Wetherill v. Basham

• Decision Date: 25 January 2000
• Docket Number: No. 2 CA-CV 98-0230.,2 CA-CV 98-0230.
• Citation: 3 P.3d 1118,197 Ariz. 198
• Parties: Gwendolyn Renee WETHERILL, a married woman in her own right, Plaintiff/Appellant, v. Robin L. BASHAM and Joe Basham, husband and wife; William Wissler, Defendants/Appellees.
• Court: Arizona Court of Appeals

3 P.3d 1118

197 Ariz. 198

Gwendolyn Renee WETHERILL, a married woman in her own right, Plaintiff/Appellant, v. Robin L. BASHAM and Joe Basham, husband and wife; William Wissler, Defendants/Appellees.

No. -0230.

Court of Appeals of Arizona, Division 2, Department A.

January 25, 2000.

Durazzo & Eckel, P.C. By Patric E. Durazzo, Tucson, for Plaintiff/Appellant.

Chandler, Tullar, Udall & Redhair, L.L.P. By John J. Brady and Charles A. Davis, Tucson, for Defendant/Appellee Wissler.

Clifford G. Bleich Law Office By Marianne Poston, Tucson, for Defendants/Appellees Basham.

OPINION

PELANDER, Presiding Judge.

¶ 1 In this case involving disposition of assets in a family trust, plaintiff/appellant Gwendolyn Renee Wetherill appeals from the trial court's order granting summary judgment in favor of defendants/appellees. In affirming that order, we hold that a co-settlor's amendment to the trust, though ineffective as such, nonetheless served as an effective, though inadvertent, exercise of a power of appointment under the trust so as to change the sole remainder beneficiary. We also hold that the attorney who represented the co-settlor in preparing the amendment owed no duty to Wetherill, the disinherited beneficiary, with whom he had no attorney-client relationship and whose interest was directly adverse to his client's.

BACKGROUND

¶ 2 The pertinent facts are straightforward and undisputed. In 1976, Edward and Renee Kerns, husband and wife, created a family trust. The trust named the Kerns' only child, Wetherill, as sole remainder beneficiary. Edward was named as the trustee, and both he and Renee were named as joint settlors of the trust. ¶ 3 When Edward became legally incapacitated in 1992 because of Alzheimer's disease, Renee was appointed as his guardian and conservator. Renee retained defendant/appellee William Wissler, an attorney, in December 1993. Under his counsel, in early 1994, Renee appointed herself successor trustee and amended the trust for the sole purpose of removing Wetherill as remainder beneficiary and successor trustee and replacing her in those capacities with defendant/appellee Robin Basham, one of Wetherill's children. The amendment stated, inter alia:

The purpose of this ... Amendment is to substitute ROBIN L. BASHAM in place of [Wetherill]. More specifically, the Settlors, by this ... Amendment, intend to eliminate all reference whatsoever to [Wetherill] and preclude her from being a Beneficiary, Successor Beneficiary, Trustee, Successor Trustee or Alternate Trustee in any way, shape or form whatsoever. It is the intent of the Settlors that one of their granddaughters, ROBIN L. BASHAM, be substituted in place of [Wetherill] and in the event ROBIN L. BASHAM should be predeceased then another of the Settlors' granddaughters, PAMELA G. MURPHY, should succeed in place of ROBIN L. BASHAM.

Renee signed that amendment not only as settlor and successor trustee, but also on Edward's behalf as his guardian and conservator. Wissler prepared the amendment and notarized Renee's signatures on it.

¶ 4 Edward died in November 1995. Upon his death, pursuant to its terms, the family trust split into two newly created trusts: the decedent's trust, which was irrevocable, and the survivor's trust, which was not. Essentially, one-half of the Kerns' community property and Renee's interest in any life insurance proceeds received by reason of Edward's death were transferred into the survivor's trust, and the remaining community property and all other assets were transferred into the decedent's trust.

¶ 5 Renee died in December 1995, less than one month after Edward's death. Pursuant to the residuary clause in her will, all her separate property and her one-half share of community property were transferred to the trust, "as amended." The trust required the trustee, upon the survivor's death, to give the assets of the survivor's trust to "such person or persons, or to the estate of the Survivor, upon such terms, conditions and limitations as the Survivor appoints by the last unrevoked written instrument, other than a Will, executed by the Survivor and delivered to the Trustee." Based on the amendment that Renee had executed in 1994, Basham took possession and control of all trust assets in both the survivor's and decedent's trusts, prompting this action by Wetherill.

¶ 6 In her complaint, Wetherill claimed entitlement to all trust assets. She alleged, inter alia, breach of fiduciary duty and unjust enrichment against Basham and breach of fiduciary duty against Wissler. On the parties' cross-motions for summary judgment, the trial court entered summary judgment in favor of Basham and Wissler and denied Wetherill's motions. This appeal followed.

