Nelson v. Nelson

• Decision Date: 17 April 2009
• Docket Number: No. 97,664.,97,664.
• Citation: 205 P.3d 715
• Parties: Albert H. NELSON, III, and Markeyta Nelson Dewey, Appellants, v. Doris H. NELSON; Oklahoma State University Foundation, an Oklahoma Non-profit Corporation; Wichita State University Foundation, a Kansas Non-profit Corporation; and Markeyta Nelson Dewey, in her capacity as Successor Trustee of the Albert H. Nelson, Jr., Irrevocable Trust, Appellees.
• Court: Kansas Supreme Court

205 P.3d 715

Albert H. NELSON, III, and Markeyta Nelson Dewey, Appellants, v. Doris H. NELSON; Oklahoma State University Foundation, an Oklahoma Non-profit Corporation; Wichita State University Foundation, a Kansas Non-profit Corporation; and Markeyta Nelson Dewey, in her capacity as Successor Trustee of the Albert H. Nelson, Jr., Irrevocable Trust, Appellees.

No. 97,664.

Supreme Court of Kansas.

April 17, 2009.

William P. Tretbar, of Fleeson, Gooing, Coulson & Kitch, L.L.C., of Wichita, argued the cause and was on the brief for appellants.

Coy M. Martin, of Moore Martin, L.C., of Wichita, argued the cause, and Ted D. Ayres, of Wichita State University Foundation, Robert W. Coykendall, of Morris Laing Evans Brock & Kennedy, Chtd., of Wichita, and Scott D. Jensen, of Bever Dye, L.C., of Wichita, were with him on the brief for appellees.

The opinion of the court was delivered by LUCKERT, J.:

This appeal raises the question of whether a claim must be made against a decedent's estate when it is alleged the decedent breached a contract to place his entire estate in a testamentary trust for the benefit of his adult children. The district court and the Court of Appeals in Nelson v. Nelson, 38 Kan.App.2d 64, 162 P.3d 43 (2007), held the decedent's assets were not subject to a constructive trust because a claim had not been made against the decedent's estate within the period of limitations imposed by the Kansas nonclaim statute, K.S.A. 59-2239. Upon review of those decisions, we affirm.

Background

Albert H. Nelson, III, and Markeyta Nelson Dewey (Appellants) are the adult children of Margaret Nelson and Albert H. Nelson, II (Albert). After 33 years of marriage, Margaret and Albert divorced in 1975. Paragraph 9 of their property settlement agreement provided:

"Husband further covenants and agrees with Wife that Husband will execute and maintain, in full force and effect, a Will creating a testamentary trust to be funded by and with Husband's entire estate. Said trust will provide that the two (2) children of the parties hereto shall receive one-half (½) of the income from the trust after deduction of all taxes, debts, costs and expenses of administration; provided, however, that upon the death of either such child, said child's share of income shall be paid to the surviving child; provided, further, that the remaining debt, if any, of Husband to Wife under paragraph 2 hereof shall be deducted from the amount otherwise distributable to said children or child from said trust. The payments to said children or child shall be made not less often than annually."

The property settlement agreement was approved by the district court and incorporated by reference as part of the journal entry and decree of divorce. There is, therefore, no dispute about the existence of the contract. Rather the parties argue over the meaning of the term "entire estate." The Appellees suggest the agreement relates to probate assets only, and the Appellants suggest the parties intended to include probate and nonprobate assets. The Appellants contend their father violated the clear meaning of this term by gifting substantial amounts of property that should have been preserved for the Appellants' benefit and by not including his entire estate in a testamentary trust for their benefit.

Regarding the gifts, Appellants complain about substantial donations their father made to the Oklahoma State University Foundation and gifts he made to his second wife, Doris. Albert and Doris were married approximately 3 years after his divorce from Margaret, and they remained married until his death in 2003. Albert's first substantial gift to Doris was made in May 1987 when Albert deeded to Doris the real estate on which his business, Globe Engineering Co., Inc., operated; the deed stated the consideration as "one dollar and love and affection." Subsequently, Globe paid rent to Doris for its use of the property. In addition, in October 1990, Albert and Doris purchased a residence in Florida, and a warranty deed conveyed the Florida property solely to Doris. Albert also designated Doris as the surviving beneficiary of his pension fund.

