Posts tagged with "beneficial interest"

Trustee Interpretation of Ambiguous Trust Provisions will not be Changed by a Court Without Evidence of a Clear Abuse of Trustee Discretion

In a recent case before the Superior Court, four trust beneficiaries filed a three-part complaint against the trustees of a trust created by their mother.  The complaint alleged breach of fiduciary duty, unjust enrichment, and other charges. The trial court ruled that the trustees had properly distributed the trust interests and entered judgment in their favor.

In 1953, a trust indenture known as the Hembdt Trust was drafted with assets consisting of royalty interests in oil, gas and mineral rights.  During her lifetime, the settlor and beneficiary of this trust (“the decedent”) married and had ten children.  Upon her death, the terms of the trust provided that the royalty interests would pass to “his or her legal representatives, heirs at law or next of kin in accordance with the provisions of law applicable to the domicile of the deceased beneficiary.”  In 1967, the decedent died. Pursuant to her will, several testamentary trusts were created, including a testamentary trust for the benefit of her husband (“marital trust”) and a trust for her children (“children’s trust”).  The trustees and executors of the decedent’s will determined that the provision in the Hembdt Trust required the trust’s royalty interests to pass into her estate which, in accordance with her will, resulted in these interests being distributed in a 54/46 ratio between the marital trust and the children’s trust.

The beneficiaries of the children’s trust argued that the entirety of the royalty interest should have been distributed to them as the decedent’s heirs at law because the term “legal representatives” in the Hembdt Trust provision, used under the circumstances provided, could only be interpreted to mean the children of the decedent.  The decedent’s husband, in his capacity as a fiduciary of the trusts, argued that the beneficiaries’ interpretation was inconsistent with the language of the trust instrument and the law.  He argued that the term “legal representatives” was used in conjunction with “heirs at law” and “next of kin;” therefore, the clear intent of the Hembdt Trust provision was that upon the death of the individual beneficiary, his or her interest would pass to: (1) the beneficiary’s legal representatives, which would be the beneficiary’s executors, if the person died testate, to be administered according to the beneficiary’s will, or the beneficiary’s administrators, if the person died intestate and a probate estate was opened; (2) the beneficiary’ heirs at law if the person died intestate and no probate estate was opened; and (3) the beneficiary’s next of kin if there were no heirs at law. The decedent’s husband further argued that if all three conditions existed, then the distributions would have to be in accordance with Connecticut law, which requires that, when a decedent leaves both a spouse and children, they both inherit.  Finally, the decedent’s husband argued that Connecticut law requires that if a decedent leaves a will, a distribution is made according to the will.   Conn. Gen. Stat. § 45a-431.  The remaining trustees adopted the arguments of the decedent’s husband.

According to Connecticut case law, a court’s role in the construction of a trust instrument is to determine the meaning of what the grantor stated in the trust instrument and not to speculate upon what the grantor intended to state in the instrument. Connecticut Bank & Trust Co. v. Lyman, 148 Conn. 273, 278-79, 170 A.2d 130 (1961).  Language in the trust instrument is to be accorded its common, natural and ordinary meaning and usage.  WE 470 Murdock, LLC v. Cosmos Real Estate, LLC, 109 Conn.App. 605, 609, 952 A.2d 106, cert. denied, 289 Conn. 938, 958 A.2d 1248 (2008) (internal quotation marks omitted). Furthermore, no language will be construed as to remove a trustee from equitable control; courts may intervene only to protect and preserve the trust in circumstances where the trustees have abused their discretion.  Gimbel v. Bernard F. & Alva B. Gimbel Foundation, Inc., 166 Conn. 21, 34, 347 A.2d 81 (1974)

Connecticut case law has established that the phrase “legal representatives” in a testamentary instrument is an ambiguous or equivocal term. Smith v. Groton, 147 Conn. 272, 274–75, 160 A.2d 262 (1960).   In interpreting the trust provisions, the court determined that the language did not permit the decedent’s beneficial interest to pass to each of the three categories (“legal representatives, heirs at law and next of kin”) or to pass to different recipients depending on an exercise of discretion (“legal representatives, or heirs at law, or next of kin”).  For that reason, the court found that the terms “legal representatives,” “heirs at law,” and “next of kin” did not conflict and that the provision required that the decedent’s beneficial interest pass to the recipients in the order clearly listed the trust instrument.  Therefore, the trustees did not abuse their discretion in determining that the royalty interests passed to the executors, as the decedent’s legal representatives, to be distributed to the marital trust and children’s trust in accordance with the decedent’s will.

Because the trial court did not find that the trustees of the decedent’s trusts abused their discretion, the court refused to upset their determination of how the decedent’s interests should be distributed.

Should you have any questions relating to wills, trusts, estates and other personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

Heath v. Heath, CV094044709S, 2012 WL 2477953 (Conn. Super. Ct. June 5, 2012)

Beneficial Interest in a Trust Does Not Equate to Beneficial Ownership of Real Property Held in Trust

In a case before the Superior Court of Connecticut, a beneficiary of a revocable family trust filed a motion to dismiss the summary process action brought by the trustee to regain possession of premises held in trust and occupied by the beneficiary.  The trial court denied the motion to dismiss.

