NO. 4-05-0996 Filed 8/9/06
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
JAMES B. PECK, SR., as Trustee of ) Appeal from the MARJORIE SIMS Trust Dated ) Circuit Court of August 6, 1987, ) Macon County Plaintiff-Appellant, ) No. 04L167 v. ) DAVID E. FROEHLICH, as Trustee of ) the MARJORIE SIMS Trust Dated Sep- ) tember 25, 1991; DAVID E. ) FROEHLICH, Individually; and ) Honorable FAIRHAVENS CHRISTIAN HOME, ) Katherine M. McCarthy, Defendants-Appellees. ) Judge Presiding. _________________________________________________________________
JUSTICE COOK delivered the opinion of the court:
This appeal involves two trusts created by the settlor,
Marjorie Sims, for the purpose of providing for her health,
support, and maintenance during her lifetime. The trustee (and
residuary beneficiary) of one of the trusts seeks reimbursement
from the trustee (and residuary beneficiary) of the other trust,
for one-half of the amounts paid for the settlor's extraordinary
caretaking expenses. The circuit court entered summary judgment
denying reimbursement. We reverse and remand.
I. BACKGROUND
The settlor, Marjorie Sims, created a revocable living
trust, the "Illinois Trust," on August 6, 1987. This trust
included essentially all the assets she owned, including her
accounts in Arizona banks. Sims spent her winters in Arizona.
The Illinois Trust was amended several times in the early 1990s
and finally on November 10, 1999. Sims created a second trust, the "Arizona Trust," on September 25, 1991. The Arizona Trust
was intended to include only Sims' Arizona bank accounts. The
Arizona Trust was irrevocable (although it could be amended by a
successor trustee to carry out its purposes) and was intended to
protect Sims' Arizona bank accounts from her creditors.
The two trusts expressed a similar purpose, to provide
for Sims' health, support, and maintenance for her lifetime.
After her death, most of the residue of the Illinois Trust was to
be paid over to the plaintiff, James B. Peck, Sr., and most of the residue of the Arizona Trust was to be paid over to defen-
dant, David E. Froehlich. Thirty percent of the residue of the
Arizona Trust was to be paid over to defendant Fairhavens Chris-
tian Home. Plaintiff and defendant Froehlich had been employed
by Sims' husband in his lumber business and were to him the sons
he never had. They were closer to Sims than any of her rela-
tives. Section 2 of the Arizona Trust states Sims' "primary
desire that all of my needs shall be met, even if the trust
estate is thereby entirely depleted." The trustee was directed
to provide for those needs as follows:
"Trustee shall first distribute to me, or
for my benefit, for my lifetime, so much
of the net income and principal of the
trust as trustee believes necessary to pro-
vide for my health, support[,] and maintenance.
In making such payments to me or for my
- 2 - benefit, trustee shall at all times exercise
discretion in favor of making such payments."
A similar provision is found in the Illinois Trust. There is no
question that the funds for which reimbursement is sought were
"necessary to provide for [the settlor's] health, support[,] and
maintenance." It is also clear that expenses for health, sup-
port, and maintenance were to be divided between the two trusts.
It would be illogical for the same expenses to be paid twice, or
not at all. When two funds are established for payment of the same expenses, the payments must be coordinated between the two
funds.
Sims restated her intent to coordinate the two trusts
in her November 10, 1999, amendment to her Illinois Trust: "It
is further my intent that at such time as I shall incur expenses
for my care beyond the ordinary expenses of living in my home ***
that such expenses shall be shared equally between this trust and the [Arizona Trust]." The 1999 amendment also clarified that the
Arizona Trust included only the Arizona Bank accounts listed on a
schedule attached to that trust, even though those accounts were
arguably a part of the Illinois Trust. Other assets were said to
be a part of the Illinois Trust even though they arguably were
included in the Arizona Trust. Sims noted that "each trust may
attempt to state a comprehensive plan for all of my assets," but
of course that was not possible.
