In re Sunray Holdings Trust

Decision Date11 December 2013
Docket NumberNo. 26722.,26722.
Citation841 N.W.2d 271,2013 S.D. 89
PartiesIn the Matter of SUNRAY HOLDINGS TRUST.
CourtSouth Dakota Supreme Court

OPINION TEXT STARTS HERE

Robert M. Ronayne, Thomas J. Cogley of Ronayne & Wein, LLP, Aberdeen, South Dakota, Attorneys for appellants Lee and Linda Shoup.

William M. Van Camp, Jr. of Olinger, Lovald, McCahren & Reimers, PC, Pierre, South Dakota, Attorneys for appellee Gregory Shoup.

Paul E. Bachand of Schmidt, Schroyer, Moreno, Lee & Bachand, PC, Pierre, South Dakota, Attorneys for appellee Larry Shoup.

ZINTER, Justice.

[¶ 1.] Lester and Harriet Shoup created an inter vivos trust. After their deaths, their only children, Gregory and Larry Shoup, moved to terminate the trust. They argued that the trust only provided for Lester and Harriet during their lives and there was no trust provision directing disposition of the remaining trust assets. Therefore, they contended that the trust had fulfilled its purpose. Lee and Linda Shoup, Gregory's children, objected. They argued that the trust had not fulfilled its purpose. They contended that two letters found with the original trust document instructed on the disposition of trust assets. Following a non-evidentiary hearing, the circuit court terminated the trust. We affirm.

Facts and Procedural History

[¶ 2.] Lester and Harriet had two children, Gregory and Larry. In 1993, without the assistance of a lawyer, Lester drafted a trust document titled, “Sunray Holdings.” The trust named Lester and Harriet as the “Trustor.” It named Lester, Harriet, Gregory, and Larry as “Co–Trustees.”

[¶ 3.] Lester died in 2008, and Harriet died in 2012. After Harriet's death, Gregory opened a safe-deposit box rented by the trust. The safe-deposit box contained a manila envelope, which contained the original trust document and a smaller sealed envelope. The smaller envelope had the following handwritten note on the front: “Instructions for Sunray Holding Trust to be opened on death of grantors [sic] Lester Shoup & Harriet Shoup 4/22/94.”

[¶ 4.] The smaller envelope contained a two-page handwritten letter (1994 letter”) signed by Lester and Harriet. The letter instructed the trustees on a variety of matters, including compensation for Gregory for managing the trust and cash payments for Gregory, Larry, Lee, and Linda. The 1994 letter also indicated: “After eight years the trust can be divided if it is the best business decision at that time. Larry 1/3 Greg 1/3 Lee 1/6 and Linda 1/6.”

[¶ 5.] The manila envelope also contained a one-page handwritten letter titled, “Sunray Holdings Trust Instructions 11/05/07 (2007 letter”). The 2007 letter stated that the distribution of trust income should be as follows: “Greg 30%—Larry 30%[,] the remaining 30% will be divided between Linda and Lee.” The 2007 letter also directed certain lump-sum payments and referred to Lee and Linda as “co-trustees.” There were no signatures on the 2007 letter. The words “Signed by” were written at the bottom but were crossed out. The 2007 letter did not mention the ultimate disposition of trust property.

[¶ 6.] Gregory, as trustee, petitioned the circuit court to interpret, construe, and issue instructions directing the trustees on proper administration and distribution of the trust. Gregory also sought the court's instructions regarding the letters.

[¶ 7.] After filing the petition, Gregory and Larry, acting individually, moved to terminate the trust under SDCL 55–3–23(2). They contended that the trust only provided for Lester and Harriet during their lives and there was no trust provision disposing of trust property upon their deaths. Therefore, Gregory and Larry contended that the trust had fulfilled its purpose and should be terminated, leaving the assets to pass by will or intestate succession.

[¶ 8.] Lee and Linda, however, argued that “the Trust was not silent as to what [was] to occur upon the death[s] of Lester and Harriet[.] Lee and Linda relied on one phrase in one sentence of trust Article I(D). That phrase gave the trustees certain powers to “hold, invest, disburse, deliver, or otherwise dispose of trust property and proceeds according to written instructions.” Lee and Linda argued that this language “clearly indicate[d] that Lester and Harriet contemplated the need for further instruction[,] and the 1994 and 2007 letters constituted such instructions. Because Lee and Linda claimed that the letters were contemplated by the trust, they also argued that the letters were not amendments or substantial changes to the trust.

