Gwinn v. Gwinn

2016 IL App (2d) 150851, 60 N.E.3d 890

• Court: Appellate Court of Illinois
• Decided: August 15, 2016
• Docket: 2-15-0851
• Status: Unpublished

Opinion

2016 IL App (2d) 150851 No. 2-15-0851 Opinion filed August 15, 2016 ______________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT ______________________________________________________________________________

KENNETH GWINN, JR.; GEORGE GWINN; ) Appeal from the Circuit Court and ROBERT GWINN, ) of Du Page County. ) Plaintiffs-Appellants, ) ) v. ) No. 13-CH-3347 ) KENNETH GWINN, SR.; MARIA MAY ) FRITZ, a/k/a Maria May Gwinn, ) ) Defendants ) Honorable ) Bonnie M. Wheaton, (Kenneth Gwinn, Sr., Defendant-Appellee). ) Judge, Presiding. ________________________________________________________________________

JUSTICE ZENOFF delivered the judgment of the court, with opinion. Justices Hutchinson and Jorgensen concurred in the judgment and opinion.

OPINION

¶1 Plaintiffs, Kenneth Gwinn, Jr., George Gwinn, and Robert Gwinn, filed a four-count

complaint against Kenneth Gwinn, Sr. (defendant), and Maria May Fritz—their father and his

wife. Plaintiffs’ action centered on distributions that defendant made as both the trustee and the

primary beneficiary of the Betty M. Gwinn Trust, which his late wife (Betty) established. The

trial court dismissed plaintiffs’ complaint for failure to state a claim upon which relief could be

granted (735 ILCS 5/2-615 (West 2014)). Plaintiffs appeal the dismissal only of the first two 2016 IL App (2d) 150851

counts, directed against defendant but not Fritz. They contend that these counts stated causes of

action for, respectively, breach of the trust and breach of fiduciary duty. We reverse and remand.

¶2 Plaintiffs’ second amended complaint, filed April 23, 2015, alleged as follows. Plaintiffs

are three of defendant and Betty’s four children. Kenneth Jr. resides in West Bloomfield,

Michigan; Robert resides in Oak Brook, Illinois; and George resides in Scottsdale, Arizona. The

fourth child, Katherine Weyrens, is not involved in this case. Defendant resides in both Oak

Brook, Illinois, and Montrose, Colorado. Fritz resides in Montrose, Colorado.

¶3 On May 8, 2002, Betty executed the trust. She named herself and defendant as initial

trustees. The “Declaration of Trust” (Trust Agreement) stated that Betty had four children now

living: plaintiffs, who resided at the addresses given in the second amended complaint, and

Weyrens, who resided in Topeka, Kansas. Article I stated in part, “I intend by this Trust

Agreement to provide for my spouse and all my children.” Article IV stated that, should Betty

predecease defendant, the trustee shall divide the trust property into two separate trusts, the

“Marital Trust” and the “Family Trust.” The former would consist of “an amount equal in value

to the smallest amount of the federal estate tax marital deduction allowable to [Betty’s] estate

that will result in the least possible federal estate tax being payable at [her] death.” The latter

would consist of the balance of the trust property.

¶4 According to the second amended complaint, in 2009, the trust assets’ total value was

less than the federal estate-tax exclusion of $3.5 million. Thus, the Family Trust contained all

the trust assets.

¶5 Article IV, section 2, stated, as pertinent here:

“The Marital Trust shall be administered by the trustee for the benefit of my

spouse as follows:

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(a) The trustee shall pay or apply for my spouse’s benefit, at least quarterly during

my spouse’s lifetime, all of the net income from the Marital Trust.

(b) The trustee shall also distribute to or for my spouse’s benefit as much of the

principal of the trust as is necessary or advisable for my spouse’s education, health,

maintenance, companionship, enjoyment, medical care, comfort, support and general

welfare. The trustee shall take into consideration, to the extent that the trustee deems

advisable, any income or resources of my spouse which are outside of the trust and are

known to the trustee.

(c) Notwithstanding provisions (a) and (b) above, the trustee shall also distribute

any part or all of the principal of the Marital Trust to my spouse at any time upon his

written request. Such distribution must be made pursuant to my spouse’s voluntary

request, and shall not include involuntary distributions.”

