Matter of Lorie Dehimer Irrevocable Trust

[*1] Matter of Lorie DeHimer Irrevocable Trust 2012 NY Slip Op 52214(U) Decided on November 8, 2012 Sur Ct, Oneida County Gigliotti, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through December 7, 2012; it will not be published in the printed Official Reports.

Decided on November 8, 2012
Sur Ct, Oneida County

IN THE MATTER OF THE APPLICATION FOR THE RESCISSION OF THE LORIE DeHIMER IRREVOCABLE TRUST, SUCCESSOR TO THE MARION A. SEARS TRUSTS. IN THE MATTER OF THE APPLICATION FOR THE RESCISSION OF THE J. STEVEN DeHIMER IRREVOCABLE TRUST, SUCCESSOR TO THE MARION A. SEARS TRUSTS. IN THE MATTER OF THE APPLICATION FOR THE RESCISSION OF THE WILLIAM DeHIMER IRREVOCABLE TRUST, SUCCESSOR TO THE MARION A. SEARS TRUSTS.



IN THE MATTER OF THE APPLICATION FOR THE RESCISSION OF THE J. STEVEN DeHIMER IRREVOCABLE TRUST, SUCCESSOR TO THE MARION A. SEARS TRUSTS.



IN THE MATTER OF THE APPLICATION FOR THE RESCISSION OF THE WILLIAM DeHIMER IRREVOCABLE TRUST, SUCCESSOR TO THE MARION A. SEARS TRUSTS.



96323/A



For the Petitioners:DeLaney & O'Connor, LLP

By: Michael E. O'Connor, Esq.

For the Trustees:Bousquet Holstein, PLLC

Formerly known as Green & Seifter, Attorneys PLLCBy: Cecelia R. S. Cannon, Esq.

Louis P. Gigliotti, J.

DECISION

SURROGATE GIGLIOTTI:

Petitioners in this proceeding Lorie M. DeHimer, J. Steven DeHimer and William S. DeHimer (hereafter the DeHimer children') each seek the rescission of an Irrevocable Trust created by an agreement entered into during December, 2010, between each of the DeHimer children, as grantor, and Howard P. Sears, Jr., Thomas A. Sears and David H. Wood (collectively "the Trustees"). The DeHimer children seek a declaration that each said Trust is invalid as being void ab initio and a direction that all funds transferred into the Irrevocable Trusts be immediately transferred to each of the respective children outright and free of Trust.

As background, the DeHimer children are each a beneficiary of several Trusts created by their grandmother Marion A. Sears, who died in March, 2001. Two of the Trusts involved, the 1995 Marion A. Sears Master Trust ("Master Trust") and the 1994 Marion A. Sears Family Trust Number Two ("Family Trust") did not provide protection against the federal generation - skipping transfer tax ("GSTT"). The Master Trust and the Family Trust each called for its principal to be divided so that there was a separate fund for each child of Marion Sears, including Barbara S. DeHimer ("Barbara"), mother of the DeHimer children. The Trusts for the benefit of Barbara and her descendants (the "Barbara Sub-Trusts" or "Sub-Trusts") continue for Barbara's life and, at her death, the remainder of each Trust is subject to a power of appointment granted to Barbara, which [*2]will be discussed later.

Both the Master Trust and the Family Trust contained pages of identical precatory language which detailed the intent of the grantor, Marion Sears. See Master Trust pp. 25-36; Family Trust pp. 20-30. The precatory language serves to inform and guide the Trustees in the exercise of their fiduciary duties, including determining whether distributions are appropriate. As relevant herein, and more fully explained in the Memorandum of Law submitted by the Trustees at pp. 5-9, the Trustees contacted the DeHimer children in December, 2010, and indicated that due to the suspension of the GSTT for 2010, the Trustees were willing to make a distribution to each of the children which they would not otherwise receive.