In the 1999 amendment, Sims noted her close relation-
ship with plaintiff and defendant and stated: "I do not want the
- 3 - gifts to either of them to be impaired by the entire burden of my
care and maintenance or of taxes imposed upon my estate, but I
want the burden of my care to be shared equally and the estate
taxes to be shared proportionately." Sims had a stroke in
November 2000 and required 24-hour care from that date. Plain-
tiff and defendant became successor trustees of their respective
trusts in the spring of 2001. Plaintiff sent quarterly bills to
defendant for one-half of Sims' extraordinary caretaking ex-
penses, but all requests for payment were refused. On February 8, 2001, defendant sent Sims a letter, advising that as long as
she had sufficient monthly income, she should not deplete the
assets in the Arizona Trust: "This will avoid unnecessary tax
consequences, allow for future growth of the trust and protect
your future financial security in the event of unforeseen circum-
stances." Denying reimbursement would also increase defendant's
residuary share. Sims died June 10, 2004. Plaintiff filed this action
on October 28, 2004. On November 4, 2005, the circuit court
entered summary judgment in favor of defendant, concluding that
defendant had complete and total discretion as trustee in making
or not making disbursements from the trust. "Under the terms of
the Arizona Trust, it is not relevant whether the [d]efendant
[t]rustee properly exercised his discretion in making or not
making disbursements from that Trust." The court held that Sims'
intent is clear from the language of the Arizona Trust and
consequently extrinsic evidence is not proper, and the 1999
- 4 - amendment to the Illinois Trust cannot be considered for purposes
of determining Sims' intent. The court held that the Arizona
Trust is an irrevocable trust and Sims retained no right to alter
or modify that trust. Plaintiff appeals.
II. ANALYSIS
A. Standard of Review
Summary judgment is proper if, when viewed in the light
most favorable to the nonmoving party, the pleadings, deposi-
tions, admissions, and affidavits on file demonstrate that there is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law. 735 ILCS 5/2-
1005(c) (West 2004). We review the circuit court's grant of
summary judgment de novo. Illinois State Chamber of Commerce v.
Filan, 216 Ill. 2d 653, 661, 837 N.E.2d 922, 928 (2005). We also
review a trial court's construction of a trust instrument de
novo. Brown v. Ryan, 338 Ill. App. 3d 864, 871, 788 N.E.2d 1183,
1189 (2003). The construction of an unambiguous contract, or the
determination of whether a contract is ambiguous, is purely a
question of law. In re Estate of Steward, 134 Ill. App. 3d 412, 415, 480 N.E.2d 201, 204 (1985).
B. The Public-Benefits Paragraph
Defendant relies on the language of section 2 of the
Arizona Trust, "Payment of Income and Principal to or for Benefi-
ciary." Section 2 contains two paragraphs. As discussed above,
the first paragraph set out Sims' primary desire that her needs
be met and a direction that the trustee exercise discretion in
- 5 - favor of making the payments necessary for her health, support,
and maintenance. Defendant's argument is based on the second
paragraph:
"Notwithstanding the foregoing, in the
event I should require long-term care for
physical or mental disabilities, or a com-
bination thereof, Trustee shall, for my
lifetime, use the income and principal of
this Trust to provide me with those bene- fits and services, and only those benefits
and services that, in Trustee's judgment,
are not otherwise available to me from other
sources, as or when needed to enable me to
lead as normal, comfortable, and fulfilling a
life as possible. It is my specific intent
not to displace any source of funds otherwise available to me for my basic support, for
which I may from time to time be eligible
by reason of my age, disability, or other factors, from federal, state, or local govern-
ment, or charitable sources, from all of
which sources, as appropriate, I direct
Trustee to seek such basic support in my
behalf, and I further direct Trustee to deny
any request made by any agency or governmental entity requesting disbursement of Trust funds,
- 6 - whether from income or principal, to satisfy
my support needs. Trustee's discretion in
making or not making disbursement of income
or principal from this Trust is final even
if found arbitrary or unreasonable, Trustee's
sole and independent judgment being the
criterion upon which any such disbursements
are made or withheld." (Emphasis added.)