In 2003, the trustee and her husband created a revocable family trust, consisting of three sub-trusts.  The trust named six beneficiaries, including the current trustee. The contested premises were allocated to “Sub Trust A” and occupied by one of the beneficiaries. The current trustee became the sole trustee upon her husband’s death in 2004.  In June 2009, the trustee served notice to the beneficiary to quit the contested premises within three weeks, citing nonpayment of rent, lapse of time, and that the beneficiary never had a right or privilege to occupy the premises.  The beneficiary moved to dismiss the summary process action.

According to Connecticut law, a summary process action requires the individual bringing the action to be the owner of the property. Conn. Gen. Stat. § 47a-23(a)(3).  In a trust, the trustee holds legal title to the assets of the trust. See B.A. Ballou & Co. v. Citytrust, 218 Conn. 749, 753, 591 A.2d 126 n .2, 218 Conn. 749, 591 A.2d 126 (1991). A trust beneficiary has no legal title or ownership interest in the individual assets of the trust.  The Connecticut Supreme Court has held that a beneficiary of a revocable trust does not have a vested property interest, but only an expectancy until the death of the settlor renders the trust irrevocable. See Bartlett v. Bartlett, 220 Conn. 372, 376–77, 599 A.2d 14 (1991).

Although the beneficiary did not dispute that the trustee held legal title to the contested premises, he argued that the trustee could not bring a summary process action against him because he was a co-owner of the contested premises.  He contended that he was entitled to beneficial ownership of the premises and, therefore, fell within the definition of “owner” provided by Connecticut law, Conn. Gen. Stat. § 47a-1(e).

Connecticut law defines property ownership in terms of both legal title and beneficial ownership.  Conn. Gen. Stat. § 47a-1(e).  An “owner” includes one in whom is “vested…all or part of the beneficial ownership and a right to present use and enjoyment of the premises.” Conn. Gen. Stat. § 47a-1(e)(2).  Beneficial ownership is the right to enjoy the premises where legal title is in one person, the right to beneficial use or interest is in another person, and the courts recognize and can enforce the right to beneficial use or interest. Bender v. Nuzzo, Superior Court, Judicial District of New Haven, Housing Session, Docket No. SPNH 9607 47892 (July 10, 1997, Levin, J.).  Beneficial use is distinguished from the right of occupancy or possession because the right to beneficial use encompasses the right to use and enjoy property to one’s liking.

In hearing the motion to dismiss, the court refused to determine whether the beneficiary had a vested or contingent beneficial interest in the family trust, which would not become irrevocable until the trustee’s death.  However, the court found that the beneficiary only demonstrated that he occupied the premises.  He did not show that he had any right to the present use and enjoyment of the premises, under the terms of the trust or otherwise, as required to establish beneficial ownership.  Absent legal title to the premises or vested beneficial ownership, the court found that beneficiary was not an owner of the property and that the trustee had proper standing to bring the summary process action against him.

Therefore, the court denied the beneficiary’s motion to dismiss the trustee’s summary process action to evict him from the contested premises.

Should you have any questions relating to real estate, trust or personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

Trustees May Evict Beneficiaries from Real Property Held by the Trust

In a case before the Superior Court of Connecticut, a sister, acting in her capacity as trustee of the family trust, brought a summary process action for possession of two properties against her brother, a beneficiary of the trust, alleging that his original right or privilege to occupy the contested properties had been terminated.  The trial court entered judgment for immediate possession of the subject properties in favor of the trustee.  The Connecticut Appellate Court affirmed this ruling in a later court proceeding.

Since 2006, the contested properties had been held in trust by the family trust, which was created by the siblings’ father and funded with his assets upon his death that year.  The trust instrument named the sister as the trustee of the family trust and clearly laid out her duties.  The brother lived at the contested properties for almost his entire life, and provided physical care and support to his parents at the properties in the years before their death.  While the brother provided care for his parents, he did not pay rent to them because no rent was requested.  After his parents’ death, the brother remained in possession of the contested properties, and did not pay rent or other monies to the trust.  The trust paid all the real estate taxes, insurance bills and most utility bills for the properties.  The sister alleged that the brother engaged in negative behaviors that prevented her from properly managing the properties as trustee. Such alleged behaviors included preventing an insurance company representative from inspecting the premises, which resulted in the loss of insurance on the property, and denying her access to the properties. She also alleged that her brother was unwilling to cooperate with her relocation to a portion of the property and to conduct repairs to another portion of the property so that it could be rented out to generate income for the trust.

