Toombs v. Daniels

• Decision Date: 01 March 1920
• Citation: 361 N.W.2d 801
• Parties: Carol Daniels TOOMBS, Respondent, v. David M. DANIELS, John H. Daniels, and Amelia Luzaich, Thomas Truman Daniels, et al., Appellants. In the Matter of the Trusteeship of the Trust Created under the Agreement and Declaration of Trust dated
• Court: Minnesota Supreme Court

Page 801

361 N.W.2d 801

Carol Daniels TOOMBS, Respondent, v. David M. DANIELS, John H. Daniels, and Amelia Luzaich, Thomas Truman Daniels, et al., Appellants.

In the Matter of the Trusteeship of the Trust Created under

the Agreement and Declaration of Trust dated March 1, 1920,

by and between John W. Daniels, Thomas L. Daniels, Amelia L.

Daniels and Frances H. Daniels, as Subscribers and John D.

Daniels, Thomas Daniels and Amelia L. Daniels as Trustees.

No. C9-83-89.

Supreme Court of Minnesota.

Jan. 25, 1985.

Syllabus by the Court

1. "Clearly erroneous" standard of appellate review applies, despite presence of documentary evidence, where greater volume of evidence was disputed oral testimony.

2. Phrase "children hereafter born to" in a trust instrument is technical phrase delineating class to which adoptees belong by virtue of 1923 adoption statute.

3. Draftsman who knew how to explicitly exclude future generations of adoptees would have used similar language to exclude adopted children of settlors.

4. Extrinsic evidence of settlors' intent to exclude adoptees insufficient to overcome presumption of inclusion.

5. Because trustees breached fiduciary relationship by silence, statute of limitations under Minn.Stat. Sec. 541.05, subd. 1(6) did not begin to run until action was brought.

6. Statute of limitations under Minn.Stat. Sec. 541.05, subd. 1(7) does not begin to run as to corpus until date of final distribution but begins to run as to each income payment when made.

7. Prejudgment interest in trust case is awarded upon liquidated or readily ascertainable damages and equitable basis for award, in this case, wrongful withholding of material information.

Lawrence C. Brown, Bonnie M. Fleming, Minneapolis, for David A. Daniels, John H. Daniels and Amelia Luziach.

John L. Hannaford, Alan I. Silver, St. Paul, for Cluett David K. Daniels, Thomas Truman Daniels, Thomas Tilden Daniels, Katherine A. Daniels, William C. Daniels, Forrest L. Daniels, III, and Carolyn Daniels.

John H. Daniels, Jr., Minneapolis, for Martha Daniels, Martha D. Jones, Martha W. Shull, Willard C. Shull, IV, John H. Daniels, Jr., Jane Daniels Moffett, Christopher W. Daniels and Cedar Daniels.

Lawrence E. Larson, Greenwich, Conn., for Jean D. Cluett and David K. Daniels.

Raymond A. Reister, Thomas Tinkham, William J. Berens, Minneapolis, for respondent.

Heard, considered and decided by the court en banc.

AMDAHL, Chief Justice.

The trustees and other beneficiaries of the John W. Daniels Trust Estate jointly appeal from a declaratory judgment entered by the Hennepin County District Court declaring that Carol Daniels Toombs is and has been, since her adoption in March 1936, a beneficiary of a trust created in 1920 by the agreement of four settlors: her grandparents, John H. and Amelia L., and her parents, Thomas L. and Frances H. Daniels. Carol was awarded the sum she would have received as a beneficiary less certain gifts made to her by her adoptive parents, including a special trust paid to her in 1970, for a total of $1,558,876.61. Interest was denied. The trustees were also directed to pay Carol, and all persons claiming through her, 1/4 of the income of the trust or such other portion due to the beneficiaries, as it becomes due but not less than annually, and the same fractional share of the principal upon any distribution. Carol assigns as error the trial court's refusal to award approximately $1,519,354.49 in prejudgment interest.

The trustees had petitioned the lower court for a construction of the trust instrument to the effect that adopted children are precluded from beneficiary status and for a determination that the intent of the settlors was specifically to exclude adopted children.

The trustees denied that Carol had any interest in the trust and alleged that her claim was barred by the applicable statute of limitations and by principles of equity, estoppel, waiver and/or laches.

We agree that the trust instrument does not explicitly exclude adopted children. We also agree that the trustees have not proven by extrinsic evidence that the intent of the settlors was to exclude adopted children. We therefore affirm the decision of the trial court but remand for a redetermination of Carol's interest in the income of the trust since October 4, 1973, and the awarding of prejudgment interest since that time.

