Phillips v. MacRae

• Court: Court of Appeals of North Carolina
• Decided: November 2, 2021
• Docket: 20-903
• Status: Published

Opinion

IN THE COURT OF APPEALS OF NORTH CAROLINA

2021-NCCOA-588

No. COA20-903

Filed 2 November 2021

New Hanover County, No. 19 CVS 1957

T. ALAN PHILLIPS and ROBERT WARWICK, in their capacities as co-Trustees of the Marital Trust created under Section 2 of ARTICLE IV of the Hugh MacRae II Revocable Declaration of Trust; and ROBERT WARWICK, HUGH MACRAE III, and NELSON MACRAE, in their capacities as co-Trustees of the Family Trust created under Section 3 of ARTICLE IV of the Hugh MacRae II Revocable Declaration of Trust which Family Trust is the sole remainder beneficiary of the Marital Trust, Plaintiffs,

v.

EUNICE TAYLOR MACRAE and MARGUERITE BELLAMY MACRAE, in her capacity as a beneficiary of the Family Trust, Defendants.

Appeal by plaintiffs from order entered 25 August 2020 by Judge Phyllis M.

Gorham in New Hanover County Superior Court. Heard in the Court of Appeals 21

September 2021.

Womble Bond Dickinson (US) LLP, by Lawrence A. Moye, IV and Elizabeth K. Arias, and Hogue Hill LLP, by Patricia C. Jenkins, for plaintiffs-appellants.

Johnston, Allison & Hord, P.A., by Kimberly J. Kirk and David T. Lewis, and Law Office of Susan M. Keelin, PLLC, by Susan M. Keelin, for defendants- appellees.

TYSON, Judge.

¶1 T. Alan Phillips (”Phillips”) and Robert Warwick (“Warwick”) in their

capacities as co-Trustees of the Marital Trust created under section 2 of Article IV of PHILLIPS V. MACRAE

Opinion of the Court

the Hugh MacRae II Revocable Declaration of Trust; and Warwick, Hugh MacRae,

III, and Nelson MacRae, in their capacities as co-Trustees of the Family Trust created

under Section 3 of Article IV of the Hugh MacRae II Revocable Declaration of Trust

which Family Trust is the sole remainder beneficiary of the Marital Trust (collectively

“Plaintiffs”) appeal from an order entered 26 August 2020 granting summary

judgment in favor of Eunice Taylor MacRae and Marguerite Bellamy MacRae in their

capacities as beneficiaries of the Family Trust (collectively “Defendants”). We reverse

summary judgment and remand.

I. Background

¶2 Hugh MacRae II (“Decedent”) died on 8 October 2018. Decedent was survived

by his second wife, Eunice Taylor MacRae (“Eunice”); his three adult children from

his first marriage: Hugh MacRae III (“Hugh”), Nelson MacRae (“Nelson”), Rachel

Cameron MacRae Gray (“Rachel”); and his adult child from his second marriage to

Eunice, Marguerite Bellamy MacRae (“Marguerite”).

¶3 Decedent’s Last Will and Testament dated 31 January 2014 bequeathed his

residuary estate to the Trustees of his Revocable Trust. The Revocable Trust was

created under an Amended Revocable Declaration of Trust dated 31 January 2014.

Decedent created this Revocable Trust that upon his death was to be divided into two

testamentary trusts: a Marital Trust and a Family Trust. The Marital Trust was to

be administered under Section 2 of Article IV of the Revocable Trust Agreement for PHILLIPS V. MACRAE

the benefit of Eunice during her lifetime. The Marital Trust terminates upon Eunice’s

death. The Trustees of the Marital Trust are Phillips and Warwick.

¶4 The Trustees of the Family Trust are Hugh, Nelson, and Warwick. The Family

Trust was to be administered under Section 3 of Article IV for the equal benefit of

Decedent’s four children and their descendants. The Family Trust for the benefit of

the four children is the sole remainder beneficiary of the Marital Trust.