According to Connecticut law, Conn. Gen. Stat. § 47a-23(a)(3), the essential elements of a summary process action are: (1) the plaintiff is the owner of the property; (2) the defendant originally had a right or privilege to occupy the premises but such right or privilege has terminated; (3) the plaintiff caused proper notice to quit possession to be served on the defendant to vacate the premises on or before a certain date; and (4) although the time given the defendant to vacate in the notice to quit possession has passed, the defendant remains in possession of the premises. The general burden of proof in a civil action is on the plaintiff, who must prove all the essential elements of the cause of action by a fair preponderance of the evidence. Upon reviewing the facts of the case, the trial court determined that that the trust was the legal owner of the contested properties, the actions that the sister took related to the summary process action were within her powers as trustee, and that she had established all the remaining essential elements of her case by a fair preponderance of the evidence.

The brother asserted several special defenses related to the nature of the family trust: (1) the intent of the grantors was to allow him to remain in possession of the subject premises during his lifetime; (2) as a trust beneficiary in current possession of the premises, he is co-owner of the premises and not subject to a summary process action; (3) his beneficial interest in the trust generally equates to an equitable interest in the individual assets of the premises as part of the trust estate; and (4) a constructive trust should be imposed on the premises based on the grantor’s promise that he could remain in possession for his lifetime and his sister would be unjustly enriched if he were to be dispossessed from the premises.  Defendants have the burden of proving the allegations in their special defenses by a fair preponderance of the evidence.

According to Connecticut case law, a court’s role is to determine the meaning of what the grantor stated in the trust instrument and to not speculate upon what the grantor intended to state in the instrument. Connecticut Bank & Trust Co. v. Lyman, 148 Conn. 273, 278-79, 170 A.2d 130 (1961).  Expressed intent must control the court’s interpretation of the instrument.  Therefore, the plain language of the trust instrument itself, rather than extrinsic evidence of actual intent, is determinative of the grantors’ intent. Cooley v. Cooley, 32 Conn.App. 152, 159, cert. denied, 228 Conn. 901 (1993) (citing Heffernan v. Freedman, 177 Conn. 476, 481, 418 A.2d 895 (1979).  Because the court found nothing within the plain language of the trust supported the brother’s proposition that the grantors intended for him to remain in possession of the contested properties during his lifetime, the court found that brother failed to establish his first special defense.

Connecticut case law further establishes that the trustee holds legal title and legal ownership of the property in the trust.  Fandacone v. Fandacone, Superior Court Judicial District of New Britain, Housing Session, Docket No. NBSP-052634 (March 16, 2010, Gilligan, J.).  A beneficiary of the trust enjoys only a beneficial interest in trust assets.  Despite the beneficial or equitable interest that a beneficiary may hold in the trust estate, this does not equate to legal or equitable title to the individual assets of the trust.  Stepney Pond Estates, Ltd. v. Monroe, 260 Conn. 406, 433 n. 28 (2002). Therefore, the court found that the brother failed to establish his second and third special defenses.

A constructive trust arises where an individual who holds title to a property is subject to an equitable duty to convey it to another on the grounds that he would be unjustly enriched if he were permitted to retain the property.  See Filosi v. Hawkins, 1 Conn.App. 634, 639 (1984); Gulack v. Gulack, 30 Conn.App. 305, 311-12 (1993). A constructive trust may also be imposed to prevent the abuse of a confidential relationship. Schmaling v. Schmaling, 48 Conn.App. 1, 13, cert. denied, 244 Conn. 929 (1998). In order to find that a constructive trust exists and should be imposed, the court must first find that a special or confidential relationship existed between the parties. Id. In Connecticut, two types of confidential relationships give rise to a constructive trust: (1) where one party is under the domination of another and (2) where circumstances justify one party’s belief that the other party’s actions will be guided by his or her welfare or instructions. See Riccio v. Riccio, 75 Conn.App. 556, 559 (2003); Starzec v. Kida, 183 Conn. 41, 43 n. 1 (1981).  The court found that the brother did not establish clear and satisfactory facts from which a constructive trust may be implied. He did not establish that his sister, in her capacity as trustee, had an equitable duty to convey the contested properties to him.  The trust instrument did not dictate that the brother’s individual welfare was not the sole focus of the family trust; instead, the instrument dictated that the sister’s fiduciary duties as trustee extended to all trust beneficiaries.  The brother did not establish that his sister, in any capacity, misappropriated or attempted to misappropriate trust assets.  Finally, the brother did not establish that his sister, as an individual, would be unjustly enriched if the family trust were to regain possession of the contested properties.  The sister would still be bound by the trust instrument, and the brother would still retain his recourse to legal action to safeguard his rights as a trust beneficiary.  Therefore, the court found that the brother failed to establish his fourth special defense.

Because the court found that the sister had established the essential elements of her cause of action with a preponderance of the evidence and that the brother failed to establish any special defense, the court entered judgment for immediate possession of the subject properties in favor of the sister, acting in her capacity as the trustee of the family trust.

Should you have any questions relating to trusts, real property or personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

Dudek v. Dudek, HDSP-150182, 2011 WL 767790 (Conn. Super. Ct. Feb. 9, 2011) aff’d, 136 Conn. App. 902, 44 A.3d 222 (2012)