Matter of Estate of McClure, 2016 MT 253 (Oct. 11, 2016) (Baker, J.) (5-0, aff’d & rev’d)
Issue: (1) Whether widow has an interest in the trust assets, and (2) whether McClure’s children forfeited their interest in the trust.
Short Answer: (1) Yes, and (2) no.
Affirmed and reversed
Facts: Jack McClure and his wife, Dixie, established a revocable living trust in 1993, using a form they obtained from an out-of-state company, which also provided Jack and Dixie with a binder of documents. The trust agreement stated that the trust’s primary purpose was to provide for Jack and Dixie during their lifetimes. It further provided that upon the death of either Jack or Dixie, the living spouse was to divide the trust estate into two more separate trusts – a survivor’s trust, which would continue to be revocable, and a decedent’s trust, which would be irrevocable. The agreement stated that the principal of the decedent’s trust “shall consist of assets equal in value to the maximum amount, if any, that can pass free of federal estate tax by reason of the unified credit available” to the trustor’s estate. The remaining assets were to go to the survivor’s trust.
Jack and Dixie’s three children, plaintiffs herein, were each to receive one-third of the trust principal upon the surviving spouse’s death. Under the trust agreement, any beneficiary who contests the trust’s validity forfeits his or her interest in the trust.
Dixie died in 2004. The trust assets passed free of federal estate tax by reason of the unified tax credit. Jack did not divide the assets into a survivor’s trust and a decedent’s trust, continued to treat the entire trust as revocable, and continued to accumulate assets that became part of the trust principal.
Jack married Ellie in 2006. Before marrying, Jack granted Ellie a life estate in the marital home, which is a trust asset. In September 2012, Jack amended the trust, purporting to make Ellie his successor trustee. The amendment stated that upon Jack’s death, Ellie would become the sole beneficiary for her lifetime of all income and principal of the trust, and that upon her death, the remaining assets of the trust would be distributed to the three children. It also named Jack’s son George trustee upon Ellie’s resignation, death, or incapacity.
Four months later, Jack died. His will conveyed all of his property into the trust, and had a similar no-contest provision to that of the trust agreement.
In June 2014, the McClure children sued Ellie, asking the court to set aside the trust amendment and the life estate Jack conveyed to Ellie. Ellie counterclaimed for declaratory judgment concerning the interpretation of the trust, the amendment, and the life estate. In September 2014, George opened a probate action without Ellie’s knowledge. George’s petition to become PR was granted, at which point Ellie petitioned to have George removed as PR.
Procedural Posture & Holding: On cross-motions for summary judgment, the district court consolidated the civil and probate actions, and denied Ellie’s motion for summary judgment and her petition to have George removed as PR. The court concluded that the decedent’s trust should have been funded up to $1.5 million at Dixie’s death, and that because the trust assets were much less than that, the survivor’s trust never came into existence, and the 2012 amendment was invalid. Ellie appealed, then moved to dismiss the appeal on the basis of evidence she claimed the children had withheld. The Court dismissed the appeal and Ellie filed several motions. The district court denied all of them. Ellie appeals the initial order and its order denying her motions on remand, and the Supreme Court affirms in part and reverses in part.
Reasoning: (1) The district court failed to give effect to Jack and Dixie’s primary purpose in creating the trust, which was to provide for them during their lifetimes. Although the agreement can be reasonably interpreted to require that the decedent’s trust be funded up to the maximum amount of the unified tax credit, this would result in no assets being allocated to the survivor’s trust, which conflicts with the plan language of the agreement’s stated intent. Thus, the agreement is ambiguous, and extrinsic evidence is admissible to aid in the agreement’s interpretation.
The trust binder includes trustee instructions and a “trust summary.” Read together with the trust agreement, the documents show that Jack and Dixie intended the survivor’s trust to be funded, contrary to the district court’s conclusion. Therefore, the amendment was valid. The agreement states that assets Jack accumulates after Dixie’s death were Jack’s separate property. According to the trustee instructions, those assets cannot be included in the decedent’s trust and therefore must be part of the survivor’s trust.
On remand, the district court shall calculate the trust assets at the time of Dixie’s death and divide the assets equally between the survivor’s trust and the decedent’s trust. It must also “revisit its consideration of the life estate that Jack conveyed to Ellie” in the marital home.” ¶ 30.
(2) Both the trust agreement and Jack’s will provide that any beneficiary who contests the trust or the will forfeits his or her share therein. The district court determined that these provisions did not affect the McClure children because they did not attack the trust agreement or the will. The Supreme Court agrees.