Defendant quotes this paragraph in his brief but
conveniently omits the highlighted language, breaking in mid-
sentence when the settlor begins to explain her "specific intent"
not to displace governmental or charitable sources of funds. The
highlighted language makes it clear that the powers granted the
trustee are not general powers, which are dealt with in another
section, but powers which apply only when public sources seek
reimbursement. This paragraph is a common one in trust instru-
ments. It makes explicit the presumption "that the trustee's
discretion should be exercised in a manner that will avoid ***
expending trust funds for purposes for which public funds would
otherwise be available." Restatement (Third) of Trusts '50,
Comment e(4), at 273-74 (2003); see also Department of Mental Health & Developmental Disabilities v. Phillips, 114 Ill. 2d 85,
94, 500 N.E.2d 29, 33 (1986) (settlor did not intend, and Depart-
ment was not entitled to, reimbursement). Sims had the intent in
this paragraph not to reimburse public benefits; she did not have
the intent to allow one beneficiary to improve his share at the
- 7 - cost of the other by refusing to pay for her health, support, and
maintenance.
According to defendant we need only read the words in
the public-benefits paragraph that the "trustee's discretion ***
is final." We may ignore the discussion of governmental and
charitable sources and the settlor's specific intent not to
displace those sources. It is improper to select a few words
from a document and read them out of context. When construing a
trust, we cannot fix upon each of its provisions in isolation but must instead consider the document as a whole in order to arrive
at the true intent of the settlor. Rubinson v. Rubinson, 250
Ill. App. 3d 206, 213, 620 N.E.2d 1271, 1276 (1993); Steward, 134
Ill. App. 3d at 414, 480 N.E.2d at 203. Words derive their
meaning from the context in which they are used, and the contract
must be viewed as a whole by viewing each part in light of the
others. Board of Trade of the City of Chicago v. Dow Jones &
Co., 98 Ill. 2d 109, 122, 456 N.E.2d 84, 90 (1983); Citicorp
Savings of Illinois v. Rucker, 295 Ill. App. 3d 801, 810, 692
N.E.2d 1319, 1326 (1998) (language allowing mortgagee to perform
certain acts on behalf of mortgagor did not impose fiduciary
duties of an agent on mortgagee).
The paragraph in section 2 is a specific provision,
giving the trustee broad powers, but only in connection with
reimbursement for public benefits. The First District has
addressed a public-benefits provision, although in a situation
different from ours. Stein v. Scott, 252 Ill. App. 3d 611, 625
- 8 - N.E.2d 713 (1993). In Stein, the settlor was not concerned with
her own needs, but those of a disabled daughter who was receiving
or likely to receive benefits from governmental or private
agencies. The daughter was incapable of bearing children. The
trust instrument provided, "[i]t is my express purpose that any
distributions to or for *** [the daughter's benefit] *** from her
share be used only to supplement other such benefits." (Emphasis
added.) Stein, 252 Ill. App. 3d at 613, 625 N.E.2d at 715. The
only provision for the disabled daughter in Stein was the public-
benefits provision. The disabled daughter sought reimbursement
for amounts she had allegedly expended for her care, maintenance,
and support, but the trustee refused. The First District agreed
with the trustee, contrasting an earlier case where "the trustee
was directed, not merely given discretion, to make distributions
to the beneficiary as necessary for her support or maintenance."
Stein, 252 Ill. App. 3d at 616, 625 N.E.2d at 717, citing Hart v. Connors, 85 Ill. App. 2d 50, 228 N.E.2d 273 (1967). In Hart,
"there was a finding by the court that the testator was primarily
concerned with the comfort of the beneficiary and intended that
she have unencumbered use of the trust for that purpose." Stein, 252 Ill. App. 3d at 616, 625 N.E.2d at 717.
The present case is more like Hart than it is like
Stein. The language of the Arizona Trust states Sims' "primary
desire that all of [her] needs shall be met, even if the trust
estate is thereby entirely depleted." The trustee was specifi-
cally directed to exercise his discretion in favor of making such
- 9 - payments. As in Hart, "[i]t is apparent that the [settlor] was
concerned primarily with [her own] comfort and any residue to
others was secondary." Hart, 85 Ill. App. 2d at 54, 228 N.E.2d
at 275. There was a concern in Stein that disbursement of trust
funds might impair Scott's eligibility for public benefits.
Stein, 252 Ill. App. 3d at 616, 625 N.E.2d at 717. There is no
such concern in the present case. The trustee's decision in
Stein, not to make discretionary payments to a secondary benefi-
ciary, is not support for the trustee's decision in this case not
to make payments he was directed to make for the benefit of the
primary beneficiary, the settlor.
