First Interstate Bank v. Lindberg

Citations: 746 P.2d 333; 49 Wash. App. 788Docket: 9492-4-II

Court: Court of Appeals of Washington; December 2, 1987; Washington; State Appellate Court

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In 1966, Hilding and Isabel Lindberg established an inter vivos trust, naming First Interstate Bank as trustee, which held nearly all of their community property valued at approximately $11 million. The trust included amendments made during Hilding's lifetime, stipulating that upon Hilding's death, the bank would manage the assets, provide income to Isabel, and distribute the remaining assets to beneficiaries, including a significant portion to their son, William Lindberg. After Hilding's death in 1971, the bank divided the trust assets into two accounts and later sold real estate from the deceased spouse's share to pay death taxes, with Isabel's knowledge and involvement. Isabel subsequently amended the trust to exclude William as a beneficiary and directed that her share of the family home be given to her sister-in-law, Irene Prescott.

Following Isabel's death in December 1982, William contested the trust's asset distribution, leading the bank to file a declaratory judgment action involving all residual beneficiaries. William counterclaimed against the bank for mismanagement. The trial court addressed the case in three phases: (1) determining the trust's interpretation; (2) the interest of William's former wife, Barbara; and (3) trust management issues. The court ruled that Isabel had the right to amend the trust, recognized Barbara as a beneficiary, and found the bank negligent in handling certain trust assets. Monetary judgments were made against the bank, while other claims of negligence were dismissed. The court also allocated attorney fees and expenses among the parties, and William appealed all adverse findings and judgments.

The Bank cross-appeals the court's rulings on insurance policies, with the court affirming William's appeal except for one aspect, while reversing the Bank's cross-appeal. The court addresses issues from phases one, two, and selected issues from phase three, agreeing with the trial court's resolutions on undisputed matters.

In Phase One, concerning trust interpretation, William argues that the trust became irrevocable upon Hilding's death, rendering Isabel's amendments ineffective. The court disagrees, referencing Article 9 of the trust agreement, which states the trust becomes irrevocable after the death of either Trustor. However, Article 13 allows the surviving spouse to receive income and invade principal for their benefit. The court clarifies that while the trust is irrevocable, it can still be amended, provided such amendments do not equate to a revocation. Isabel's amendments simply changed asset distribution without attempting to revoke the trust, which the court finds permissible under the power of appointment granted in the trust documents. Thus, the court concludes that Isabel's amendments to her share of the trust assets are valid.

William acknowledges that the trust agreement provided Isabel with a power of appointment over her share of the trust assets, which she attempted to exercise due to uncertainty regarding the validity of her trust amendments. While William argues that Isabel either did not attempt to exercise the power or that her attempt was ineffective, the discussion concludes that even if the trust amendments were deemed ineffective, Isabel's attempt to exercise the power would still be valid. 

Isabel's will indicates her intent to transfer all real and personal property to a Living Trust and outlines that if her trust were invalidated, her executor should distribute the estate according to the terms of the trust and its amendments. William claims that Isabel's will did not effectively exercise the power of appointment because it lacked specific reference to the trust. However, it is established that the law does not require an explicit mention of the power as long as the intent to exercise it is clear. References to the property or the creating instrument can demonstrate this intent, particularly when the appointed interest is the only one she could devise.

Isabel's intention was evident: she desired her assets to be distributed according to her wishes, either through the trust or her will. The language in her will indicates a dual intent to pour over remaining assets into the trust while also ensuring distribution in accordance with her amended trust. 

In a separate matter concerning Barbara Lindberg's rights, the Bank plans to distribute a share of trust assets to her as part of a special trust known as the "Residuary Trust Estate," specifying that 70% of the net income will be distributed to William and Barbara Lindberg, with 10% allocated to each of their children.

William and Barbara were married in 1943 and divorced in 1977. The litigation arose from William's claim that Barbara had no rights under a trust or had waived them through a property settlement agreement. The court held that Barbara was entitled to a distribution from the trust and that her rights were not affected by the property settlement agreement. William's argument that Barbara's rights were derivative, contingent on their marital relationship, was rejected. The court noted that in other jurisdictions, beneficiaries named in a will or trust are entitled to distributions individually, not just by virtue of their relationship to the testator. Therefore, Barbara's rights under the trust were personal and not derivative.

William further argued that Barbara waived her rights by signing the property settlement agreement, which stated they waived all rights arising from their marriage. This claim was dismissed, as her rights under the trust were personal and not derived from the marriage, thus not waived. 

Regarding attorneys' fees, William contested the court's order for him to pay Barbara's fees, arguing that the property settlement agreement's provision for such fees did not apply since he did not initiate the action. However, the court found that William was responsible for instigating the litigation by resisting the Bank's proposed distribution and raising issues related to the property settlement agreement, thus he had effectively brought an action to enforce it.

The trial also addressed William's claims of mismanagement and breach of fiduciary duties by the Bank, with the court affirming that substantial evidence supported its findings. Four specific issues were discussed: annual accountings, interest on a distribution to William, an insurance matter, and the award of attorneys' fees. The court concluded that it correctly applied the law to all matters under consideration.

