named in the trust the gift listed, including $1.5 million to each of Wendell Reugh's children. The distributions totaled nearly $5 million. Oddly, despite the distributions in accordance with the trust agreement, Reugh-Kovalsky and Gill contend they never administered the trust, but only administered the estate. They claim the trust never held any assets to administer.

On June 29, 2015, an attorney for the co-personal representatives and co-trustees wrote to the Community Foundation:

Please be advised that Inland Northwest Community Foundation hasbeen named in the K. Wendell Reugh Revocable Living Trust to receive residue funds. The amount of the funds to be distributed to Inland Northwest Community Foundation is unascertainable at this time. It will be quite some time before an appraisal of the estate assets is completed.

The funds are to be held as an endowed donor-advised fund, known as the Wendell and Mary Ann Reugh Family Fund. Such funds shall have the three Reugh children as its

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