[¶ 9.] Gregory and Larry disagreed, arguing that the letters substantially changed the trust. According to Gregory and Larry, Article I(D) only empowered the trustees to make investment dispositions upon written instructions, and it did not authorize the final disposition of trust property by written instructions upon the deaths of Lester and Harriet. Therefore, Gregory and Larry contended that, if given effect, the letters amended or changed the trust. They also pointed out that the trust explicitly prohibited “substantial changes” without the written consent of all trustees, and they had not consented. They relied on Article I(A), which provided: “This Trust Agreement, and the duties and liabilities of the Co–Trustees shall not be substantially changed without the Co–Trustees written consent.”

[¶ 10.] The circuit court agreed with Gregory and Larry. The court noted that the trust did “not contain any language relating to the ... disposition of the trust asset[s] upon the death[s] of both [Lester and Harriet].” Therefore, the court concluded that the letters substantially changed the trust, “and absent written consent of the Co–Trustees, any modifications of the Trust pursuant to the [letters were] not enforceable.” Because Gregory and Larry did not consent to the letters, the court ruled that: the letters had no effect, the trust had served its purpose, and the trust terminated upon Harriet's death.

[¶ 11.] Lee and Linda appeal, arguing that the circuit court misinterpreted the trust. Trust interpretation is a question of law reviewed de novo. In re Schwan 1992 Great, Great Grandchildren's Trust, 2006 S.D. 9, ¶ 11, 709 N.W.2d 849, 852 (citations omitted).

Decision

[¶ 12.] Lee and Linda first argue that the letters did not change the trust. They contend that the letters were part of the trust because they were authorized by the phrase in the second sentence of Article I(D) that referred to certain dispositions by written instructions of the trustors. They claim that the letters “flow naturally from Article I(D) and are a recognition that the Trust was never meant to terminate upon the second death.”

[¶ 13.] Gregory and Larry acknowledge the phrase in the second sentence of Article I(D). But they contend that the phrase, interpreted in context, only related to trustee investment powers. Because there is no trust provision directing the disposition of assets after the deaths of the trustors, Gregory and Larry contend that Lee and Linda are seeking to change the trust by extrinsic evidence (the letters) in violation of Article I(A).

[¶ 14.] When presented with a trust instrument, our “task is to ensure that the intentions and wishes of the [trustor] are honored.” In re Florence Y. Wallbaum Revocable Living Trust, 2012 S.D. 18, ¶ 20, 813 N.W.2d 111, 117 (quoting Luke v. Stevenson, 2005 S.D. 51, ¶ 8, 696 N.W.2d 553, 557). To carry out a trustor's intentions and wishes, we first “look to the language of the trust instrument.” In re Schwan, 2006 S.D. 9, ¶ 12, 709 N.W.2d at 852 (citation omitted). “If the language of the trust instrument makes the intention of the [trustor] clear, it is our duty ‘to declare and enforce it.’ In re Florence Y. Wallbaum Revocable Living Trust, 2012 S.D. 18, ¶ 20, 813 N.W.2d at 117 (emphasis added) (quoting Luke, 2005 S.D. 51, ¶ 8, 696 N.W.2d at 557).

[¶ 15.] To determine whether the letters constituted a substantial change requiringtrustee approval under Article I(A), we must first determine whether the second sentence of Article I(D) authorized the final disposition of trust assets by letters. Article I(D) provided:

For so long as Trustor remains physically and mentally competent to make decisions in respect to investment of the trust estate or until Trustor directs otherwise, Trustor shall retain all rights, options and privileges to vote any stock and to withdraw, sell, convert, invest, reinvest, deal in and deal with any property as security for loans; and this Trust shall include at any time only that property and the proceeds thereof placed in said Trust and then remaining therein. Co–Trustees shall hold, invest, disburse, deliver, or otherwise dispose of trust property and proceeds according to written instructions. All written notices and communications received by Co–Trustees shall be delivered forthwith to Trustor. All securities not in bearer form shall be registered in name of nominee, as Trustor may direct in writing.

(Emphasis added.)

[¶ 16.] When read in context, Lee and Linda's reliance on the second sentence of Article I(D) is misplaced. The topic sentence of Article I(D) reflects that the paragraph was intended to deal with the allocation of power between the trustors and trustees regarding “investment of the trust estate.” Consistent with that sentence, the third and fourth sentences addressed the management of investments. Concededly, one phrase in the second sentence, if read in isolation, stated that the trustees could “dispose” of assets according to written instructions. But the rest of the second sentence dealt with the management of investments; i.e., the holding, investing, disbursing, and delivering of trust property. Therefore, when considered in context of the entire paragraph, the disposition phrase in the second sentence must be read to have only contemplated the trustors' written instructions regarding investment dispositions of the trust estate. The second sentence did...

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