Karpf v. Karpf
| Citation | 481 N.W.2d 891,240 Neb. 302 |
| Decision Date | 27 March 1992 |
| Docket Number | No. S-89-729,S-89-729 |
| Parties | William Charles KARPF et al., Appellants, v. Charles T. KARPF, Individually and as Trustee of the Henry S. Karpf Trusts, Appellee. |
| Court | Supreme Court of Nebraska |
Syllabus by the Court
1. Trusts: Intent. Rules of construction of trusts are intended for use in doubtful cases when language used is not clear, but these rules have no application when the language used clearly expresses the settlor's intent.
2. Trusts: Intent. When implicated, the primary rule of construction of trusts is that a court must, if possible, ascertain the intention of the testator or creator.
3. Trusts: Intent. In interpreting a trust, the entire instrument, all its parts, and its general purpose and scope are to be considered; no parts are to be disregarded as meaningless if any meaning can be given them consistent with the rest of the instrument.
4. Trusts: Property. A trust creates a fiduciary relationship in which one person holds a property interest subject to an equitable obligation to keep or use that interest for the benefit of another.
5. Trusts: Property. Under the provisions of Neb.Rev.Stat. § 30-2813 (Reissue 1989), a trustee shall observe the standards of dealing with trust assets that would be observed by a prudent person dealing with the property of another.
6. Trusts: Property. Neb.Rev.Stat. § 30-2813 (Reissue 1989) places an external rather than a personal standard of care on a trustee, requiring the trustee to act as would an individual investing property for people to whom the trustee feels morally bound.
7. Trusts: Words and Phrases. To be prudent includes acting with care, diligence, integrity, fidelity and sound business judgment.
8. Trusts. A trustee has a duty to fully inform the beneficiary of all material facts so that the beneficiary can protect his or her own interests where necessary.
9. Trusts. A trustee is responsible to the beneficiary and only holds the assets in the trust for that purpose.
10. Trusts. Even trustees given broad discretion are held to a standard of good faith and honesty.
11. Trusts. A trustee owes the beneficiary of a trust undivided loyalty and good faith, and all of the trustee's acts must be in the interest of the beneficiary and no one else.
12. Damages. Damages which are uncertain, speculative, or conjectural cannot be a basis for recovery.
Craig A. Knickrehm and Paul J. Halbur, of Heron, Burchette, Ruckert & Rothwell, Omaha, for appellants.
Michael McCormack, of McCormack, Cooney, Mooney, Hillman & Elder, Omaha, for appellee.
The plaintiff-appellant Amanda M. Karpf and two of her minor children, William Charles Karpf and Chloe Marie Karpf, through her as their guardian and next friend, seek redress for the breach of the fiduciary duty owed them, as limited beneficiaries of the Henry S. Karpf Trusts, by the defendant-appellee, Charles T. Karpf, as trustee. The district court dismissed the limited beneficiaries' petition, which also seeks damages from the trustee as an individual. They assign as operative errors, in summary, (1) the district court's evidential rulings, and (2) its determination that the trustee did not violate his duty to them. We affirm.
Lodicea A. Karpf, on December 24, 1979, and February 18, 1982, established eight separate trusts for the ultimate benefit of her four grandchildren, all the offspring of the aforenamed trustee. This action arises out of the two trusts established for the benefit of Henry S. Karpf, the son of the trustee for whom the trusts involved here were named. Henry S. Karpf (hereinafter referred to as the son) married the plaintiff Amanda M. Karpf (hereinafter referred to as the wife) in April 1978. The two were divorced in July 1988, after they had produced three children. The youngest child is not a party to this proceeding, presumably because he was not in existence during any of the period in dispute.
One provision of the 1979 trust, the discretionary distribution provision, reads:
The Trustee in his sole discretion may accumulate the income of the Trust or may, at any time and from time to time, distribute any part or all of the income and principal of the Trust to [the son], the issue of said [son] and the spouse of said [son], and, in the event of the death of such [son] and all the issue of such [son], thereafter to or among the spouse of such [son] and [settlor's] other grandchildren and the issue of such grandchildren.