Defendant attempts to fit himself with the public-
benefits paragraph, arguing that the Illinois Trust was a "source
of funds" and his discretion is "final even if found arbitrary or
unreasonable." As defendant points out, the paragraph states "It
is my specific intent not to displace any source of funds other- wise available to me for my basic support." (Emphasis added.)
The sentence continues, however, "for which I may from time to
time be eligible by reason of my age, disability, or other
factors, from federal, state, or local government, or charitable
sources." The Illinois Trust was not a governmental or charita-
ble source. Defendant's discretion to deny reimbursement to the
Illinois Trust was accordingly not "final even if found arbitrary
or unreasonable." The first sentence of the paragraph does not
mention public benefits, but that sentence is clearly modified by
the following sentence, which begins "It is my specific intent."
- 10 - C. Unlimited Discretion
Even if the public-benefits paragraph applied to
payments other than those for which public benefits were avail-
able, we disagree with the trial court's conclusion that it is
irrelevant whether defendant properly exercised his discretion,
that "[e]ven if *** his conduct was in bad faith, [the settlor]
has even excused such conduct and given him unbridled authority."
In construing a trust, a trial court's first concern is
to determine the settlor's intent and give effect to that intent if it is not contrary to public policy. Harris Trust & Savings
Bank v. Donovan, 145 Ill. 2d 166, 172, 582 N.E.2d 120, 123
(1991). "[W]hat may constitute an abuse of discretion by the
trustee[] depend[s] on the terms of the discretion, including the
proper construction of any accompanying standards, and on the
settlor's purposes in granting the discretionary power and in
creating the trust." (Emphasis added.) Restatement (Third) of
Trusts '50(2), at 258 (2003). The purposes of the trust and the
powers of the trustee must be read together. When the settlor
has a particular purpose in mind, it would be improper for us to
ignore that purpose by concluding that the trustee could do
whatever he wanted. The settlor's intent in the Arizona Trust
was not to let defendant do whatever he wanted.
"It is contrary to sound policy, and a contradiction in
terms, to permit the settlor to relieve a 'trustee' of all
accountability." Restatement (Third) of Trusts '50, Comment c,
at 262 (2003). "Even under the broadest grant of fiduciary
- 11 - discretion, a trustee must act honestly and in a state of mind
contemplated by the settlor. Thus, the court will not permit the
trustee to act in bad faith or for some purpose or motive other
than to accomplish the purposes of the discretionary power."
Restatement (Third) of Trusts '50, Comment c, at 262 (2003). A
"trustee" who has no responsibility is not a trustee. See also
Amcore Bank, N.A. v. Hahnaman-Albrecht, Inc., 326 Ill. App. 3d
126, 759 N.E.2d 174 (2001) (general terms in a power of attorney
that literally purport to grant great authority will normally be
interpreted as authorizing the agent to act only in connection
with the business the agent is employed to perform).
Of course, it is possible for the settlor not to have a
particular purpose in mind and to simply vest discretion to
distribute principal or income in the trustee. That was the case
in Rubinson, where the plaintiff alleged the paramount purpose of
a trust was to benefit the plaintiff and her brother. Rubinson,
250 Ill. App. 3d at 213, 620 N.E.2d at 1276. The plaintiff
relied on the following recital: "'In compliance with the
request of FANNIE RUBINSON to use the [corpus of the trust] to
express her love for her grandchildren and children *** in any
manner considered suitable by [the trustees].'" Rubinson, 250
Ill. App. 3d at 213, 620 N.E.2d at 1276. Viewing the document as
a whole, the First District could not agree with the circuit
court that the main purpose of the trust was to benefit the
children and grandchildren of Fannie May Rubinson. Rubinson, 250 Ill. App. 3d at 213, 620 N.E.2d at 1276. Paragraph 4 of the
- 12 - trust expressly gave the trustees "complete and unfettered
discretion" with regard to the payment of monies out of the
trust. They could pay any amount or, if they chose, they could
make no disbursements at all. Rubinson, 250 Ill. App. 3d at 208,
214-15, 620 N.E.2d at 1273, 1276-77. In the present case, in
contrast, the settlor did have a primary purpose, that all of her
needs be met. In the present case, the discretion of the trustee
was not complete and unfettered. Rather, the trustee was ordered
at all times to exercise discretion in favor of making such
payments.
