Kuehn v. First Nat. Bank in Sioux Falls

• Decision Date: 22 January 1976
• Docket Number: No. 11475,11475
• Citation: 90 S.D. 96,238 N.W.2d 490
• Parties: Jane S. KUEHN and Martha K. Maierhauser, as Income Beneficiaries, Appellants, v. FIRST NATIONAL BANK IN SIOUX FALLS, as Trustee, et al., Respondents.
• Court: South Dakota Supreme Court

Page 490

238 N.W.2d 490

90 S.D. 96

Jane S. KUEHN and Martha K. Maierhauser, as Income Beneficiaries, Appellants, v. FIRST NATIONAL BANK IN SIOUX FALLS, as Trustee, et al., Respondents.

No. 11475.

Supreme Court of South Dakota.

Jan. 22, 1976.

Rehearing Denied Feb. 27, 1976.

George A. Bangs of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, for appellants.

E. G. Jones of Jones & Matthews, Sioux Falls, for respondent, First National Bank.

Louis R. Hurwitz of Davenport, Evans, Hurwitz & Smith, Sioux Falls, for respondent, Crippled Children's Hospital and School.

James R. Becker of May, Johnson & Burke, Sioux Falls, for respondent, South Dakota Children's Home Society.

Tom Lehnert, Asst. Atty. Gen., Pierre, for respondent, 'An Unknown Maternity Hospital.'

BIEGELMEIER, Justice. ^*

Max A. Kuehn died leaving a last will under which, after some bequests, the residue of his estate was left in trust to pay the income to certain relatives during their respective lifetimes, with the remainder over to three charitable beneficiaries in the event that Martha Kuehn Maierhauser, the decedent's granddaughter, should die without issue. The First National Bank (Bank or Trustee Bank herein) and Max A. Kuehn, Jr., a son of decedent and an income beneficiary during his lifetime, were named as trustees. Following the death of Max A. Kuehn, Jr. on September 11, 1971, the Bank became the sole trustee and Jane S. Kuehn, widow of Max A. Kuehn, Jr., and her daughter, Martha Kuehn Maierhauser, herein sometimes referred to as petitioners, became and were during the time here involved the sole income beneficiaries entitled to such income. ¹

On October 9, 1973, the Trustee Bank filed its Fourteenth Annual Account titled 'In the Matter of the MAX A. KUEHN, JR. TRUST U/W Max A. Kuehn, Deceased,' in circuit court. The court entered an order and notice of hearing on this account fixing October 31, 1973, as the time for hearing thereon. It appears that copies of this order were mailed to petitioners, one of whom resided in Arizona. No appearance or objection having been made, customarily, as a matter of course, ² the court entered an order on the date of the hearing--October 31, 1973--approving that account and setting and allowing trustee and attorney fees. Tucked in Exhibit A consisting of ten long, wide accounting sheets--four having two columns of figures and six having nine columns--were entries showing a sale of a tract of land referred to in the account as having been confirmed during the accounting year.

By verified petition dated December 26, 1973, and filed in the circuit court on December 28, 1973, supplemented by a further affidavit, counsel for Jane S. Kuehn and Martha Kuehn Maierhauser stated that they were the sole income beneficiaries of the trust; that upon the death of the survivor of them the trust would go to the issue, if any, of Martha or, if she died without issue, to the named and unnamed contingent beneficiaries; that among the assets of the trust was a one-half interest in certain lands near Sioux Falls originally appraised and inventoried at about $35,000, but which by May 24, 1972, had increased in value to more than $253,000 in accordance with a certificate of appraisal attached thereto signed by two appraisers and addressed to an officer of the Trustee Bank that this tract had been producing an income of not more than $2,000 per annum, which was substantially less than the current rate of return on trust investments, and that under such facts it became the duty of the Trustee to sell the land and make an allocation of principal and income of the proceeds of such lands when and as they are sold; that 87.95 acres of such land was sold in 1973 for $131,925 of which amount the trust received one-half or $65,962.50 all of which amount the Trustee allocated to principal or corpus; that petitioners did not appear and make objection at the time fixed for hearing on the Fourteenth Annual Account for the reason that they were not then advised from the account and facts concerning their rights or the duties of the Trustee. The petitioners then asked that the order approving this account be vacated and set aside for the exclusive purpose of allowing the court to consider the appropriate allocation as between principal and income of the proceeds of such sale and the distribution of an appropriate share of the net sales to the income beneficiaries. Several sections of Restatement, Second, Trusts ³ and other authorities were urged in support of petitioners' contention.