Another provision of that trust, the withdrawal provision, declares:
With respect to each donor who transfers assets to this Trust in any one calendar year, [the son], such [son's] spouse and each issue of such [son] shall each have the right to withdraw from the principal of this Trust and to retain as their own separate property the lesser of (a) $3,000, or (b) a pro rata share of the aggregate value for federal gift tax purposes of the assets transferred to the Trust in such calendar year by such donor. Such withdrawals shall be made by a written instrument signed by the person making the withdrawal, or such person's guardian, and delivered to the Trustee at any time prior to the expiration of the calendar year in which the donor's transfer to the Trust is made.
The 1982 trust contained identical provisions, except that the discretionary distribution provision eliminated the wife as a beneficiary and the withdrawal provision increased the maximum amount to $10,000.
The record explains that the withdrawal provision is a tax-planning device used to assist taxpayers in minimizing ultimate estate tax liability by enabling them to make tax-free gifts during their lifetimes to the amount limited by law. In order to qualify as a tax-free gift, the taxpayer must transfer a "present," as contrasted from a "future," interest. To be a present interest, a gift to the beneficiary of a trust must be subject to withdrawal by the beneficiary in the calendar year during which the gift was made. (As an aside, we note that in apparent honor of D. Clifford Crummey, who established that gifts to minors are transfers of present interests, see Crummey v. C.I.R., 397 F.2d 82 (9th Cir.1968), limited withdrawal provisions are often identified as Crummey provisions, and trusts containing such provisions are frequently referred to as Crummey trusts.)
When the 1982 trust was executed, the exclusion for a single gift was $10,000, 26 U.S.C. § 2503(b) (1982); however, at the time the 1979 trust was executed, the exclusion was limited to $3,000, § 2503(b) (1976). The amount of the exclusion was and is multiplied by the number of gifts made. See § 2503(b) (1976 and 1982).
Although the trusts refer to "each donor" transferring assets to the trust, there was in each instance but a single such donor, the aforenamed settlor, who transferred to the trusts certain common stock of Bailey & Bailey Co., a Nebraska corporation which owns a farm in Scotts Bluff County and is engaged in agri-business. More specifically, the settlor transferred 10 shares of Bailey & Bailey common stock to the 1979 trust as follows: On December 24, 1979, two shares; on January 2, 1980, two shares; on January 2, 1981, two shares; and on January 9, 1984, four shares. She transferred 14 shares to the 1982 trust as follows: On February 18, 1982, nine shares, and on January 3, 1983, five shares. At the time of the settlor's death in 1985, all 200 outstanding shares of Bailey & Bailey common stock were owned by the trustee and the trusts. No one exercised the right of withdrawal.
The wife claims that neither she nor the two minor limited beneficiaries knew of the existence of the trusts until the fact was revealed during the course of the aforementioned divorce proceeding. She alleges that the trustee breached his fiduciary duty in failing to inform her and the children personally of the trusts. In defense, the trustee claims he did not breach his duty, since the son had been informed of the trusts, and that, in any event, the settlor did not intend anyone to actually exercise the withdrawal rights, having said that if anyone did, she would no longer transfer assets to the trusts.
The trustee admitted he did not inform anyone in writing about the existence of the 1979 trust nor about any of the contributions of Bailey & Bailey stock, but did tell the son of the trust's existence. With respect to the 1982 trust, the son received a copy of a letter written by the attorney for the settlor and trustee which outlined its terms, including the withdrawal rights. The trustee also testified that as he did not consider the wife to be a beneficiary of either trust, he never spoke to her about the trusts, nor made any attempt to keep her informed as to their administration.
The son's testimony confirmed his knowledge of the trusts. He also testified that the trustee told him in December 1979 that if he "took anything out, it would be the last time." Thereafter, the son learned through the trustee of each transfer of stock into the 1979 trust and of the subsequent formation of the second trust in 1982.
The son reported that he and the wife had discussed the existence of the trusts on numerous occasions. The son also recalled that after the settlor had died and members of the family were cleaning her house, he found a document that listed the shares of stock given to the trusts, which the wife read. She acted perturbed because the son's older brother had received more shares than the son had.
The aforementioned attorney testified that the withdrawal rights under the trusts could be exercised by any of the parties but that the settlor intended not to transfer further assets to any trust if, in fact, the withdrawal rights were actually exercised.
If they withdraw, illustration in this case, the 1979 trust, the most that [the] wife could have withdrawn is one share. She...
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