The Trustees developed a two part transaction which they asserted would allow them to take advantage of the suspension of the GSTT for 2010 but would also be consistent with Marian Sears' intent to preserve wealth for future generations. First, the Trustees would transfer the assets out of the Barbara Sub-Trusts to the DeHimer children. Second, the DeHimer children would transfer a portion of those assets into new Trusts established by each child (the "Irrevocable Trusts" or "Successor Trusts") to benefit their descendants and the Sears Foundation. After the funding of the Successor Trusts, the children would retain the remainder of the assets transferred from the Sub-Trusts free of trust. The cash distribution each child would receive free of trust represented 45% of the child's share of the total trust funds, which the Trustees estimated would have been the amount of GSTT saved due to the suspension of the GSTT for 2010, based upon a distribution of the total Trust funds.

In accordance with the planned two-step transaction, the DeHimer children received distributions and executed Trusts agreements in December, 2010. The children each received a total cash distribution free of Trust of $376,023.00 from the Barbara Sub-Trusts and the Irrevocable Trusts were funded with the balance of the available assets. In connection with the transactions, each of the children executed a Receipt and Release for the Master Trust and the Family Trust releasing and discharging the fiduciaries from liability.

In the instant petitions, the DeHimer children are seeking to rescind the Irrevocable Trusts they established in December, 2010, and to have the corpus of those Trusts distributed to them outright. They allege the Trustees intentionally misrepresented certain facts including that as Trustees they had no obligation to distribute the remaining Trust funds held for the benefit of Barbara and her descendants in 2010. The children assert the Trustees misled them into believing they would receive nothing from the Master Trust and the Family Trust, so that they would believe that they had no interests to give up. The children assert if not for the mistaken beliefs, they would not have signed the agreement which created the Successor Trusts and they would not have consented to transferring any funds into said Trusts. The children assert the Trustees' alleged undue influence and their misrepresentations and omissions constituted a fraud which led the children to create the Successor Trusts.

In addition, the DeHimer children allege that because they lacked knowledge of several material facts, the parties creating the Successor Trusts (i.e. the children and the Trustees) never had a meeting of the minds. The children argue they never intended to voluntarily transfer funds they would have been entitled to and would not have transferred their own funds into a Trust from which they received no benefit and over which they had no control. The children assert they relied heavily on the Trustees to interpret the lengthy complicated legal documents for them, but the Trustees failed to act in the best interests of the DeHimer children and ignored the request of their mother Barbara, who held a power of appointment over the remainder of the Sub-Trusts, to make the outright distributions to the children.

The children further recite based upon Marion Sears' intention that the Master [*3]Trust and Family Trust be terminated for tax burdens, Barbara's direction that the Trusts be terminated and the desire of the children for an outright distribution of all funds, the Trustees actions in requiring the creation of the new Irrevocable Trusts resulted in a breach of their fiduciary duties. As a result, the children seek a declaration that the newly established Successor Trusts be declared invalid as being void ab initio and upon rescission, the funds transferred thereto be immediately transferred to each of the children outright.

In response to the petitions of the DeHimer children, the Trustees filed pre-answer motions to dismiss pursuant to Rule 3211(a)(5) and (a)(7) of the Civil Practice Law and Rules (CPLR). They assert the children have premised their alleged right to rescind the Successor Trusts on faulty legal interpretations of the original Sears Trusts and as a result, have no legal basis to seek rescission as the petitions fail to state a cognizable claim. The Trustees, relying on Receipts and Releases signed by each of the children on December 29, 2010 regarding the distributions received from both the Master Trust and the Family Trust purporting to indemnify and hold the Trustees harmless from any claims, causes of action or liability, argue in the absence of any fraud said releases should bar the claims presented by the children herein.

In the context of a motion to dismiss pursuant to CPLR 3211, the Court must afford the pleadings a liberal construction, take the allegations of the complaint as true and provide plaintiff the benefit of every possible inference EBC I. Inc. v. Goldman, Sachs & Co., 5 NY3d 11, 19. However, allegations consisting of bare legal conclusions, as well as factual claims inherently incredible or flatly contradicted by documentary evidence are not entitled to such consideration. Caniglia v. Chicago Tribune-New York News Syndicate, Inc., 204 AD2d 233.