In addition to complaining about these "gifts," the Appellants assert their father breached the property settlement agreement and divorce decree by not placing his remaining assets in a testamentary trust for their benefit. At the time of his death, Albert's estate plan consisted of two inter vivos trusts and a pour-over will, as opposed to the will and testamentary trust contemplated by the settlement agreement. The change in form is not the source of the complaint, however. Rather, Appellants complain that Albert made them beneficiaries of only one of the two inter vivos trusts he had funded during his lifetime and, thus, failed to designate them as beneficiaries of one-half of the income of his entire estate or an equivalent value in corpus.

The inter vivos trust that benefits the Appellants is designated the Albert H. Nelson, Jr., Living Trust (living trust). Under the trust agreement, Albert served as trustee during his lifetime and Doris was designated the successor trustee upon Albert's death or disability. Albert had discretion during his lifetime to pay himself all or part of the income or principal of the trust. Upon Albert's death, one-half of the assets were to be held in the Doris H. Nelson Income Trust (income trust) and the other half of the assets were to be held in trust for the Appellants. The Appellants were to receive an annuity equal to six percent of the net fair market value of the assets held in trust for them. The annuity was to be divided in equal shares between the Appellants; if one of the Appellants died, the entire annuity was to be distributed to the survivor. The length of the annuity distribution was capped at 16 years to comply with charitable trust requirements. Upon the death of both Appellants, the remaining assets were to be distributed to Oklahoma State University Foundation and Wichita State University Endowment Association in equal shares. Likewise, upon Doris' death, the remainder of the assets in the income trust were to be distributed equally between Oklahoma State University Foundation and Wichita State University Endowment Association.

The second inter vivos trust was named the Albert H. Nelson Irrevocable Trust (irrevocable trust), with Doris designated as trustee and Albert's daughter, Markeyta Nelson Dewey, designated as successor trustee. All trust income and, if necessary, the principal were to be paid to Doris for the rest of her life. Upon Doris' death, the remaining assets were to be distributed equally between Oklahoma State University Foundation and Wichita State University Endowment Association. The irrevocable trust authorized the trustee to sell, assign, convert, convey, or dispose of assets in the trust.

Several months after establishing the living trust and the irrevocable trust, Albert conveyed all of his stock in Globe to the two trusts in roughly equal shares. Later, all Globe shares owned by both trusts were sold to the Globe employee stock ownership plan.

Albert subsequently died in Florida on June 19, 2003. Although Albert's pour-over will provided for the delivery of any assets owned by Albert at his death to the trustee of the living trust, there were no estate assets subject to the effects of the will because Albert held all of his legal interests in property as a trustee, joint tenant, or beneficiary of a profit sharing plan.

Shortly after Albert's death, Albert's attorney wrote the Appellants, referencing paragraph 9 of the 1975 property settlement agreement and enclosing a copy of Albert's will and the living trust. The letter explained that certain items of personal property and the residence that were referenced in the trust agreement were actually owned by Doris and, therefore, were not part of Albert's estate. The attorney did not inform the Appellants about the irrevocable trust, and they did not learn of its existence until they received the estate's tax return.

Soon after becoming aware of the second trust, the Appellants filed this suit in April 2005. This was the first claim to any assets outside the living trust. The Appellants had not taken any action to file a petition for administration of an estate in Kansas and had not filed a claim against Albert or his estate in Florida.

When this action began, Markeyta was listed as one of the defendants because she was successor trustee of the irrevocable trust. Several months later, Intrust Bank, N.A., was substituted as trustee to the irrevocable trust and became a defendant in the lawsuit. Then, during the pendency of this appeal and upon Doris' death, Carl B. Simonye, her personal representative under letters of administration issued by the Circuit Court of Manatee County, Florida, on July 18, 2008, was substituted as a party.

In proceedings before the district court, the Appellants filed a motion for partial summary judgment, arguing they were entitled to an order imposing a constructive trust on a portion of the assets Albert had transferred to Doris. The Appellants also argued they were entitled to an order requiring Doris to account for income generated since Albert's death by the "gifted assets." Finally, the Appellants seek a money judgment against Doris for the amount they should have received under the 1975 property settlement agreement and any income that would have been produced since Albert's death "but for his substantial gifts to others."

The Appellees, in addition to responding to the Appellants' motion for partial summary judgment, filed a cross-motion in which they argued the Appellants' claims failed as a matter of law for the following reasons: (1) The property settlement agreement did not impose the contractual duties identified by the Appellants, let alone contractual duties that would bind any of the Appellees; (2) the Appellants' claims were barred or limited by...