¶5 Plaintiffs assert Decedent articulated and established two estate planning

goals: (1) to ensure Eunice was well provided for upon his death; and, (2) to ensure

all four of his children were treated equally following his death. Decedent’s stated

fear was that any of his assets left outright to Eunice would be left solely to her

daughter, Marguerite, upon her death, to the exclusion of his other three children

from his first marriage. Decedent also believed Eunice would challenge his estate

plan, if any legal basis existed to do so.

¶6 Decedent along with his accountant, Warwick, and estate planning attorney,

Talmage Jones, sought to accomplish his testamentary plan and intent and to prevent

this eventuality from occurring. Jones drafted the Marital Trust to be a 100% fully

countable trust to satisfy a spousal share pursuant to N.C. Gen. Stat. § 30-3.3A(e)(1)

(2019).

¶7 Decedent informed Warwick that Jones “is checking results to be certain the

will exceeds N.C. laws for spouses[’] share and would not be likely to be contested.” PHILLIPS V. MACRAE

Jones later informed Decedent that Eunice’s statutory spouse’s share could be

satisfied by a devise into a marital trust. After Decedent’s death, Eunice challenged

the Decedent’s estate plan. She filed an elective share claim against the estate to

challenge the value assigned to the Marital Trust in calculating the amount of any

elective share to which she may be entitled. Eunice asserted the Marital Trust did

not meet the requirements to be counted at 100% of its value towards her elective

share.

¶8 Plaintiffs filed a claim for a declaratory judgment: (1) seeking a declaration

that the terms of the Marital Trust met the requirements of N.C. Gen. Stat. § 30-

3.3A(e)(1) to be a 100% countable trust as property passing to the surviving spouse

under N.C. Gen. Stat. § 30-3.2(3c) (2019) for calculation of an elective share; (2)

seeking an order pursuant to N.C. Gen. Stat. § 36C-4-412 (2019) to modify the terms

of the Marital Trust to be a 100% fully countable trust due to circumstances not

anticipated by Decedent; and, (3) seeking an order pursuant to N.C. Gen. Stat. § 36C-

4-415 (2019) modifying the terms of the Marital Trust to be a 100% fully countable

trust to conform to Decedent’s intent.

¶9 On 8 July 2019, Eunice filed a motion to dismiss pursuant to Rules 12(b)(1),

12(b)(6), and 12(b)(7) of the North Carolina Rules of Civil Procedure. See N.C. Gen.

Stat. § 1A-1, Rules 12(b)(1), 12(b)(6), and 12(b)(7) (2019). The trial court denied the

motions but ordered Marguerite to be added as a party to the litigation. Upon cross PHILLIPS V. MACRAE

motions for summary judgment, the trial court granted Defendants’ motion for

summary judgment on all claims on 26 August 2020. Plaintiffs appealed.

II. Jurisdiction

¶ 10 Jurisdiction lies in this Court pursuant to N.C. Gen. Stat. § 7A-27(b) (2019).

III. Issue

¶ 11 Plaintiffs argue the trial court erred by granting Defendants’ motion for

summary judgment on all claims.

IV. Motion for Summary Judgment

A. Standard of Review

¶ 12 North Carolina Rule of Civil Procedure 56(c) allows a moving party to obtain

summary judgment upon demonstrating “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits” show they are

“entitled to a judgment as a matter of law” and “there is no genuine issue as to any

material fact.” N.C. Gen. Stat. § 1A-1, Rule 56(c) (2019).

¶ 13 A material fact is one supported by evidence that would “persuade a reasonable

mind to accept a conclusion.” Liberty Mut. Ins. Co. v. Pennington, 356 N.C. 571, 579,

573 S.E.2d 118, 124 (2002) (citation omitted). “An issue is material if the facts alleged

would . . . affect the result of the action.” Koontz v. City of Winston-Salem, 280 N.C.

