University of Maine Found. v. Fleet Bank

• Decision Date: 24 February 2003
• Citation: 817 A.2d 871,2003 ME 20
• Parties: UNIVERSITY OF MAINE FOUNDATION v. FLEET BANK OF MAINE.
• Court: Maine Supreme Court

817 A.2d 871

2003 ME 20

UNIVERSITY OF MAINE FOUNDATION v. FLEET BANK OF MAINE.

Supreme Judicial Court of Maine.

Submitted On Briefs: January 23, 2003.

Decided: February 24, 2003.

Charles E. Gilbert III, Gilbert & Greif, P.A., Bangor, for plaintiff.

John A. Woodcock Jr., Weatherbee, Woodcock, Burlock & Woodcock, P.A., Bangor, for defendant.

Panel: CLIFFORD, RUDMAN, DANA, ALEXANDER, CALKINS, and LEVY, JJ.

RUDMAN, J.

[¶ 1] Fleet Bank of Maine appeals from a summary judgment entered in the Hancock County Probate Court (Patterson, J.) in favor of the University of Maine Foundation, ordering an early distribution of a substantial portion of the corpus of a trust created under the will of Charles E. Gilbert. Fleet contends (1) an early distribution or termination of the trust is contrary to law, and (2) the summary judgment was improper because it was prevented from offering evidence on the issue of the Foundation's good faith in proposing a termination of the trust. The Foundation cross-appeals, seeking to terminate the trust and transfer responsibility for the maintenance of the Gilbert family mausoleum to it or, alternatively, to decrease the amount withheld to satisfy the trustee's on-going responsibilities. We affirm the decision of the Probate Court, and remand for a determination of the amount to be withheld.

I. CASE HISTORY

[¶ 2] Charles E. Gilbert executed a will on June 5, 1952, and a codicil to this will on November 12 of that same year. Gilbert died on April 30, 1953. In his will, Gilbert exercised a power of appointment granted to him by his wife's will and he created a trust with the residual of his estate (the Gilbert Trust). Gilbert exercised the power of appointment in favor of the Foundation to create the "Charles E. Gilbert Fund" — a fund to provide loans to students seeking post-graduate studies as doctors of medicine, dentistry, and veterinary medicine. The Merrill Trust Company, now Fleet Bank of Maine, was named trustee of the Gilbert Trust.

[¶ 3] The terms of the Gilbert Trust provide for annual and periodic payments from trust income and principal, including a priority for each. The first provision directs the trust income and, if necessary, invasion of principal to maintain, repair, and insure the Gilbert family mausoleum. The second provision directs ten $1,000 annual support payments to Grace M. Thomas. The third provision directs a $200 annual payment to the Foundation for an annual scholarship to the Alpha Tau Omega fraternity at the University of Maine.¹ The fourth provision directs the trustee to use income remaining after fulfilling the first three obligations to pay for an annual appraisal and, if necessary, repay principal to its original value. The fifth provision directs remaining income to pay named living family members a maximum of $5,000 annually for life, subject to a spendthrift clause. Any remaining income is directed to the Foundation.

[¶ 4] The sixth provision directs termination of the trust upon the death of the last life-beneficiary, with the remaining principal and undistributed income to be transferred to the Foundation and made a part of the "Charles E. Gilbert Fund." The Foundation is then charged with the continuing responsibility for the care and maintenance of the mausoleum and fraternity scholarship. The provision then declares, "[i]t is my fundamental intention that the net yield from this fund shall in the ultimate be available for the `Charles E. Gilbert Fund' ... and shall be consolidated with the yield from the fund created [by my power of appointment] ... to the end that there shall be but one `Charles E. Gilbert Fund'...."

[¶ 5] The present controversy arises from a dispute over Gilbert's intent in creating the Gilbert Trust and disposition of its assets. The trust principal has grown at a good rate — the principal was valued at approximately $3.13 million in 1990 and grew to approximately $9.34 million by 2000. The Foundation, as the remainderman, contacted the three remaining life-beneficiaries and made an offer to pay them $25,000 annually, as opposed to $5,000, provided each would renounce his or her interest in the trust and agree to an early termination of the trust.

[¶ 6] The life-beneficiaries signed and acknowledged renunciations of their interests and consented to the termination of the trust. The Foundation presented these renunciations to Fleet and demanded the termination and transfer of the trust's corpus, which Fleet rejected. The Foundation brought an action to settle the dispute.

[¶ 7] The Foundation and Fleet filed motions for a summary judgment. The Probate Court found that premature termination was not against the settlor's intent, explaining that our decisions support premature termination of a trust when it is not contrary to the settlor's intent, is made in good faith, and is agreed to by all beneficiaries. The court ordered a premature termination of the Gilbert Trust, but ordered Fleet to retain sufficient funds, invested at its one-year CD rate, to assure the life-beneficiaries' annual income payments and payment of its fees.

