Laubner v. JP Morgan Chase Bank, N. A.

Appellate Court of Illinois·Decided November 21, 2008·No. 4-08-0151 Rel·Published

Opinion

NO. 4-08-0151 Filed 11/21/08 IN THE APPELLATE COURT

OF ILLINOIS

FOURTH DISTRICT

PATRICIA A. LAUBNER and PAMELA A. ) Appeal from LARSON, ) Circuit Court of Plaintiffs-Appellants, ) Sangamon County v. ) No. 07CH571 JP MORGAN CHASE BANK, N.A., Trustee; ) DEBORAH B. ALLEY, Trustee; and SARAH ) A. MANGES, SUSAN A. MERTZ, KELSEY L. ) DENNIS, COURTNEY L. LARSON, KRISTIN ) A. LARSON, WILLIAM CURVIN LARSON, ) LAWSON M. MERTZ, EMILY MANGES, HALEY ) M. MANGES, and All Future Descendants ) Honorable of WILLIAM J. ALLEY, Deceased, ) Robert J. Eggers, Defendants-Appellees. ) Judge Presiding.

JUSTICE COOK delivered the opinion of the court:

On October 31, 2007, plaintiffs Patricia A. Laubner and Pamela A. Larson filed an amended petition to remove codefendant Deborah B. Alley as trustee and to modify the distributions being made from the trusts. On November 30, 2007, defendants, co- trustees Deborah B. Alley and JP Morgan Chase Bank, N.A., filed a motion to dismiss. Following a hearing on January 25, 2008, the trial court granted defendants' motion to dismiss. Plaintiffs appealed. We affirm.

I. BACKGROUND

William J. Alley, deceased, had four daughters: Patri-

cia A. Laubner (plaintiff), Pamela A. Larson (plaintiff), Sarah A. Manges, and Susan A. Mertz. Patricia has one child, Kelsey L.

Dennis. Pamela has three children: Courtney L. Larson, Kristin A. Larson, and William Curvin Larson. Sarah has two children: Emily Manges and Haley M. Manges. Susan has one child, Lawson M. Mertz. Sometime before his death, William married Deborah B. Alley, who would become plaintiffs' stepmother.

On March 23, 1994, William executed a trust entitled "Irrevocable Split-Dollar Insurance Trust Agreement" (original trust). The trust was between William (grantor) and Deborah (co- trustee) and Bank One, Springfield (cotrustee). Bank One, Springfield has since become JP Morgan Chase Bank, N.A. (JP Morgan). The original trust provided that should either Deborah or JP Morgan cease to be a trustee, Deborah could appoint another trustee or, if she did not appoint one, the continuing trustee could appoint a successor. When William passed away in 1996, the principal of the original trust was divided into four separate trusts, one for each of the four daughters.

By the direction of cotrustees Deborah and JP Morgan, plaintiffs' trusts were further divided as follows. Patricia's trust was divided into three trusts: (1) the Patricia Laubner Generation Skipping Tax (GST) Exempt Trust #1, (2) the Patricia Laubner GST Exempt Trust #2, and (3) the Patricia Laubner GST Nonexempt Trust (Patricia's trusts). Likewise, Pamela's trust was divided into three trusts: (1) the Pamela Larson GST Exempt Trust #1, (2) the Pamela Larson GST Exempt Trust #2, and (3) the

Pamela Larson GST Nonexempt Trust (Pamela's trusts). The record does not indicate how Deborah and JP Morgan administered and/or divided the trusts of Sarah and Susan, although we have no reason to guess that those trusts were handled differently.