D. Alter or Modify
Assuming that the Arizona Trust was an irrevocable
trust, it does not appear that Sims attempted to alter or modify
that trust by her 1999 amendment to her Illinois Trust. Sims
stated in the 1999 amendment that she desired "to explain and clarify the purpose and [her] intent with respect to the declara-
tion of trust [she] signed on September 25, 1991, [the Arizona
Trust]" (emphasis added), and it seems logical that she was in
fact doing so, not making a change. As discussed above, expenses
for health, support, and maintenance were to be divided between
the two trusts. Absent of any further direction, it seems
logical that the expenses were to be divided equally. When Sims
expressly stated, in the 1999 amendment, that the expenses were
to be divided equally, she was not altering or modifying the
Arizona Trust but making clear what the language of the Arizona
Trust already seemed to require. Defendant asks for an inverse
- 13 - application of the 1999 amendment. We should not accept what
Sims declared to be her intent but do the opposite--because Sims
felt it necessary to explain what her intent was in the Arizona
Trust, she must have been changing the Arizona Trust.
E. Extrinsic Evidence
We also disagree with the circuit court's conclusion
that the settlor's clear language in the 1999 amendment to the
Illinois Trust must be ignored because it is extrinsic to the
Arizona Trust. Extrinsic evidence may be admitted to aid inter- pretation of a trust instrument only if the document is ambiguous
and the settlor's intent cannot be obtained. Stein, 252 Ill.
App. 3d at 615, 625 N.E.2d at 716. Ambiguity can be found if the
language is reasonably or fairly susceptible to more than one
interpretation. Stein, 252 Ill. App. 3d at 615, 625 N.E.2d at
716. Certainly if the language of a document is clear, it is not
the function of a court to modify the document or create new
terms. Steward, 134 Ill. App. 3d at 414, 480 N.E.2d at 203.
Even if the document is not particularly ambiguous, however, we
should still examine it carefully and try to understand it
considering the entire document and the various meanings which
words may have. We should not seize upon one word or phrase in
isolation and use that word as an excuse not to consider the
entire document.
The "four-corners" rule may make sense in a contract
situation where the parties intend their written contract to be
the complete and exclusive statement of their agreement. Some-
- 14 - times a trust instrument may stand alone as the complete and
exclusive statement of a settlor's intent, but that was not the
situation here. The settlor executed two trust agreements
dealing with the same subject: her health, support, and mainte-
nance. The trusts also covered some of the same assets. It was
impossible to administer one trust without considering what was
being done by the other. "'When there are two or more instru-
ments creating, defining, or relating to a trust, they may, or
should, be construed together to effectuate the intention of the creator.'" Harris Trust, 145 Ill. 2d at 176, 582 N.E.2d at 124,
quoting 90 C.J.S. Trusts '164, at 32 (1955). The two trust
instruments here should be construed together.
Even if we accept defendant's argument that the 1999
amendment was not a clarification or restatement of Sims' origi-
nal intent in the Arizona Trust, but an attempt to change an
irrevocable trust, the Arizona Trust had to take note of what
happened in the Illinois Trust. If Sims had dissolved the
Illinois Trust, the Arizona Trust would have been responsible for
all Sims' health, support, and maintenance payments. Sims did
not dissolve the Illinois Trust, but she did direct it not to pay
more than 50% of her expenses. Actions taken by Sims regarding
the Illinois Trust had consequences that affected the Arizona
Trust. Other actions taken by Sims after the creation of the
Arizona Trust also had consequences. Sims would decide whether
to live at home or in an expensive extended-care facility. Sims
would decide whether to seek expensive experimental medical care.
- 15 - Although Sims made the Arizona Trust irrevocable ("but hereby
provide for its possible amendment"), subsequent actions by Sims
could reduce the amount received by defendant under the Arizona
Trust.
III. CONCLUSION
For the reasons stated, we reverse the circuit court's
entry of summary judgment and remand for further proceedings
consistent with this opinion.
Reversed and remanded. McCULLOUGH, J., concurs.
