In re Imo Daniel Kloiber Dynasty Trust

Decision Date06 August 2014
Docket NumberC.A. No. 9685–VCL.
Citation98 A.3d 924
CourtCourt of Chancery of Delaware
PartiesIMO DANIEL KLOIBER DYNASTY TRUST u/a/d December 20, 2002.

OPINION TEXT STARTS HERE

W. Donald Sparks, II, Chad M. Shandler, Beth Gansen Knight, Richards, Layton & Finger, PA, Wilmington, Delaware; Matthew P. D'Emilio, Jeremy D. Eicher, Jennifer E. Smith, Cooch & Taylor, P.A., Wilmington, Delaware; Attorneys for Petitioner PNC Delaware Trust Company.

Kevin G. Abrams, J. Peter Shindel, Jr., Matthew L. Miller, Abrams & Bayliss LLP, Wilmington, Delaware; Attorneys for Petitioner William Nicholas Kloiber.

Grover C. Brown, Peter S. Gordon, William M. Kelleher, Joseph Bosik IV, Phillip A. Giordano, Gordon, Fournaris & Mammarella, P.A., Wilmington, Delaware; Attorneys for Respondent Daniel Joseph Kloiber.

Michael A. Weidinger, Kevin M. Capuzzi, Pinckney, Weidinger, Urban & Joyce LLC, Wilmington, Delaware; Attorneys for Respondent Beth Ann Jenkins Kloiber.

OPINION
LASTER, Vice Chancellor.

In the eyes of the law, respondents Daniel Joseph Kloiber and Beth Ann Jenkins Kloiber remain husband and wife. They have separated and are parties to a contested divorce proceeding pending in Kentucky before the Fayette Family Circuit Court (the “Kentucky Family Court). That case has been tried, and a decision is expected soon.

Until recently, Dan 1 was the primary beneficiary and Special Trustee of the Daniel Kloiber Dynasty Trust (the “Dynasty Trust”). The Special Trustee has exclusive authority to instruct the trustee of the Dynasty Trust (the Trustee) on making distributions and investing the Dynasty Trust's assets. The Trustee only can act to the extent instructed by the Special Trustee. Dan also served as the sole manager of three limited liability companieswhose member interests constituted assets of the Dynasty Trust. The Trustee cannot exercise control over the LLCs unless instructed by the Special Trustee.

During the divorce proceeding, the Kentucky Family Court issued status quo orders designed to prevent the parties from dissipating marital assets before the court could determine ownership and allocate the assets equitably. The status quo orders restricted Dan in his capacity as a human being over whom the Kentucky Family Court had personal jurisdiction, thereby restricting his actions in his other capacities, such as Special Trustee or sole manager of the LLCs.

On May 15, 2014, Dan resigned as Special Trustee, and on May 29, he resigned as sole manager of the LLCs. He appointed Nick as Special Trustee. Nick proceeded to take action contrary to the status quo orders. The Kentucky Family Court issued a rule to show cause why Nick should not be held in contempt (the “Rule to Show Cause”).

PNC Delaware Trust Company (“PNC”) is currently the Trustee. PNC and Nick have filed petitions seeking instructions and declarations from this court (the “PNC Petition” and the “Special Trustee Petition,” respectively). They contend that the Kentucky Family Court has asserted jurisdiction improperly over the Trustee, the Special Trustee, and the Dynasty Trust and is requiring them to take actions contrary to the trust agreement and their fiduciary duties. They argue that this court has primary jurisdiction over the Dynasty Trust and must intervene to curb the perceived excesses of the Kentucky Family Court. Most pressingly, Nick seeks a temporary restraining order (“TRO”) that would prevent Beth from seeking to enforce the status quo orders, including through the pending Rule to Show Cause. This decision denies Nick's application.

I. FACTUAL BACKGROUND

The facts for purposes of this decision are drawn from the pleadings, two motions to expedite, the motion for a TRO, a motion for a status quo order, the supporting exhibits to these documents, and representations made by counsel. What follows are not formal factual findings, but rather how the facts appear at this early stage.

A. The Dynasty Trust

On December 20, 2002, Glenn F. Kloiber settled the Dynasty Trust. Glenn is Dan's father. The instrument governing the Dynasty Trust is an irrevocable trust agreement dated December 20, 2002, between Glenn and PNC Bank, Delaware (the “Trust Agreement” or “TA”). PNC is the successor to PNC Bank, Delaware.

The Trust Agreement selects Delaware as the original situs for the Dynasty Trust. TA § 10.2. As long as Delaware is the situs, the Trust Agreement calls for Delaware law to govern the [t]he validity, construction and effect of the provisions” of the Dynasty Trust and for the Dynasty Trust to be “administered in accordance with the laws of Delaware.” Id. § 10.1.