513, 518, 186 S.E.2d 897, 901 (1972). When reviewing the evidence at summary

judgment: “[a]ll inferences of fact from the proofs offered at the hearing must be PHILLIPS V. MACRAE

drawn against the movant and in favor of the party opposing the motion.” Boudreau

v. Baughman, 322 N.C. 331, 343, 368 S.E.2d 849, 858 (1988) (citation omitted).

¶ 14 “The party moving for summary judgment bears the burden of establishing

that there is no triable issue of material fact.” DeWitt v. Eveready Battery Co., 355

N.C. 672, 681, 565 S.E.2d 140, 146 (2002) (citation omitted). “This burden may be

met by proving that an essential element of the opposing party’s claim is nonexistent,

or by showing through discovery that the opposing party cannot produce evidence to

support an essential element of his claim or cannot surmount an affirmative defense

which would bar the claim.” Id. (citation and internal quotation marks omitted).

¶ 15 On appeal, “[t]he standard of review for summary judgment is de novo.” Forbis

v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007) (citation omitted).

B. 9 September 2019 Order

¶ 16 In the 9 September 2019 order, the trial court denied Defendants’ Rules

12(b)(1), 12(b)(6), and 12(b)(7) motions. Plaintiffs argue this order finds the terms of

the Marital Trust are ambiguous. Plaintiffs assert the 26 August 2020 order granting

summary judgment to Defendants improperly overrules the legal conclusion of

another judge.

¶ 17 Our Supreme Court has held: “no appeal lies from one Superior Court judge to

another, that one Superior Court judge may not correct another’s errors of law; and

that ordinarily one judge may not modify, overrule, or change the judgment of another PHILLIPS V. MACRAE

Superior Court judge, previously made in the same action.” State v. Woolridge, 357

N.C. 544, 549, 592 S.E.2d 191, 194 (2003).

¶ 18 The trial court’s standards to rule upon a Rule 12(b)(6) motion to dismiss and

a Rule 56 motion for summary judgment are different and present separate legal

questions. Barbour v. Little, 37 N.C. App. 686, 692, 247 S.E.2d 252, 255 (1978). “The

test on a motion to dismiss under Rule 12(b)(6) is whether the pleading is legally

sufficient.” Id. at 692, 247 S.E.2d at 256. The test for a Rule 56 motion for summary

judgment that is “supported by matters outside the pleadings is whether on the basis

of the materials presented to the court there is any genuine issue as to any material

fact and whether the movant is entitled to judgment as a matter of law.” Id.

¶ 19 In Barbour, this Court held: “the denial of a motion to dismiss made under

Rule 12(b)(6) does not prevent the court, whether in the person of the same or

different superior court judge, from thereafter allowing a subsequent motion for

summary judgment made and supported as is provided in Rule 56.” Id.

¶ 20 The subsequent allowing of a motion for summary judgment where a prior Rule

12(b)(6) motion was denied by the same or by a different judge is permitted by our

longstanding precedents. One superior court judge did not overrule another superior

court judge in this ruling. Plaintiffs’ argument is overruled.

C. N.C. Gen. Stat. § 30-3.3A(e)(1) Requirements

¶ 21 Plaintiffs argue the trial court improperly found the Marital Trust was not a PHILLIPS V. MACRAE

100% fully countable trust within the requirements of N.C. Gen. Stat. § 30-3.3A(e)(1).

N.C. Gen. Stat. § 30-3.3A(e)(1) provides when valuing a partial and contingent

interest passing to the surviving spouse:

The value of the beneficial interest of a spouse shall be the entire fair market value of any property held in trust if the decedent was the settlor of the trust, if the trust is held for the exclusive benefit of the surviving spouse during the surviving spouse’s lifetime, and if the terms of the trust meet the following requirements:

a. During the lifetime of the surviving spouse, the trust is controlled by one or more nonadverse trustees.

b. The trustee shall distribute to or for the benefit of the surviving spouse either (i) the entire net income of the trust at least annually or (ii) the income of the trust in such amounts and at such times as the trustee, in its discretion, determines necessary for the health, maintenance, and support of the surviving spouse.

c. The trustee shall distribute to or for the benefit of the surviving spouse out of the principal of the trust such amounts and at such times as the trustee, in its discretion, determines necessary for the health, maintenance, and support of the surviving spouse.

d. In exercising discretion, the trustee may be authorized or required to take into consideration all other income assets and other means of support available to the surviving spouse.

