Templeton v. Peoples Nat. Bank of Washington

• Decision Date: 26 June 1986
• Docket Number: No. 52221-9,52221-9
• Citation: 106 Wn.2d 304,722 P.2d 63
• Parties: Frances TEMPLETON, Respondent, v. PEOPLES NATIONAL BANK OF WASHINGTON, Appellant.
• Court: Washington Supreme Court

Page 304

106 Wn.2d 304

722 P.2d 63

Frances TEMPLETON, Respondent, v. PEOPLES NATIONAL BANK OF WASHINGTON, Appellant.

No. 52221-9.

Supreme Court of Washington,

En Banc.

June 26, 1986.

Short & Cressman, John Burgess, Seattle, for appellant.

McKisson & Sargent, Inc., Robert McKisson, Seattle, for respondent.

GOODLOE, Justice.

The appellant, Peoples National Bank of Washington (Bank) is the trustee of a trust established by Dr. Frederic Templeton, now deceased. The respondent, Frances Templeton (Mrs. Templeton) is Dr. Templeton's surviving spouse and the income beneficiary of the decedent's trust. In 1936, Dr. Templeton contracted for a retirement fund with Teachers Insurance and Annuity Association (TIAA) and in After his first wife's death in 1972, Dr. Templeton executed a Living Trust Agreement appointing the Bank as trustee. As trustor, Dr. Templeton gave the Bank power to "[d]etermine what is principal or income, which authority shall specifically include the right to make any adjustments between principal and income for premiums, discounts, depreciation or depletion". Exhibit 1. Various stocks and bonds were placed in the trust at this time.

                1954 he contracted with College Retirement Equities Fund (CREF).   Dr. Templeton contracted to make contributions and to have his employer make contributions to these annuity funds in exchange for the guarantee that, upon retirement, he would receive monthly payments from these funds for a selected period of time.   The terms of these contracts allowed Dr. Templeton to designate a beneficiary of the annual annuity payments.   Dr. Templeton originally named his first wife as beneficiary of TIAA and CREF.   He had two children from his first marriage, and they were named as contingent beneficiaries of CREF
                

In May 1975, Dr. Templeton remarried. In July 1975, Dr. Templeton changed the beneficiary designation of his TIAA/CREF annuities to his estate and elected to receive his monthly annuity payments for a period of 10 years. In August 1975, Dr. Templeton retired and began receiving monthly payments from the TIAA/CREF retirement funds. In December 1975, he executed an Amendment to Living Trust Agreement to provide that all income from the trust be paid to Mrs. Templeton during her lifetime. After her death, the trust principal and assets were designated to pass to Dr. Templeton's two children.

In February 1976, Dr. Templeton changed the beneficiary designation of both TIAA and CREF annuities from the estate to the Bank as trustee under the trust agreement. In June 1979, Dr. Templeton executed a will stating: "I have made provision for my wife ... by directing that certain funds payable from [the retirement plans] be paid directly to her in the event of my death." Exhibit 4. In August 1980, Dr. Templeton died. After his death annuity The dispute in this case is over the proper allocation of the TIAA/CREF annuity payments. Mrs. Templeton filed a Complaint for Declaratory Judgment asking that all the payments from TIAA/CREF be designated as income under the terms of the trust and distributed to her as such. The matter was tried in King County Superior Court. The trial court found that there was an ambiguity in the documents presented in evidence, particularly in view of Dr. Templeton's will. After reviewing additional evidence, the court determined it was Dr. Templeton's intent that the TIAA/CREF annuity payments pass through the trust and be paid in full to Mrs. Templeton. The Bank appealed to the Court of Appeals, and the Court of Appeals transferred the case to this court for disposition.

                payments from TIAA/CREF were paid to the trust and managed by the Bank as trustee.   The Bank allocated the major portion of the annuity payments to "principal" and distributed the balance as "income" to Mrs. Templeton.   In a 39-month period the bank received TIAA/CREF annuity payments of $81,760.64, of which $19,322.94 was credited to income payable to Mrs. Templeton
                

The issue to be decided is whether the trial court erred when it determined that Dr. Templeton's trust was ambiguous, and consequently determined on the basis of extrinsic evidence that Dr. Templeton intended for his wife to receive his retirement annuities in toto after his death. The Bank contends that Dr. Templeton explicitly gave it, as trustee, clear discretion to determine which funds in the trust are income and which funds are principal. As trustee, the Bank argues that of the $81,760.64 it received in a 39-month period in TIAA/CREF annuities, it properly exercised its discretion by allocating only $19,322.94 to income for disbursement to Mrs. Templeton. The 1972 trust agreement provision in controversy states:

ARTICLE IV

AUTHORITY GRANTED TRUSTEE

In addition to the authority otherwise given by law, the Trustee shall have the power and the exercise of discretion 1. Determine what is principal or income, which authority shall specifically include the right to make any adjustments between principal and income for premiums, discounts, depreciation, or depletion; ...

in the application thereof, to:

Exhibit 1. The 1975 amendment to the trust reads, in part:

ARTICLE III

Section Four

Upon the death of the Trustor, the Trustee shall distribute the income from the said Trust to FRANCES TEMPLETON, wife of the Trustor, as long as she shall live. Upon the death of said FRANCES TEMPLETON the principal and assets of said Trust shall be distributed equally to [the two children from a first marriage].

(Italics ours.) Exhibit 2.

At the outset of proceedings the trial court reviewed four documents initially presented in evidence: (1) the trust agreement; (2) the amendment to the trust agreement; (3) Dr. Templeton's last will; and (4) the beneficiary designations under the TIAA and CREF contracts. In essence, the court concluded on the basis of these four documents: (1) that an ambiguity in Dr. Templeton's testamentary plan existed, and (2) that the ambiguity could be resolved by reference to extrinsic evidence.

The Bank contends that the four corners of the trust document alone provide adequate evidence of Dr. Templeton's testamentary intent with respect to post-death distribution of TIAA/CREF annuities. Consequently, it opposes the trial court's admission of extrinsic evidence, including the will, for the purposes of ascertaining Dr. Templeton's trust intent and further contends that the trial court erred in finding that the trust document itself was ambiguous. We agree. Although the court declared the trust document ambiguous, it apparently did so only after or in concurrence with its examination of extrinsic evidence, i.e., Dr. Templeton's will. Furthermore, the trial court failed to point out the exact language in the trust document that it believed was unclear.

We follow the approach as set forth in Old Nat'l Bank & Union Trust Co. v. Hughes, 16 Wash.2d 584, 587, 134 P.2d 63 (1943), which states: "Primarily, [the trustor's] intent and purpose must be derived from the terms of the instrument--construing all the provisions together." (Citation omitted.) For additional guidance, we look to 90 C.J.S. Trusts § 161, at 18-19 (1955), which provides a persuasive summation of the rules adopted by other jurisdictions in matters of trust construction.

Where the meaning of an instrument evidencing a trust is unambiguous, the instrument is not one requiring judicial construction or interpretation; if the intention may be...