[¶ 8] In response to Fleet's M.R. Civ. P. 52 motion for further findings of fact and conclusions of law, the court responded by revising its decision, ordering Fleet to retain responsibility for the mausoleum and fraternity scholarship in addition to its responsibilities toward the life-beneficiaries. The court also revised its characterization of its disposition of the corpus from an "effective premature termination of the trust" to a "premature distribution of a substantial portion of the trust assets." A stay of execution was granted, and this appeal followed.

II. DISCUSSION

[¶ 9] When, as here, the trial court finds no ambiguity in a document (e.g. will, trust, contract) and declines to take extrinsic evidence, we review the court's interpretation of the document de novo. In re Ross Family Trusts, 2002 ME 89, ¶ 5, 797 A.2d 1268, 1269-70. We interpret the plain language of a trust document, reading it as a whole to give effect to the settlor's intent. Cassidy v. Murray, 144 Me. 326, 328, 68 A.2d 390, 391 (1949) ("[T]hat intention must be found from the language of the will read as a whole....").

[¶ 10] Generally, a court may terminate a trust when its purpose has been accomplished or when there is no good reason for the trust to continue and all beneficiaries are competent and release their interests. Kimball v. Blanchard, 101 Me. 383, 390, 64 A. 645, 648 (1906); Cady v. Tuttle, 127 Me. 104, 108, 141 A. 188, 190 (1928). A trust may not be terminated early if: (1) the time fixed by the settlor has not elapsed, Cady, 141 A. at 190, or (2) there is a purpose that has not been accomplished, Kimball, 64 A. at 648. To determine whether the settlor's purpose has been accomplished, courts must determine the settlor's intent. See, e.g., In re Estate of Burdon-Muller, 456 A.2d 1266, 1270 (Me.1983). The settlor's intent in creating a testamentary trust is determined by "the first and most potent rule of construction — the evident intention of the testator as gathered from the whole will." Dodge v. Dodge, 112 Me. 291, 295, 92 A. 49, 50 (1914).

[¶ 11] A settlor may restrict beneficiary rights by granting a qualified estate. See Tilton v. Davidson, 98 Me. 55, 57-58, 56 A. 215, 216 (1903). One means of granting a qualified estate is the use of spendthrift clauses, which are recognized in Maine. See, e.g., id. A spendthrift clause precludes a life or term of years beneficiary from alienating or anticipating trust income, and makes the interest unreachable by the beneficiary's creditors. See RESTATEMENT (SECOND) OF TRUSTS § 152(1) (1959); Lessard v. Metro. Life Ins. Co., 568 A.2d 491, 497 (Me.1989); Hinds v. Hinds, 126 Me. 521, 525-26, 140 A. 189, 191 (1928); Tilton, 56 A. at 216. Spendthrift clauses carry out the intent of the settlor and represent a material purpose of the settlor, see RESTATEMENT (SECOND) OF TRUSTS § 337 cmts. g, 1 (1959), the purpose being to prohibit beneficiaries from control and management of trust income and/or principal while the clause remains effective, see id. § 337 cmt. 1. Beneficiaries, therefore, may not prematurely terminate a trust restricted by such a clause. See id.; see also Kimball, 64 A. at 648 (stating active trusts may not be terminated at the will of beneficiaries).

[¶ 12] The Gilbert Trust, therefore, may not be prematurely terminated. Cady, 141 A. at 190 (terminating trust before time fixed by settlor elapsed is improper); Kimball, 64 A. at 648 (terminating trust while active trust purpose remains is improper). Likewise, if a beneficiary's interest is restricted by a spendthrift clause, the trust cannot be partially terminated in favor of the beneficiary because the settlor's purpose was to exclude the beneficiary from management and control of the trust assets. See RESTATEMENT (SECOND) OF TRUSTS §§ 152(1), 337 cmts. 1, q.

[¶ 13] Here, however, the Probate Court ordered a partial termination of the Gilbert Trust by directing Fleet to continue as trustee over the active portions of the trust, to retain sufficient funds to fulfill those responsibilities, and to release the surplus assets. The court fashioned its remedy to protect the interests of the life-beneficiaries — annual payments being one material purpose of the trust — and to comply with Gilbert's intent by denying them access to the trust assets pursuant to the spendthrift clause.

[¶ 14] It is relevant to return to Gilbert's "fundamental intention" for creating this trust: to ultimately provide the Gilbert Trust principal and undistributed income to the Foundation for incorporation into the "Charles E. Gilbert Fund." It is clear that Gilbert restricted the life-beneficiaries' interests out of a desire to preserve the trust principal to benefit the "Charles E. Gilbert Fund." The consolidation of trust corpora was Gilbert's second purpose in creating the Gilbert Trust.

[¶ 15] Courts in other...