DISCUSSION

I. Claims Against Basham

¶ 7 The family trust contained a provision relating to its amendment and revocation, which stated:

The Settlors together may amend, alter, revoke or terminate this Agreement, or any provision of this Agreement in whole or in part, by an instrument in writing signed by them and delivered to the Trustee.

Upon the death of the first Settlor to die ("Decedent"), the Decedent's Trust shall be irrevocable; the surviving Settlor ("Survivor"), may amend, alter, revoke or terminate the Survivor's Trust by an instrument in writing signed by the Survivor and delivered to the Trustee in the lifetime of the Survivor.

Citing A.R.S. § 14-5424, In re Estate and Trust of Pilafas, 172 Ariz. 207, 836 P.2d 420 (App.1992), and In re Marital Trust, 169 Ariz. 443, 819 P.2d 1029 (App.1991), the trial court concluded that Renee's 1994 amendment replacing Wetherill with Basham as remainder beneficiary was "not an effective amendment to the Trust."¹ The court reasoned that "the power to amend was reserved personally to Mr. Kerns," and a conservator's powers under § 14-5424 "do not include the power to alter or amend testamentary instruments of trust."

¶ 8 The trial court also ruled, however, that the following provision in the trust granted a special power of appointment (POA) to Renee, as survivor, with respect to the decedent's trust:

Powers of Appointment. During the Survivor's lifetime, or upon the death of the Survivor, so much of the principal of the trust estate shall be paid over to or for the benefit of Settlors' descendants, either outright or in trust, upon such conditions, and in amounts and at such times, as the Survivor may direct and appoint by written instrument delivered to the Trustee. In no event is the power of appointment conferred by this paragraph to be exercised by the Survivor in favor of the Survivor, his or her estate, his or her creditors, or the creditors of his or her estate.

That paragraph (the POA provision) was contained in article IX of the family trust, relating to administration of the decedent's trust. Based on the POA provision and comment a to the Restatement (Second) of Property (Donative Transfers) § 18.4 (1986) (Restatement), the trial court concluded that "the attempted amendment to the trust agreement by Renee Kerns [was] a valid exercise of her special power of appointment over the Decedent's Trust."²

¶ 9 The parties have framed the issue relating to that ruling, which Wetherill challenges on several grounds, as follows: Whether Renee's amendment to the trust, though ineffective as an amendment, was a valid exercise of the trust's special POA after Edward's death so as to change the remainder beneficiary, the same purpose for which Renee had executed the amendment. Because the facts are undisputed, we determine de novo whether the trial court correctly applied the substantive law to those facts.Carden v. Golden Eagle Ins. Co., 190 Ariz. 295, 296, 947 P.2d 869, 870 (App.1997). We will affirm the trial court's ruling if it is legally correct on any ground. Hale v. Amphitheater School Dist. No. 10, 192 Ariz. 111, ¶ 5, 961 P.2d 1059, ¶ 5 (App.1998).

¶ 10 Wetherill contends the trial court erred in deeming the amendment sufficient to constitute a valid exercise of the special POA that applied to the decedent's trust. To support that argument, Wetherill relies on Restatement § 18.4, which provides: "A power of appointment is not effectively exercised by an otherwise legally effective instrument of appointment that undertakes to exercise the power before the power is created or before a condition precedent to the power's exercise has been satisfied." Based on that section and the trust's POA provision, Wetherill contends Renee's ineffective amendment in 1994 could not effectively exercise the POA because (1) the amendment itself was not a "legally effective instrument," as the trial court ruled; (2) Renee executed the amendment before the decedent's trust was created when Edward died and, thus, before the POA was created; and (3) a condition precedent to exercise of the POA—the death of one of the two settlors, leaving a survivor—had not been fulfilled when Renee executed the amendment.

¶ 11 Wetherill's argument has several flaws. First, although the trial court determined that Renee's 1994 amendment was not "effective" to amend the trust, the court did not find the amendment totally "void" or "invalid" for all purposes, as Wetherill suggests. The only case Wetherill cites for the proposition that the amendment "should be regarded as void" with "no legal force or binding effect" is totally inapposite. Chicago Title Ins. Co. v. Renaissance Homes, Ltd., 139 Ariz. 494, 679 P.2d 517 (App.1983) (addressing the state's statutory authority to amend real estate agreement with competitive bidder). That the 1994 amendment was ineffective to amend the trust did not necessarily render it void for all purposes.

¶ 12 Second, Wetherill apparently confuses and incorrectly equates the creation of the POA with its exercisability. A POA is created when one person (the donor) grants another person (the donee) authority to designate beneficiaries of the donor's property. Restatement §§ 11.1, 11.2. See also In re Estate of...