¶6 Section 4 of article IV stated, as pertinent here:

“The Family Trust shall consist of the balance of the trust property and shall be

administered by the trustee for the benefit of my spouse during his lifetime as follows:

(a) The trustee shall pay or apply for my spouse’s benefit, upon his written

request, during my spouse’s lifetime, any part or all of the net income from the Family

Trust. ***

(b) In addition, the trustee shall pay to my spouse such amounts of principal as he

from time to time requests in writing, but not to exceed in any calendar year five

thousand dollars ($5,000.00) or five percent of the value of the Family Trust at the end of

such year, whichever is greater.

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(c) The trustee may also pay to my spouse such sums from principal as the trustee

deems necessary or advisable from time to time for his health, support and maintenance

in reasonable comfort.

(d) The trustee may pay so much or all of the trust’s income and principal not

distributed to my spouse to my children, as the trustee determines to be required or

desirable for their health, maintenance in reasonable comfort, education and best interests

individually and as a family group. The trustee may make payments in equal or unequal

proportions at such time or times as the trustee deems best.

(e) My primary concern with respect to my children is for their care and education

until they become self-supporting and, while my general plan is to treat them alike, I

recognize that needs will vary from person to person and from time to time.

Accordingly, I direct that all distributees [sic] hereunder need not be treated equally or

proportionally for each distribution; that the pattern followed in one distribution need not

be followed in others; and that the trustee may give such consideration to the other

resources of each of the eligible distributees [sic] as the trustee may think appropriate.”

¶7 Article V, section 1, established that, when both Betty and defendant were deceased, all

undistributed trust assets would be divided in equal shares among their four children. Article

VII, section 1, set out the powers of the trustee. Subsection (n) specifically gave the trustee the

power “[t]o make gifts of trust assets to [Betty’s] descendants.” Section 1 did not elsewhere set

out any power to make gifts.

¶8 The second amended complaint continued as follows. Betty died on February 16, 2009,

and defendant became the sole trustee of the trust. In 2010, the trust owned liquid assets totaling

$600,000 and farm property of unknown value. Defendant’s right to access trust principal was

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limited by sections 4(b) and 4(c) of article IV of the Trust Agreement. In August 2011,

defendant married Fritz. Since then, he had invaded the Family Trust’s principal and liquidated

assets in violation of the Trust Agreement. As pertinent to this appeal, in 2011, defendant

removed at least $425,000 in principal to make an “exceptional gift” to Fritz—the construction

of a custom-built home in Montrose, Colorado, titled in her name alone. Defendant already had

an unencumbered residence in Oak Brook worth more than $750,000.

¶9 As is relevant to this appeal, count I of the second amended complaint alleged (1) that

defendant had breached the Trust Agreement by “[m]aking an extraordinary gift” to Fritz in

building the home in Colorado and titling it in her name; (2) that the home was not necessary for

defendant’s “ ‘health, maintenance and support,’ ” because he already had the home in Oak

Brook; and (3) that plaintiffs, “as remainder, contingent beneficiaries of the Trust,” had suffered

damages, because the trust’s assets had been depleted. Count I prayed for an order replacing

defendant as trustee and a judgment in favor of the trust for $500,000. Count II alleged that

defendant as trustee had violated his fiduciary duty to plaintiffs. It requested the same relief as

count I and the imposition of a constructive trust on the Colorado home.

¶ 10 Fritz, who was named as a defendant in counts II and III, was later dismissed from the

action, based on a lack of personal jurisdiction. Defendant moved to dismiss the second

amended complaint for failure to state a cause of action. As pertinent here (counts I and II), his

motion argued as follows. As trustee of the trust, defendant had broad discretion to decide how

to exercise his powers under the Trust Agreement. Plaintiffs’ second amended complaint had

essentially ignored that section 4(c) of the Trust Agreement authorized him to pay himself, out of

trust principal, whatever he deemed “necessary or advisable from time to time for his health,

support and maintenance in reasonable comfort.” The second amended complaint had pleaded

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no facts to show that he had exceeded his powers by building a new home in which he could

reside with his new wife. Further, he argued that count II pleaded no facts not pleaded in count I,

and, as the Trust Agreement allowed him to do what he had done, that count did not state a claim

for breach of fiduciary duty.