The Trustees argue the children's petitions fail to state a cause of action for fraudulent inducement because they do not plead any statements which are misrepresentations. The children allege the Trustees told them that they would receive more money by completing the two-step transactions leading to the creation of the Successor Trusts than they otherwise would. The children allege that this was a misrepresentation because they were entitled to receive the entire corpus of Barbara's Sub-Trusts outright.

In an action to recover damages for fraud, the children must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant (the Trustees), made for the purpose of inducing the other party to rely on it, justifiable reliance of the other party on the misrepresentation or material omission, and injury. Lama Holding Co. v. Smith Barney, Inc., 88 NY2d 413, 421. An omission does not constitute fraud unless there is a fiduciary or "special" relationship between the parties Golub v. Tanenbaum-Harber Co., Inc., 88 AD3d 622.

The children allege at ¶16 of the petitions they were not told there was a possibility that they could receive the entire corpus of Barbara's Sub-Trusts outright at Barbara's death if Barbara exercised her power of appointment in their favor. They also allege they did not understand the Trustees were under an obligation pursuant to the terms of both Sub-Trusts to take actions as would provide substantial benefit to the children in the form of tax savings.

In analyzing the claims for fraudulent inducement, the Court notes the DeHimer children seek a rescission of the Successor Trusts and receipt of the corpus outright.[FN1] In [*4]order to prevail on this claim, the children must establish they could or would have received the entire corpus of the two Sub-Trusts through the exercise of their mother's power of appointment. Both the Master Trust, at pp. 13-14 and the Family Trust pp. 9-10 provides upon the death of the Primary Beneficiary, in this case Barbara, the Trustees shall convey and pay over the principal... in such amounts... as the Primary Beneficiary (Barbara) may by her Last Will and Testament appoint by a specific reference to the presently exercisable power of appointment with the consent of the Independent Trustee and the Trust Protector (Master Trust) or the Independent Trustee (Family Trust).

The children argue that while the powers of appointment are subject to the consent of the Trustees, the granting or withholding of such consent is not subject to the sole discretion of the Trustees. Rather, they assert the Trustees could consent to a purported exercise of the power by Barbara of the entire corpus because they cannot unreasonably withhold their consent. The Trustees maintain the children have misinterpreted the extent of Barbara's power of appointment and that the Trustees could not have consented to the exercise of the power to appoint the entire corpus of the Sub-Trusts to the children.

To determine whether a trustee's distribution of trust assets is proper, the settlor's intent controls. Matter of Chase Manhattan Bank, 6 NY3d 456, 460. The trust instrument is to be construed as written and the settlor's intention determined solely from the unambiguous language of the instrument itself. Mercury Bay Boating Club, Inc. v. San Diego Yacht Club, 76 NY2d 256, 267.

After reviewing and considering the Sears Master Trust and Family Trust documents as a whole, especially the precatory language cited herein above, the Court determines the clear intent of the original Grantor, Marion A. Sears, was for the Trusts to last for and benefit many generations. Relevant is her discussion of the belief that "the first generation creates the wealth, the second generation conserves it and the third generation dissipates it". Master Trust p. 26; Family Trust p. 21. Marion Sears directed the Trustees to ascertain and consider other alternative income available to each beneficiary and expressed her desire that the Trustees would refrain from making distributions which would, in effect, become a substantial substitution for gainful employment. See Master Trust p. 30; Family Trust pp. 24-25.