N.C. Gen. Stat. § 30-3.3A(e)(1) (2019). Decedent was the settlor of the trust. The

terms of the Marital Trust are for the exclusive benefit of his surviving spouse,

Eunice, during her lifetime. PHILLIPS V. MACRAE

1. Nonadverse Trustees

¶ 22 Decedent appointed Phillips and Warwick as trustees of the Marital Trust.

N.C. Gen. Stat. § 30-3.3A(e)(1)a provides and requires, “During the lifetime of the

surviving spouse, the trust is controlled by one or more nonadverse trustees.” The

Marital Trust currently has nonadverse trustees in Phillips and Warwick.

Defendants argue the trustees of the Marital Trust could become adverse in the

future and asserts no requirement in the trust documents requires nonadverse

trustees. Plaintiffs argue Phillips and Warwick could serve until Eunice’s death, but

if they should resign or die, a successor trustee could be substituted, who is also

nonadverse to comply with the statute. N.C. Gen. Stat. § 30-3.3A(e)(1)a. Speculation

about a purported future adverse trustee violation does not prevent the Marital Trust

with its current trustees from qualifying under this statutory requirement.

Defendants’ argument on this issue is without merit.

2. Trustee Discretion Over Principal Distributions

¶ 23 Defendants argue the Marital Trust does not require principal distributions

pursuant to N.C. Gen. Stat. § 30-3.3A(e)(1)c. The statute provides: “The trustee shall

distribute to or for the benefit of the surviving spouse out of the principal of the trust

such amounts and at such times as the trustee, in its discretion, determines necessary

for the health, maintenance, and support of the surviving spouse.” N.C. Gen. Stat.

§30-3.3A(e)(1)c (emphasis supplied). PHILLIPS V. MACRAE

¶ 24 The Marital Trust provides:

My Trustees may distribute all or any portion of the principal of the trust to my wife in such amounts and at such times as my Trustees may determine to be necessary and prudent. I admonish my wife’s trustees to make all reasonable efforts to preserve the principal of her trust, invading principal only when absolutely necessary for essential things, but not for unusual or unnecessary luxury items.

N.C. Gen. Stat. § 30-3.3A(e)(1)c reads “shall make”, while the terms of the Marital

Trust state “may make.” Plaintiffs concede the Marital Trust provides the Trustees

with discretion for permissive and not mandatory distributions of the principal, but

assert this language satisfies the requirements of N.C. Gen. Stat. § 30-3.3A(e)(1)c,

citing First Nat’l Bank of Catawba Cty. v. Edens, 55 N.C. App. 697, 286 S.E.2d 818

(1982) for support.

¶ 25 To resolve the parties’ arguments, we must first determine whether invasion

of principal distributions is mandatory or permissive under N.C. Gen. Stat. § 30-

3.3A(e)(1)c. In reviewing this statute, we are guided by several well-established

principles of statutory construction.