John W. Daniels was a founder of the Archer-Daniels Linseed Company which became the Archer-Daniels-Midland Company. John married Amelia in 1879 and they had one son, Thomas. On March 1, 1920, the John W. Daniels Trust Estate was created by John W., (who was then 63 years of age,) Amelia (61), Thomas (27) and Frances (23), each of whom was a settlor, a trustee and a named beneficiary. Tom and Frances' son, Forrest (13 months old), was also a named beneficiary. The trust provided that at the death of a beneficiary, his or her executors, administrators or assigns would succeed to his or her rights. John H. Daniels was born to Tom and Frances in 1921. In 1923 the trust agreement was amended to add John H. as a named beneficiary and to add Article XI, the provision at issue in this litigation. Article XI provides, in pertinent part:

If any child or children are hereafter born to the said Thomas L. Daniels and Frances H. Daniels, his wife, such child or children shall share equally in the trust estate and the income thereof with the six beneficiaries hereinabove named, and the shares of the six beneficiaries hereinabove named shall be reduced accordingly, and the number of units increased accordingly.

Upon the death of John W. Daniels, his entire interest in the trust estate shall be added to the share of Amelia L. Daniels if she be then living, and, if she be not then living, shall be added in equal parts to the shares of those then surviving of the following named beneficiaries, to wit: Thomas L. Daniels, Frances H. Daniels, Forrest L. Daniels, John H. Daniels, and any other children hereafter born to the said Thomas L. Daniels and Frances H. Daniels; * * *,

(emphasis added). The provision repeats the above language with regard to the death of each of the other settlors and then concludes as follows:

[B]ut if any of the children of Thomas L. and Frances H. Daniels shall die before the termination of the trust, leaving a spouse or issue or both, the survivors from time to time of such spouse and issue shall take in equal shares the share of income and principal to which such deceased child would have been entitled if living, including any amounts which would have been added thereto from the shares of other deceased beneficiaries if such child has survived. The term 'issue' shall not include adopted children.

(emphasis added).

The 1923 Amendment revoked all power to amend or alter the trust instrument. Tom and Frances had a third son, David, in 1927, who immediately became a beneficiary pursuant to the amended Article XI.

The principal settlor, John W., died in 1931. In 1936, a baby girl, Carol, was adopted by Tom and Frances. The adoption order provided that Carol should

to all legal intents and purposes, be the child of the petitioners [Tom and Frances] and for the purpose of inheritance and all other legal incidents and consequences, shall be the same as if she had been born to them in lawful wedlock.

John's wife Amelia died in 1938. Tom's wife Frances died in March of 1969 and Tom remarried. Tom died in 1977. The trust is to terminate in 1998, twenty-one years after the death of the last surviving settlor, Tom.

The entire family and the outside trustees were under the impression, and frequently told Carol over the years that the provisions of the trust were unchangeable and precluded Carol from being a beneficiary. Hence, the trustees had never given Carol any interest in or accounting of the trust until this action. Tom set up a separate trust for Carol because she was not a beneficiary of the John W. Daniels trust. He also made substantial gifts to her for the same reason. But these were not given in exchange for any agreement not to contest the trust. Moreover, there was evidence that he also made substantial gifts to his two sons and the total Tom gave to Carol did not approach the amount she would have been entitled to receive had she been included in the John W. Daniels Trust.

In 1969 Carol became aware that a court might construe the phrase "child of" in a trust instrument to include adopted children. She asked Amelia Luzaich, a trust employee and current trustee, to show her the trust instrument. Amelia only showed Carol part of the instrument and upon finding the language "hereafter born to" instead of "child of" Carol concluded she had no colorable claim. She made no further inquiries about the trust until 1977 except for one conversation with her stepmother June Daniels in the early 1970's. At that time June said that she had consulted a California attorney who concluded that neither June nor Carol had any claim to the trust.

After Carol's visit in 1969, Amelia Luzaich consulted with Tom, John H. and various attorneys. The substance of these conversations is largely unknown because of the invocation of the attorney-client privilege but both John H. and Amelia Luzaich admitted that from that point on they knew there was a possibility that the court would declare Carol to be a beneficiary. They also knew that they could have instituted a legal action to have the question resolved. The trustees chose not to do so. Nor did they inform Carol of this knowledge even though Amelia, throughout this time period, had the responsibility for handling all of Carol's financial affairs including making out tax returns, arranging investments, having the power of attorney and the key to her safety deposit box, and even controlling Carol's children's savings accounts.

Shortly after her father Tom died in 1977, Carol realized that she could no longer count on her father should she or her children require...