¶ 11 Plaintiffs responded that defendant’s discretion as trustee was not unlimited.

Specifically, by section 4(c) of the Trust Agreement, Betty intended to allow defendant to

withdraw only what was “necessary or advisable from time to time for his health, support and

maintenance” in reasonable comfort. (Emphasis added.) Plaintiffs argued that the language we

emphasize is a long-recognized limitation on trustee discretion and here meant that section 4(c)

did not allow defendant to deplete the trust’s assets by making extraordinary gifts, such as a

luxury second house titled in Fritz’s name. Plaintiffs also contended that count II stated a cause

of action, because defendant had not acted in good faith in making the gift to Fritz to their

detriment.

¶ 12 Defendant replied that he had paid for the Colorado house, in which both he and Fritz

would live; he had not given her the money. He argued that having a house where she lived was

reasonably related to his health, support, and maintenance in reasonable comfort.

¶ 13 The trial court dismissed the second amended complaint. Plaintiffs timely appealed.

¶ 14 On appeal, plaintiffs contend solely that the trial court erred in dismissing the first two

counts of the second amended complaint, and they limit their argument to the claim that, in

buying the Colorado residence and titling it in Fritz’s name, defendant violated the Trust

Agreement and breached his fiduciary duty. For the reasons that follow, we reverse and remand

for further proceedings.

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¶ 15 The question presented by a section 2-615 motion is whether the complaint’s allegations,

when taken as true and viewed in the light most favorable to the plaintiff, are sufficient to state a

cause of action upon which relief can be granted. Turner v. Memorial Medical Center, 233 Ill.

2d 494, 499 (2009). A cause of action should not be dismissed under section 2-615 unless it

clearly appears that no set of facts can be proved that would entitle the plaintiff to recover. Id.

Our review is de novo. Id.

¶ 16 We consider together count I’s claim of breach of the Trust Agreement and count II’s

claim of breach of fiduciary duty. To do so, we must construe the terms of the Trust Agreement.

Our goal is to ascertain and effectuate the settlor’s intent, if not contrary to public policy. Brown

Brothers Harriman Trust Co. v. Bennett, 357 Ill. App. 3d 399, 406 (2005). We consider the

entire document, giving words their plain and ordinary meaning to the extent possible. Id.

¶ 17 The primary dispute between the parties is the degree of discretion that Betty intended to

give defendant, as both trustee and primary beneficiary of the trust, in distributing the principal

of the Family Trust. Plaintiffs focus generally on Betty’s desire to provide not only for

defendant but for her four children. They cite her initial statement, “I intend by this Trust

Agreement to provide for my spouse and all my children,” and section 4(e)’s expression that her

“concern with respect to [her] children is for their care and education until they become self-

supporting.” (Emphasis added.) Plaintiffs also argue that section 4(c) of the Trust Agreement

limits the purposes for which defendant may withdraw and apply principal from the Family Trust

and that those purposes do not include buying a house for Fritz and titling it in her name. As

noted above, section 4(c) states: “The trustee may also pay to my spouse such sums from

principal as the trustee deems necessary or advisable from time to time for his health, support

and maintenance in reasonable comfort.” (Emphasis added.) Plaintiffs focus on the words that

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we emphasize, arguing that “health, support and maintenance” is a recognized term of art that

objectively limits a trustee’s discretion. Defendant, on the other hand, draws our attention to the

preceding phraseology that appears to reserve the determination of what comes within this

standard to him as trustee. Defendant notes that he may withdraw not only what is “necessary”

to his health, support, and maintenance in “reasonable comfort” but also what is “advisable” for

that purpose.

¶ 18 We note that Betty’s primary intention in creating both the Marital Trust and the Family

Trust was to provide “for the benefit of [her] spouse during his lifetime,” i.e., defendant.

Moreover, even Betty’s expression of her intentions toward her children was qualified: her

“primary concern” was “for their care and education until they become self-supporting.”