The Grantor, Marion Sears, described practiced conservatism and self-sufficiency as the best and effective defenses to the preservation and perpetuation of the trusts created for the benefit of ... generations to come. It was her hope "that the trusts...if governed prudently and conservatively, will last for many generations". Master Trust p. 27; Family Trust p. 22. Therefore, a distribution of the entire corpus of Barbara's sub-Trusts outright to the DeHimer children, constituting the family's third generation, would be directly contrary to the intent of Marion Sears, as expressed in the original Trusts, to preserve the assets for future generations. In addition, a complete distribution would be inconsistent with the Grantor's direction that the Trustees consider any distributions be used to assist beneficiaries with needs for education, health, business ventures or special situations such as weddings or travel opportunities rather than as a substitution for gainful employment. The representation advanced by the children that the transactions allowed them to receive a distribution they would not otherwise receive, which the children rely on for their fraudulent inducement claim, is found by the Court to be correct interpretations of the Master Trust and Family Trust by the Trustees.

The Grantor, Marion Sears, gave the Trustees authority to terminate Barbara's sub-Trusts due to very strong and compelling reasons, including tax burdens. The Trustees, in the exercise of their discretion, had authority to conclude that termination is most prudent notwithstanding the interests of present and future beneficiaries. Master [*5]Trust p. 11-12; Family Trust p. 13.

The children allege that none of the beneficiaries of the Trusts understood that the Trustees were under an obligation pursuant to the Trusts' terms, to take such action as would provide substantial benefit to the beneficiaries in the form of tax savings. They argue if such compelling reasons are present, they would override the mere wishes of the Grantor as expressed in the precatory language. The children claim the potential loss of 55% of the total assets in the sub-Trusts for payment of GSTT taxes is clearly a very strong and compelling reason, and to incur such a loss is not the most prudent course of action. See Reply Affidavit ¶17, 18. The children contend the Trustees never made it clear to them that the Trustees had a fiduciary duty to prevent severe depletion of up to 55% of the Trust assets by avoiding the imposition of the GSTT. See Reply Affidavit ¶ 34. The Trustees counter that Marion Sears expected when she created the original Trusts that the GSTT would be imposed at some point, so that suspension of the GSTT in 2010 was not a sufficiently compelling reason to require termination of the Trusts at that juncture. The Trustees further assert they were required to consider the impact of an early termination on all potential beneficiaries, not just the DeHimer children.

A Trust may not be terminated, even on the consent of all of the interested parties, if it appears that this would contravene the intent of the grantor. Estate of Walter, NYLJ December 18, 2003, pg. 38, col. 2. In construing a Trust, the intent is to be ascertained not from a single phrase, but from a sympathetic reading of the Trust as an entirety. Matter of Bieley, 91 NY2d 520 (Will construction). The Court determines from a fair reading of the Trust documents the Trustees were given sole and absolute discretion to terminate the Trusts upon the occurrence of events they considered to be compelling reasons. The Grantor, Marion Sears, expressed it as "her intention but not her direction", that each trust... be maintained until such time that there are very strong and compelling reasons to terminate same. Analyzing whether the potential loss of assets for payment of GSTT is a compelling enough reason to terminate the Sub-Trusts, the Trustees must balance that consideration against the possibility that an early termination would contravene the intent of the Grantor. In the Trustees' discretion, it was determined any proposed early termination which made NO provision for future generations, while providing a windfall to the third generation children, was in direct contravention of Marion Sear's intent.

The Court finds the Trustees were not required to terminate the Trusts as a result of the suspension of GSTT in 2010, even in light of the potential future loss of 35% - 55% of trust assets.[FN2] The Court concurs with the assessment of Ronald Francis,[FN3] a Certified Public Accountant and Registered Financial Planner who assisted in designing the transactions leading to the creation of the Successor Trusts, that even had the GSTT been incurred at the maximum rate of 55%, Barbara's Sub-Trusts would have remained economically viable. The Court determines the children's assertion that they would have been entitled to receive a distribution of the entire corpus of Barbara's Sub-Trusts under the early termination clause is an incorrect interpretation of the Master Trust and the Family Trust. The potential future imposition of the GSTT cannot be seen as a reason to require the termination of the Sub-Trusts without making any provision for future generations. [*6]

The Court determines the Trustees' statements regarding what distributions the children would receive under Barbara's Sub-Trusts were correct in light of its review of the terms of the Master Trust and Family Trust and the intent of the Grantor, Marion Sears, as gleaned from the language therein. In light of this and the children's incorrect interpretation of the effect of the Trusts' early termination clause, the Court finds the information provided the children by the Trustees prior to the creation of the Successor Trusts by them did not contain misrepresentations or material omissions necessary for the children to establish a claim for fraudulent inducement.