As of December 31, 2006, the value of Patricia's trust was as follows:

Name of Trust Value of Trust

The Patricia Laubner GST

Exempt Trust #1 $1,505,291.76

The Patricia Laubner GST

Exempt Trust #2 $500,798.87

The Patricia Laubner

Nonexempt Trust $2,870,407.52

Total Value of ______________ Patricia's Trusts $4,876,498.15

As of December 31, 2006, the value of Pamela's trust was as follows:

Name of Trust Value of Trust

The Pamela Larson GST

Exempt Trust #1 $1,517,285.77

The Pamela Larson GST

Exempt Trust #2 $508,726.91

The Pamela Larson

Nonexempt Trust $2,994.306.39

Total Value of ______________ Pamela's Trusts $5,020,319.07

Patricia's trusts and Pamela's trusts were subject to the same distribution standard set forth in the original trust

agreement, namely:

"During the Trust Period, the trustees shall hold, invest, and reinvest each share so provided as the principal of a separate trust hereunder, collect the income therefrom and, after deducting from said income all proper charges and expenses, in each year pay at least quarterly to or apply for the use of such daughter and such daughter's issue, so much of the net income as the trustees shall deem advisable for the proper care, support, maintenance or education of such daughter of the grantor and such daughter's issue and shall add to the principal from time to time any balance of net income not so applied.

The trustees shall be authorized also to pay to or apply to the use of such daughter and her issue, at any time and from time to time, so much of the principal of such trust (even to the extent of wholly terminating the trus-

t) as the trustees may deem advisable for the proper care, support, maintenance or educa-

tion of such daughter or her issue or for any other purpose after giving such consideration

as the trustees may deem feasible and appro-

priate to other financial resources available for the purpose to which such payment or application is proposed to be made. In exer-

cising their discretion with respect to the payment or application of income or principal pursuant to the provisions of this paragraph, the grantor directs his trustees to bear in mind that his primary concern is the comfort-

able maintenance and support of his daughters during their lifetime." (Emphases added.)

Under this rather discretionary distribution standard, Deborah and JP Morgan adopted a distribution schedule of $11,500 per month to both Patricia and Pamela. This amounts to an annual distribution of 3.5% of the fair market value of the trusts.

It appears some exceptions to the steady distribution of funds existed. For example, in 2004, the trustees distributed $54,893 in lump sum to Patricia to pay off her credit card debt and balance owing on her vehicle. During this time, it seems that monthly distributions to Patricia were as high as $12,500 because she purportedly fell on financial hard times due to the loss of her husband's income. It also seems, based on an admis- sion made in plaintiffs' complaint, that Patricia and Pamela are reimbursed, or the trustees directly pay, for tuition, fees, and

living expenses for plaintiffs' children, up through and includ- ing graduate school. The complaint mentioned one instance where the cotrustees hesitated to pay a "medical bill" for one of the grandchildren, but it appears, based on an admission in the complaint, that this bill was ultimately paid with the use of trust funds.

On March 26, 2007, Patricia and Pamela's attorney, Sarah Delano Pavlik, wrote JP Morgan to propose a change in the established distribution plan. Attorney Pavlik noted that the monthly distributions came solely from the nonexempt trusts. The nonexempt trusts were subject to the GST tax, which, as of March 2007, was set at a rate of 45%. To avoid imposition of the GST tax upon plaintiffs' deaths, Pavlik proposed that the distribu- tions from the nonexempt trusts be calculated to liquidate the nonexempt trusts over plaintiffs' life expectancies, resulting in a monthly distribution of $17,769 for Patricia and $18,536 for Pamela over approximately the next 30 years. Pavlik noted that liquidating the nonexempt trusts of Patricia and Pamela would not put them at risk because, in the event they should need addi- tional funds, the assets in their exempt trusts would still be able to provide for them. The cotrustees declined to accommodate plaintiffs' requests as set forth in the letter.

On July 25, 2007, plaintiffs filed a petition request-

ing to convert the distribution standard of the trusts and to

modify the trust agreement such that the funds be distributed at a rate of 5% of the total fair market value of all of the plain- tiffs' trusts but that the funds only be distributed from the nonexempt trusts. Plaintiffs also requested that, in the event of Deborah's death or incapacitation, each respective plaintiff would become cotrustee of her own trusts and have the discretion to appoint a new corporate cotrustee if she so desired.

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