Zagel v. Hastings Cutoff Grp.

• Decision Date: 03 August 2021
• Docket Number: 1-20-0806
• Parties: MARGARET ZAGEL, not individually but as Trustee of the Francis E. Maxwell Living Trust, Dated November 26, 1991, Plaintiff-Appellant, v. HASTINGS CUTOFF GROUP, LTD., an Illinois corporation, and ANDREW J. MAXWELL, individually and as president of Hastings Cutoff Group, Ltd., Defendants-Appellees.
• Court: United States Appellate Court of Illinois

2021 IL App 200806-U

MARGARET ZAGEL, not individually but as Trustee of the Francis E. Maxwell Living Trust, Dated November 26, 1991, Plaintiff-Appellant, v. HASTINGS CUTOFF GROUP, LTD., an Illinois corporation, and ANDREW J. MAXWELL, individually and as president of Hastings Cutoff Group, Ltd., Defendants-Appellees.

No. 1-20-0806

Court of Appeals of Illinois, First District, Second Division

August 3, 2021

This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the Circuit Court of Cook County No. 18-CH-6943 The Honorable Anna M. Loftus, Judge Presiding.

PRESIDING JUSTICE FITZGERALD SMITH delivered the judgment of the court. Justices Lavin and Cobbs concurred in the judgment.

ORDER

FITZGERALD SMITH PRESIDING JUSTICE.

¶ 1 Held: Trial court's dismissal with prejudice of claims asserted by successor trustee for accounting and breach of fiduciary duty following death of settlor is affirmed. Successor trustee lacked standing to assert claims where trust agreement did not show a manifestation of intent by settlor to hold his ownership interest in corporation as a trust asset prior to his death. Trial court's denial of motion to modify protective order is also affirmed.

¶ 2 Following the death of Francis E. Maxwell (Francis) in 2017, the plaintiff, Margaret Zagel, in her capacity as successor trustee of the Francis E. Maxwell Living Trust dated November 26, 1991 (the Trust), brought this action against the defendants, Hastings Cutoff Group, Ltd. (Hastings), and Andrew J. Maxwell (Andrew). Hastings is an Illinois corporation of which Francis had owned a 25% share during his lifetime. The plaintiff and Andrew are two of Francis' four children, and Andrew is the president of Hastings. In her first amended complaint, the plaintiff seeks an order directing the defendants to open Hastings' corporate books and records and provide a corporate accounting to the Trust. The plaintiff also asserts several claims alleging that Andrew breached certain fiduciary duties allegedly owed to the Trust between 2012 and 2017. During discovery, the trial court ordered the parties to brief the issue of whether Francis' 25% ownership share of Hastings was an asset held in the Trust as of 2012 and after, such that the Trust had an interest in Hastings that gave the plaintiff standing to assert the present claims on the Trust's behalf. Following this briefing, the trial court made a summary determination that the plaintiff lacked standing to assert these claims on behalf of the Trust because Francis' 25% ownership share in Hastings had not been made an asset of the Trust prior to his death. As a result of this summary determination, the trial court entered an order dismissing all counts of the first amended complaint with prejudice. The plaintiff appeals this order, along with the trial court's denial of a motion to modify a protective order. For the reasons that follow, we affirm the judgment of the trial court.

¶ 3 I. BACKGROUND

¶ 4 Francis was an attorney who practiced in Nashville Illinois, including in the area of estate planning. He served as judge of the Twentieth Judicial Circuit of Illinois from 1966 to 1986. He was married to Joan Maxwell (Joan), and they had four children. In retirement, Francis and Joan relocated to Florida.

¶ 5 In 1978, Francis and Joan entered into an agreement with their son Andrew to invest in an apartment building located at 2226 N. Fremont Street in Chicago (Fremont property). At that time, the Fremont property was owned by the three of them individually, and their verbal agreement was that Andrew owned 50% of it while Francis and Joan owned 25% each.

¶ 6 In 1991, Francis established the Trust, which was a self-settled, revocable trust of which Francis was trustee during his lifetime. The trust agreement provided that all property transferred to the trustee, together with any property received by the trustee under the terms of Francis' last will and testament or otherwise shall be held and disposed of by the trustee upon the terms and conditions set forth therein. The trust agreement itself did not identify any specific property as being placed into or held in the Trust as of that time. Relevant to this appeal is article III of the trust agreement, which stated in pertinent part as follows:

"Upon and after the death of the Grantor, the Trustee shall receive, hold, administer, and distribute the trust estate as follows:

A. Probate Assets. The Trustee shall receive distribution of assets under the terms of the Grantor's Last Will and Testament and shall add the same to the trust estate.