An inter vivos trust is an agreement or contract between its creator, the grantor, and the trustee, whereby the grantor transfers assets to the trustee who assumes legal title. Matter of Estate of Campbell, 171 Misc 2d 892. To create a binding contract there must be a manifestation of mutual assent, often referred to as "a meeting of the minds", sufficiently definite to assure that the parties are truly in agreement with respect to all material terms.

Matter of Express Industries and Terminal Corp. v. N.Y.S. Department of Transportation,

93 NY2d 584.

The Children allege that because they lacked knowledge of several material facts, the parties creating the Successor Trusts (i.e., each of the children and the Trustees) never had a meeting of the minds. The children assert they never intended to transfer any of their own assets into new trusts and that the Trustees misled them into thinking they were not transferring their own assets to the Successor Trusts. Reply Affidavit ¶36. Second, the children contend the language in the Successor Trusts do not evidence their intent or wishes as they had no say over any of the trust provisions. The children argue that because of an alleged lack of a meeting of the minds, the Successor Trusts should be declared void.

The Trustees counter the childrens' allegation there was a lack of a meeting of the minds is nothing more than a complaint by the children that they do not like some of the terms of the Successor Trusts. The Trustees contend that since the children do not allege that the language in the Successor Trusts is ambiguous in any way, this claim (i.e. lack of a meeting of the minds) must fail.

While there must be a manifestation of mutual assent to essential terms, parties should also be held to their promises and Courts should not be "pedantic or meticulous" in interpreting contract expressions. Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp., 74 NY2d 475. A written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms Greenfield v. Phillies Records, Inc., 98 NY2d 562. For a contract to be unenforceable for lack of a meeting of the minds regarding a material element, it must contain ambiguous language that to one party reasonably means one thing and that the other party reasonably understands differently. Computer Associates International, Inc. v. U.S. Balloon Manufacturing Co., Inc., 10 AD3d 699.

After a careful reading of the petitions and consideration of petitioner's Reply Affidavit, the Court finds no allegations are made by petitioners of any ambiguous language in the Successor Trusts necessary to establish a claim for a lack of mutual assent. Initially, each of the petitions allege in ¶18 that the children did not understand various terms and provisions of the Successor Trusts which they executed. The eight objectionable provisions of the Successor Trusts listed therein do not allege ambiguity contained in any of the material terms. For example, the fact the Successor Trusts are irrevocable, the children are not beneficiaries of said Trusts or that the children do not have a power of appointment thereof (petitions ¶18 (a), (b), (c) ) are clear unambiguous terms, albeit terms different than those which were contained in the Master Trust and Family Trust. It is incumbent upon the signer of a contract to read it and his claim that [*7]he failed to do so will not generally serve to invalidate the contract. Gillman v. Chase Manhattan Bank, N.A., 135 AD2d 488.

The children's contention "there can be no meeting of the minds when the parties do not even agree on who owns the assets being gifted into the new trusts" (Reply Affidavit ¶38) likewise does not evidence a lack of mutual assent. The children allege the Trustees physically withheld the trust assets and they were told that they were entitled to none of the assets unless they signed the documents, which occurred after the corpus had already been distributed out of the Sub-Trusts. Reply Affidavit ¶36. The children are asserting that had they realized at the conclusion of the first step of the proposed two step transaction that their own assets were then being transferred into the Successor Trusts they never would have consented to establish the trusts. However, in this regard no language is set forth as subject to misinterpretation because of the ambiguous nature of its terms. To the extent the children are alleging they were coerced into establishing the Successor Trusts and executing Letters of Direction [FN4] in order to obtain a distribution of 45% of the corpus of the Sub-Trusts, the Court concurs with the Trustees that they children had a choice to establish and fund the Successor Trusts and receive the proposed 45% distribution or choose not to do so.