To this on February 4, 1974, the Trustee filed a thirteen-page verified response and petition which requested the court to reject the petitioners' prayer and also to determine the authority of the Trustee regarding the disposition of the remaining trust estate. ⁴ Formal objections incorporating the Trustee's response were filed by the named contingent charitable beneficiaries. The court set February 22, 1974, for hearing on the issues presented. The foregoing is but an outline of the procedural aspects of the controversy; further reference of facts that may affect its disposition may be gleaned from the extensive settled record of over 400 pages of the Max A. Kuehn Estate, the Max A. Kuehn, Jr. Trust and the Carter A. Kuehn Trust, U/W of Max A. Kuehn, deceased, as well as the title to the properties originating from the Martin J. Kuehn Estate, and the extensive briefs which make brevity in their explanation difficult.

It appears that Max A. Kuehn died April 26, 1957, owning a half interest in three farms adjoining Sioux Falls and fractional interest in two buildings. Martin Kuehn, his brother, had died in 1952 owning the other half interest in the three farms and a fractional interest in the two buildings. Martin's will devised his half interest as follows: 1/4 each to Andrew and Curtis Kuehn, nephews of Max, Sr. and Martin; 1/4 to respondent Trustee in trust for a son of Max A. Kuehn, Sr., Carter A. Kuehn, which fraction is now held under the Katherine Kuehn Memorial Trust set up by Martin's will; and the last 1/4 to the same Trustee Bank in trust for Max A. Kuehn, Jr., another son of Max A. Kuehn, Sr., which since December 7, 1971, has been owned by Martha Kuehn Maierhauser, one of the petitioners herein.

The trust estate under the will of Max A. Kuehn, Sr., was held and operated as two separate trust parcels: the Carter trust and the Max, Jr. trust. On the death of Carter without issue in 1960, the assets of the parcel held in trust for his benefit were transferred and combined with the Max A. Kuehn, Jr. trust which now holds this interest. The above described title changes, the different interests, times and accounting procedures resulted in a rather complex, lengthy and extended record, familiar to the experienced and capable Trustee and its attorney who had lived with the trusts since their origin, but some problem to one not so situated. This is especially true with reference to figures in the accounts which indicated that the Trustee was allocating all the proceeds of the sales of the real property so as to be held for distribution to the contingent and charitable beneficiaries rather than to those who were related by blood or marriage to the creators of the trusts. The Fourteenth Annual Account, which the court approved on October 31, 1973, contained, among other things, the receipt of $64,087.50 from the sale to the City of Sioux Falls of a one-half interest in 85.45 acres and the receipt of $1,875 from the school district for a one-half interest in 2.5 acres. It appears that neither the income beneficiaries nor their counsel were at that time aware that they had any claim upon such proceeds as income. The report of the Trustee makes no reference to either the values at which these properties were appraised at the early stages of the trusts or to the current market value of the farm holdings so as to call attention to the great difference in those values, the income from past rentals as farm property or prospective income from a prudent investment of those proceeds.

On November 15, 1973, this court handed down its decision and opinion in In Matter of Estate of Kuehn, deceased, 1973, 87 S.D. 569, 212 N.W.2d 356, involving a will which established a trust similar to the one in the Max A. Kuehn, Sr. will with which we are now concerned. On December 28, 1973, the income beneficiaries filed their verified petition seeking to vacate the order of October 31, 1973, for the sole purpose of allowing the court to consider an appropriate allocation of principal and income of the proceeds of the sale of the real estate. After a hearing held February 22, 1974, the circuit judge issued a memorandum opinion on April 2, 1974, and on April 10, 1974, the court entered an order in accord therewith denying the petition. Petitioners appeal from the original order of October 31, 1973, and the order of April 10, 1974, denying their petition.

The circuit judge's opinion points out that RCP 58 (SDCL 15--6--58) states: 'A judgment or an order becomes complete and effective when reduced to writing, signed by the court or judge, attested by the clerk and filed in his office,' and that, while RCP 81(a) and Appendix A thereto provide that SDCL 21--22 (administration of trusts) is not governed by the Rules of Civil Procedure (RCP) insofar as it is inconsistent or in conflict with this chapter, '(t)here being no provision of such nature in SDCL 21--22, (RCP 58, supra, was) applicable (to the pending petition.)' After citing SDCL 15--6--60(b), the trial judge concluded '(t)he reasons advanced do not, in my opinion, justify the vacating of a previous order of the Court.' The trial judge made no comment on § 241, Restatement, Second, Trusts, and entered the aforesaid order denying the petition. We believe the circuit court abused its discretion in denying the petitioners' motion.

SDCL 15--6--60(b) so far as applicable here provides:

'On...