* * *

C. Dispositive Plan. The Trustee shall ascertain the Grantor's trust and probate estate before the payment of any estate, inheritance, succession or similar death taxes state or federal. In the event the Grantor is survived by his wife, JOAN B. MAXWELL, the Trustee shall divide all of the rest, residue and remainder of the Grantor's trust estate, including assets, if any, which have been distributed to the trust estate from the Grantor's probate estate into two shares identified as the Marital Deduction Trust Share and the Residuary Trust Share, and shall administer each of such shares as a separate trust as follows:

1. Marital Deduction Trust Share. * * *

* * *

2. Residuary Trust Share. The balance of the trust estate, after payment of debts, taxes and other obligations and the creation of the Marital Deduction Trust Share should the Grantor's wife survive the Grantor, or the entire balance of the trust estate should the Grantor's wife predecease the Grantor, shall be set aside as a separate trust to be known as the Residuary Trust Share and shall be held and administered by the Trustee on the following terms and conditions:

a. Distribution of Income and Principal. During the lifetime of the Grantor's spouse, the Trustee shall pay to or for the use and benefit of the Grantor's spouse all the net income from the Residuary Trust Share ***. In addition, the Trustee is authorized to pay to or for the use and benefit of the Grantor's spouse such amounts from the principal of the Residuary Trust Share as in the Trustee's sole discretion shall be necessary for the health, maintenance and support of the Grantor's spouse ***; provided, however, the Trustee shall make no principal invasions of the Residuary Trust Share until the principal of the Marital Deduction Trust Share shall be completely exhausted."

Article III.C.2 went on in subparagraphs (b) and (c) to address the distribution of assets remaining in the Residuary Trust Share upon Joan's death, whether that occurred before or after the death of Francis.

¶ 7 In 2003, Hastings was incorporated, and title to the Fremont property was placed in a land trust of which Hastings was the beneficial owner. The parties' respective ownership interests continued according to a verbal agreement, with Andrew owning a 50% share of Hastings and Francis and Joan each owning a 25% share. Andrew served as the president of Hastings, and Francis was also an officer. It is undisputed that as of the time of Hastings' incorporation, Francis' ownership share of Hastings was not an asset held in the Trust.

¶ 8 Over time, the value of the Fremont property increased substantially. The record indicates that, as Francis and Joan began to contemplate their estate planning, they wanted Andrew to buy out their interests in the Fremont property or to sell the Fremont property, so that their ownership interests could be equitably distributed among their children after they died. On September 30, 2008, Francis executed a first amendment to the trust agreement, which added several provisions to article III.C.2 giving the successor trustee directions about how to account for Francis' ownership interest in the Fremont property when determining and distributing the Residuary Trust Share. That same day, Francis also executed his last will and testament, which was a pour-over will providing that the residue of his estate was given to the trustee of the Trust to be administered as part of the principal of the Trust. It is undisputed that the Francis' ownership share in Hastings was not made an asset of the Trust as of 2008.

¶ 9 In 2012, the Fremont property was sold, and Andrew, on behalf of Hastings, reinvested the profits of that sale by purchasing other real estate. On December 7, 2012, Francis executed a second amendment to the trust agreement. That second amendment revoked and deleted the first amendment to the trust agreement in its entirety and reinstated the original terms of the trust agreement. The second amendment to the trust agreement provided in pertinent part as follows:

"Subparagraph a. of paragraph C.2 of ARTICLE III, of the original Trust, is hereby deleted and replaced in its entirety with the following:

'a. Distribution of Income and Principal. Grantor directs that the following calculations considerations and distributions of principal be made as soon as practicable after the establishment of the Residuary Trust Share:

i) This sub-Trust has a twenty-five (25%) percent ownership in an Illinois corporation, known as, Hastings Cutoff Group, Ltd. (the "Company") that currently owns interests in various commercial properties in the Chicago area. Grantor's son, ANDREW J. MAXWELL, currently owns a fifty (50%) percent interest in the Company and Grantor's spouse's Trust owns the remaining twenty-five (25%) interest.

ii) The shareholders of the Company have determined and stipulated to a fair value for this Trust's ownership share of the Company, and while the Trustees of Grantor's and Spouse's respective Trusts are entitled, by their agreements with Andrew, to receive income on the Trusts' investments,

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