(Emphasis added.) Thus, Betty unmistakably gave defendant the authority as trustee to provide

for himself as the primary beneficiary of the trust (within limits that we shall discuss) but with no

particular obligation to support plaintiffs from the trust while he was alive.

¶ 19 That does not mean, of course, that defendant could do whatever he wanted with trust

property. Section 4(c) gave defendant the prerogative to withdraw whatever he deemed

“necessary or advisable from time to time for his health, support and maintenance in reasonable

comfort.” (Emphasis added.) However, we need not decide whether this language did or did not

forbid defendant from using large sums of principal to construct a residence in Colorado for his

own use, even if he already had an unencumbered residence in Illinois, because that is not what

this case is about. Instead, this case is about an extraordinary gift. Plaintiffs alleged in the

second amended complaint that defendant made an “extraordinary gift” to Fritz, his new wife, by

using trust principal to design and purchase a custom-built home and title it in her name. We

must take this allegation as true for purposes of addressing defendant’s motion to dismiss. See

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Matthews v. Chicago Transit Authority, 2016 IL 117638, ¶ 53 (in ruling on a motion to dismiss

pursuant to section 2-615, the court “must accept as true all well-pleaded facts in the complaint,

as well as any reasonable inferences that may arise from them”). The only question is whether

defendant, as trustee, was authorized under the Trust Agreement to make such a gift of trust

principal to Fritz.

¶ 20 We agree with plaintiffs that this is not the exceptional case in which a trustee has

essentially absolute control over trust assets. In Rock Island Bank & Trust Co. v. Rhoads, 353

Ill. 131 (1933), the decedent’s will gave his wife as executor and primary beneficiary “ ‘full

authority to use and dispose of so much of [the residue of his estate] as may in her judgment be

necessary for her comfort and satisfaction in life.’ ” (Emphasis added.) Id. at 134. The supreme

court held that, given the minimally restrictive term “satisfaction,” the wife’s decision about the

use of assets “was not subject to review by anyone.” Id. at 143. Thus, even bad investments that

lost money (such as those that the decedent’s executor challenged after the wife died and left a

will (id. at 137-38)) had been within her “unlimited discretion” to dispose of remaining assets

(id. at 142).

¶ 21 Here, the pertinent language is not quite so lax. Section 4(c) does not use the term

“satisfaction.” It restricts defendant’s choices to what he deems, in his discretion, to be

“necessary or advisable” to serve his health, support, and maintenance. We find nothing in

section 4(c), however, that would allow defendant to make gifts of trust assets. We note that our

interpretation is consistent with the Restatement (Third) of Trusts § 50 cmt. d(2) (2003), which

explains that provisions for using trust assets for the support and maintenance of a beneficiary do

not authorize distributions in order to enlarge the beneficiary’s personal estate or to enable the

making of extraordinary gifts. See also In re Estate of Polley, 111 Ill. App. 3d 873, 875-78

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(1982) (decedent’s will authorized husband to use corpus “for his support in his accustomed

manner of living” but not to build up own separate estate).

¶ 22 In interpreting section 4(c) of the Trust Agreement, we are also mindful that article VII,

section 1(n), of the Trust Agreement gives defendant, as trustee, the power “[t]o make gifts of

trust assets to [Betty’s] descendants.” We agree with plaintiffs that, under the familiar principle

of construction expressio unius est exclusio alterius, the express grant of power to make gifts of

assets to Betty’s descendants is an implied denial of power to make gifts of assets to any person

other than Betty’s descendants. See Altenheim German Home v. Bank of America, N.A., 376 Ill.

App. 3d 26, 36 (2007); Woolard v. Woolard, 547 F.3d 755, 759-60 (7th Cir. 2008).

¶ 23 Since the allegations of the second amended complaint must be taken as true and viewed

in the light most favorable to plaintiffs, and as those allegations include that defendant titled the

Colorado home exclusively in Fritz’s name, we must conclude that plaintiffs stated a claim that

defendant violated the Trust Agreement by making a gift that he was not authorized to make.

For the same reason, plaintiffs stated a claim that he violated his fiduciary obligation.

¶ 24 We reverse the judgment of the circuit court of Du Page County, and we remand the

cause for further proceedings.

¶ 25 Reversed and remanded.

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