Annual accountings as mandated by Article 3 of the trust agreement require the Trustee to provide an accounting to each adult beneficiary and the legal guardian of any minor or incompetent beneficiary receiving payments. The trial court's ruling that this language did not necessitate annual accountings for William was erroneous; however, the error was deemed harmless as William could not demonstrate that receiving the accountings during Isabel's lifetime would have impacted his rights, given he had no entitlement to distributions until her death.

Concerning the $150,000 cash distribution to William upon the death of both trustors, Article 15 stipulates that this distribution was not made following Isabel's death. William argued he was entitled to interest on this amount from the time it was due. The Bank contended that the distribution constituted a general legacy and was thus not subject to interest until paid. However, it was determined that this distribution qualified as a specific monetary bequest, entitling William to interest from the due date until payment, regardless of the Bank's justification for the delay. The trial court's decision regarding this issue was reversed, and it was instructed to calculate and award the interest owed to William.

William also contested the trial court's award of attorneys' fees and costs, asserting he received too little while others received too much from the trust assets. The court upheld that the awards were reasonable and within the trial court's discretion. The legal framework governing such awards indicates that attorney fees can be charged to a trust estate for necessary litigation related to trust administration, provided the trial court finds the litigation essential, the issues significant, and the conduct of the parties appropriate, without unnecessary delay or expense.

The trial court must evaluate whether the litigation and the attorney's participation benefited the trust when considering attorney fee awards. A trustee who unsuccessfully defends against breach of fiduciary duty charges cannot be awarded fees for litigation stemming from their misconduct. The trial court's decision in this case demonstrated careful discretion and adherence to the Allard principles, acknowledging that the litigation was essential for trust administration and final distributions. Each party's involvement aided the resolution of issues affecting the trust, with the Bank required to cover its fees and those of William proportionate to their improper actions. The court's assessment of the benefits to the trust was thorough, and its award of fees is affirmed, except for one adjustment regarding the Bank's entitlement to recover attorney fees related to the insurance issue, which will be recalibrated upon remand.

Article 1 of the trust agreement specified the assets as community property, including four life insurance policies on Isabel's life. The Bank was named as the beneficiary in 1966, but the policies were not assigned to the trust. Following Hilding's death, Isabel paid premiums from her separate funds and later named Irene Prescott as the beneficiary, who received the proceeds upon Isabel's death. The Bank alleged that Irene improperly received the proceeds and that William claimed they belonged to the trust, arguing the Bank failed in its fiduciary duty to collect the proceeds. The court found the Bank negligent for not securing an assignment of the policies and for not collecting half of the proceeds, holding it liable for $243,454.76, while also ruling the Bank could not recover this amount from Irene due to a delay in asserting its claim. The Bank contended it had no duty to collect the proceeds, and the court agreed, noting the trust agreement allowed the trustors to amend the trust without the trustee's consent, thereby limiting the Bank's responsibilities.

The trust agreement becomes irrevocable upon the death or incapacity of either Trustor. The Trustee is not liable for the validity or payment of any premiums on insurance policies but is responsible for safekeeping them. After a Trustor's death, the Trustee must make reasonable efforts to collect policy proceeds but is not obligated to initiate legal action unless indemnified. The amendment clarifies that the policies do not fall under the Bank's control, absolving it from the duty to collect proceeds for beneficiaries other than itself. The Trustors retained control of the policies while alive, indicating that the Bank could not ascertain their status at the time of a Trustor's death. The Bank's responsibility is limited to safeguarding delivered policies and collecting proceeds only for policies where it is the beneficiary. Additionally, while the Trust has a potential interest in the insurance proceeds as community property, the responsibility for collecting those proceeds lies with Hilding's estate's personal representative, not the Bank. The judgment against the Bank for $243,454.76 is reversed. The trial court is instructed to determine the reasonableness of attorney fees requested by William, the Prescotts, the Bank, and the guardian ad litem, and to allocate payment sources accordingly.

Costs are determined for taxing in accordance with RAP Title 14, establishing that: 1. The Bank has substantially prevailed on all issues raised in William's appeal; 2. Barbara Lindberg and the Prescotts have also substantially prevailed on their respective issues in William's appeal; 3. The Bank has prevailed on its cross appeal. The court's decision is affirmed in part, reversed in part, and remanded for further proceedings. The trial court awarded specific attorney fees and costs from the residuary trust estates, including: First Interstate Bank receiving 17% and 15% of its fees and costs from the surviving and deceased spouse’s estates, respectively; the Prescotts receiving 80% fees and costs from the surviving spouse’s estate and 20% from the deceased’s; William Lindberg entitled to $78,265 from the deceased spouse’s estate; and various allocations for expert fees and costs among other parties involved. The record reviewed included extensive documentation, and the court noted William's argument regarding the trust agreement being a mutual will was dismissed due to Isabel's right to amend her share, as highlighted in Newell v. Ayers. The court chose not to address William's additional claims regarding the Bank's actions and responsibilities as trustee.