¶ 26 “The principal goal of statutory construction is to accomplish the legislative

intent.” Lenox, Inc. v. Tolson, 353 N.C. 659, 664, 548 S.E.2d 513, 517 (2001) (citing

Polaroid Corp. v. Offerman, 349 N.C. 290, 297, 507 S.E.2d 284, 290 (1998)). “The best

indicia of that intent are the language of the statute . . . , the spirit of the act and PHILLIPS V. MACRAE

what the act seeks to accomplish.” Coastal Ready-Mix Concrete Co. v. Bd. of Comm’rs,

299 N.C. 620, 629, 265 S.E.2d 379, 385 (1980) (citations omitted).

¶ 27 “When construing legislative provisions, this Court looks first to the plain

meaning of the words of the statute itself[.]” State v. Ward, 364 N.C. 157, 160, 694

S.E.2d 729, 731 (2010). “Interpretations that would create a conflict between two or

more statutes are to be avoided, and statutes should be reconciled with each other

whenever possible.” Taylor v. Robinson, 131 N.C. App. 337, 338, 508 S.E.2d 289, 291

(1998) (internal quotation marks and ellipses omitted) (citations omitted).

¶ 28 The plain meaning of the statute is clear and unambigious. N.C. Gen. Stat. §

30-3.3A(e)(1) contains permissive language giving the trustee discretion how and

when to make distributions of principal and the amount of the distribution. This is

consistent with this Court’s holding in First Nat’l Bank, where this Court held the

word “shall” plus trustee discretion creates a permissive power. First Nat’l Bank, 55

N.C. App. at 702, 286 S.E.2d 821.

¶ 29 N.C. Gen. Stat. § 30-3.3A(e)(1)c provides for permissive or discretionary

distributions and the terms of the Marital Trust permit permissive distributions. The

sub-sections b and c of the statute also limits and provides the Trustee “in its

discretion,” to “determine [what is] necessary for the health, maintenance, and

support of the surviving spouse.” Id. The trial court erred in awarding summary

judgment to Defendants and holding as a matter of law the trust did not meet the PHILLIPS V. MACRAE

requirements of N.C. Gen. Stat. § 30-3.3A(e)(1) to be a 100% fully countable trust

against a surviving spouse’s elective share.

3. Distributions for Surviving Spouse’s Benefit

¶ 30 N.C. Gen. Stat. § 30-3.3A(e)(1)b provides the trustees “shall make”

distributions for the surviving spouse’s benefit when “in its discretion, determines

necessary for the health, maintenance, and support of the surviving spouse.” The

Trustees’ obligations thereunder are compliant with N.C. Gen. Stat. § 30-3.3A(e)(1)b.

The Marital Trust required the net income of the trust to be distributed to Eunice at

least quarter annually. As consistent with the Decedent’s and settlor of the Marital

Trust’s expressed intent, the Trustees of the Marital Trust have the discretion to

make distributions for Eunice’s benefit so long as the distributions are “necessary for

the health, maintenance, and support of the surviving spouse.” Id.

4. Other Means of Support

¶ 31 N.C. Gen. Stat. § 30-3.3A(e)d provides the trustee can in their discretion take

into consideration other income assets and other means of support of the surviving

spouse. Here, the terms of the Marital Trust provide the Trustees have the discretion

to consider “any other means of support available to my wife.” The Marital Trust

meets the requirements of N.C. Gen. Stat. § 30-3.3A(e)(1) to be a 100% fully countable

trust. Because we reach this conclusion, it is unnecessary to and we do not reach

Plaintiffs’ arguments under N.C. Gen. Stat. § 36C-4-412 for modification or under PHILLIPS V. MACRAE

N.C. Gen. Stat. § 36C-4-415 for reformation.

V. Conclusion

¶ 32 The trial court erred in granting summary judgment for Defendants. The

Marital Trust meets all statutory requirements and named nonadverse trustees

presently and in perpetuity because of the Trustee’s rights to appoint another

nonadverse trustee. N.C. Gen. Stat. § 30-3.3A(e)(1)c provides for permissive

distributions of principal, while the terms of the Marital Trust also provide for

permissive distributions. The Marital Trust meets the requirements of N.C. Gen.

Stat. § 30-3.3A(e)(1) to be a 100% fully countable trust. The order of the trial court is

reversed and the cause is remanded for further proceedings as are consistent with

this opinion. It is so ordered.

REVERSED AND REMANDED.

Judges GORE and JACKSON concur.