The Trust Agreement actually creates two trusts: an Exempt Trust and a Non–Exempt Trust. The division is an estate planning vehicle designed to minimize the amounts the federal government can collect under the generation-skipping transfer tax. The Exempt Trust holds assets that are exempt from the generation-skipping transfer tax. The Non–Exempt Trust holds all other assets. The distinction is not relevant to this decision, which will refer simply to the Dynasty Trust and the trust assets without distinguishing between the trusts. The Trust Agreement also contemplates the possible creation of additional trusts. No one has identified any, so this decision assumes none exist.

The Trust Agreement awkwardly refers throughout to the “Grantor's son.” Section 13.3 clarifies matters by providing that [a]ll references in this Trust Agreement to the ‘Grantor's son’ are to DANIEL J. KLOIBER. Id. § 13.3. The Trust Agreement also awkwardly refers throughout to the “children of the Grantor's son” and the “Grantor's son's children.” Section 13.5 helpfully states that these phrases refer to Dan's four sons and identifies them by name. Id. § 13.5.

The Trust Agreement takes a noticeably different approach with the term “wife of the Grantor's son,” which also appears throughout the Trust Agreement. Although the Dynasty Trust was created and funded while Dan and Beth were married, the Trust Agreement does not equate “wife of the Grantor's son” with Beth. Instead, Section 13.4 defines “wife of the Grantor's son” in the following transitory terms:

All references in this Trust Agreement to the “wife of the Grantor's son” or to the “Grantor's son's wife” are, during the Grantor's son's lifetime, to the person to whom the Grantor's son is legally married and with whom the Grantor's son is then cohabiting or, subsequent to the Grantor's son's death, the person to whom the Grantor's son was legally married on the date of his death. The Grantor's son is currently legally married to BETH J. KLOIBER.

Id. § 13.4. Beth is thus never defined as the “wife of the Grantor's son.” The Trust Agreement simply observes that when the Trust Agreement was executed, Dan was “currently legally married to Beth.” Dan, Nick, and PNC have taken the position that Beth only qualified as the “wife of the Grantor's son” as long as she was both legally married to and cohabiting with Dan. As soon as she and Dan stopped cohabiting, Beth stopped being the “wife of the Grantor's son.” If the Kentucky Family Court grants Dan and Beth a divorce, that will reinforce Beth's non-wife status. Except as the “wife of the Grantor's son,” Beth has no rights under the Dynasty Trust.

Dan is the primary beneficiary of the Dynasty Trust. During each calendar year, he has the right to withdraw up to five percent of the net fair market value of the trust estate. Id. § 1.1.1. He also has special powers of appointment, exercisable during his lifetime or in his will, that permit him to appoint the principal of the trust estate to the “wife of the Grantor's son,” to what are essentially Dan's blood relations (his children and their issue, or his siblings and their issue), or to a charitable organization. Id. §§ 1.1.8, 1.1.9. In addition, the Trustee “shall pay to or apply for [Dan's] benefit” such amounts as “shall be necessary or advisable from time to time for [Dan's] health, education, support and maintenance.” Id. § 1.1.3. The Trustee also may use funds from the trust estate to provide and maintain a personal residence for Dan. Id. § 1.1.7.

The “wife of the Grantor's son” is also a beneficiary of the Dynasty Trust. During Dan's lifetime, the Trustee “shall pay to or apply for [her] benefit” such amounts as “shall be necessary or advisable from time to time for [her] health, education, support, and maintenance.” Id. § 1.1.4. After Dan's death, and to the extent he did not exercise his testamentary power of appointment, the “wife of the Grantor's son” receives rights similar to those held by Dan during his lifetime, including the five percent withdrawal right, funds for a personal residence, and the special powers of appointment. Id. § 1.1.10.

Dan's children and their children are also beneficiaries. During Dan's lifetime and, if she lives longer than Dan, the lifetime of the “wife of the Grantor's son,” the Trustee “shall pay to or apply for [their] benefit” such amounts as “shall be necessary or advisable from time to time for [their] health and education.” Id. § 1.1.5. After the death of whoever was the “wife of the Grantor's son” at the time of Dan's death, and to the extent the “wife of the Grantor's son” did not exercise her testamentary power of appointment, the Trust Agreement provides for the remaining trust estate to be subdivided into additional trusts and distributed to Dan's descendants in prescribed amounts at prescribed times. Id. § 1.1.10(i).

B. The Roles Of The Trustee, Special Trustee, Advisory Committee, Holder, And Trust Protector

The Trust Agreement establishes a series of roles, each with specific powers. The roles include the Trustee, the Special Trustee, the Advisory Committee, the Holder, and the Trust Protector.

Nick contends in his petition that PNC “has very broad powers with respect to the administration of the Trust.” Special Trustee Petition ¶ 3. This is true, after a fashion. The Dynasty Trust is a directed trust. This means that...

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