The children also argue "there can be no meeting of the minds when the person creating the trust has no say over any of its terms or provisions, including that persons own intent in creating the Trust". Reply Affidavit ¶38. The Court similarly concludes there are no ambiguities in the provisions or expressions of intent of the Successor Trusts, so that the children's claim of lack of mutual assent must fail.

The children allege the Trustees had a duty to act in the best interests of all of the beneficiaries, but they failed to act in the best interests of the children. Petition ¶22. In this regard, the children argue there was no good planning purpose for creating the Successor Trusts and recite potential gift or estate tax consequences to each of them resulting therefrom. They also contend the Trustees ignored Barbara's request [FN5] for the distribution which resulted in a breach of their fiduciary duty.

The Trustees counter that the children received more money through the two step transaction than they were otherwise likely to receive. Additionally, they assert the children have not taken into account the duties the Trustees owed to the other beneficiaries of the Sub-Trusts. They recite the childrens' descendants, as well as the Sears Foundation, were all beneficiaries of the Sub-Trusts on equal footing with the children.

The Court concurs with the Trustees that the children's claim the Trustees failed to act in the bests interests of the children fails to account for the fact the Trustees were required to consider all other currently existing beneficiaries and future generations. The children are not able to demonstrate an entitlement to receive any distributions from the Sub-Trusts, nor did they have any power to direct the distribution of those assets. The children have failed to establish that the Trustees, who argued they were balancing the interests of future generations with the interests of the children, abused their discretion in undertaking the two step transaction.

The Trustees argue the petitions should be dismissed pursuant to CPLR 3211(a)(5) based upon the execution of Receipts and Releases by each of the children [*8](Notice of Motion Exhibit B) purporting to release and discharge the Co-Trustees from liability. The Court DENIES the Trustee's motion of this ground, noting said releases merely purport to release the Trustees for matters relating to or derived from the administration of and distribution from the Master Trust and the Family Trust and would not serve as a bar to proceedings commenced by the children for rescission of the Successor Trusts.

For the reasons stated herein, the Trustees' motions to dismiss each of the petitions herein pursuant to CPLR 3211(a)(7) is GRANTED for failure of the children to state a valid cause of action for rescission of the Successor Trusts. The Trustees' counsel is directed to submit an Order is accordance with this DECISION.

Dated: November 8, 2012

______________________________

HON. LOUIS P. GIGLIOTTI, SURROGATE Footnotes

Footnote 1:Although the petitions at ¶18 set forth various objectionable provisions of the Successor Trusts, the children do not seek reformation as a remedy, merely rescission. Parenthetically, the children each seek rescission of only step two of the two step transaction, that is, rescission only of the Irrevocable Trusts they created, and payment of that entire corpus to themselves outright.

Footnote 2: There would be no GSTT consequences to the Sub-Trusts until the Trustees' ability to make distributions to a non-skip person ends. Barbara DeHimer, a non-skip person for GSTT purposes, died on December 15, 2011.

Footnote 3: Pursuant to Article Sixth ¶6.9, Ronald Francis was appointed Trust Protector of the 1994 Marion Sears Family Trust Number Two.

Footnote 4: Each of the children executed a Letter of Direction to the Trustees of both the Master Trust and the Family Trust on December 29, 2010, essentially implementing the two step transaction discussed herein.

Footnote 5: Barbara DeHimer, by letter to the Trustees dated December 13, 2010, indicated she was in favor of the complete distribution of both Sub-Trusts to the children outright. See Petition Exhibit D.