STEIGMANN, J., dissents.
- 16 - JUSTICE STEIGMANN, dissenting:
Sims made her wishes clear when she created the Arizona
Trust in 1991: the trustee's discretion in making or not making
disbursements from that trust was essentially unlimited. The
majority has decided that either Sims could not have so intended
or, if she did, she was wrong to do so. After so concluding, the
majority has arrogated to itself to decide what Sims really
meant, thereby disregarding what Sims wrote and reaching a
conclusion that the majority finds more agreeable. I respect- fully dissent.
I. THE IRREVOCABLE TRUST
The Arizona Trust at issue was created in September 1991 and
entitled "Irrevocable Declaration of Trust." During the entire
course of this litigation, including questioning of plaintiff at
oral argument, plaintiff's position has been to concede that the
Arizona Trust was irrevocable. Thus, this case presented the court with the question of the powers of the trustee of the
Arizona Trust as set forth in the 1991 document creating the
Arizona Trust.
Despite this procedural posture, the majority writes
the following: "Assuming that the Arizona Trust was an irrevoca-
ble trust, it does not appear that Sims attempted to alter or
modify that trust by her 1999 amendment to her Illinois Trust."
Slip op. at 13. This phraseology betrays the majority's unwill-
ingness to concede what plaintiff has already conceded--the
Arizona Trust was irrevocable. But, the majority states, assum-
- 17 - ing the Arizona Trust was irrevocable, the 1999 amendment to the
Illinois Trust did not constitute a change in the Arizona Trust
(presumably because an irrevocable trust, by definition, cannot
be so modified), but, instead, merely constituted an effort by
Sims to make "clear what the language of the Arizona Trust
already seemed to require." Slip op. at 13. Thus, the majority
creates in Illinois the doctrine of "Irrevocable Trust (Sort
Of)," which means that even if a trust is irrevocable, it may be
subject to "clarification" eight years after the fact to "ex-
plain" what its terms meant.
The majority is not clear regarding the scope of this
new doctrine. That is, can such "clarification" occur only in
subsequent trust documents, or would some other legal document
(like a will) suffice? In addition, what would be the effect of
a letter the settlor writes to the trustee eight years after the
creation of the trust, indicating her "clarification" of the
terms of the trust?
II. THE TRUSTEE'S DISCRETION
In my judgment, the key to this case is the extraordi-
nary language Sims used in empowering the trustee of the Arizona
Trust--language that literally could hardly be stronger in expressing her intent. The Arizona Trust provides that the
trustee's "discretion in making or not making disbursements of
income or principal from this trust is final." That would be a
strong statement by itself, but just in case someone might have
missed its significance, the trust goes on to provide that the
- 18 - trustee's discretion is final "even if found arbitrary." Again,
an extraordinary statement. But just in case someone still
missed its import, the trust instrument goes even further,
stating that the trustee's discretion is "final even if found
unreasonable." Then, just in case any lingering doubt could
somehow exist as to the scope of the trustee's discretion, this
sentence concludes as follows: "trustee's sole and independent
judgment being the criterion upon which any disbursements are
made or withheld." An interesting exercise for the majority would be to ask: Assuming Sims in fact wished to grant the
trustee essentially unlimited discretion, what additional lan-
guage could she have employed to make her wishes clear?
III. THE AMBIGUITY AS TO THE PURPOSE OF THE TRUST
The majority is correct that the creation of multiple
trusts in this case creates some ambiguity regarding both their
purpose and their relationship to each other. However, no ambiguity exists regarding Sims' wish as to who was empowered to
resolve all such questions regarding any disbursements from the
Arizona Trust: the trustee of the Arizona Trust possessed
essentially unlimited discretion--that is, the trustee was to
make disbursements from that trust in his sole discretion, even
if someone else might find his exercise of that discretion
arbitrary or unreasonable.
Last, I note that this case does not involve any
reimbursement of, or claim made by, any governmental agency.
Here, plenty of money was available in both trusts at all times
- 19 - to address all of Sims' then-current and future needs. In fact,
even after the trustee of the Arizona Trust refused to pay
anything regarding Sims' expenses before she died, the Illinois
Trust (which paid all of those expenses) still contained over
$60,000.
- 20 -