LUNDGREN v HOGLUND

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NO. 85-159 I N THE SUPREME COURT OF THE STATE OF MONTANA 1985 DAN H . LUNDGREN, P l a i n t i f f and R e s p o n d e n t , WILLIAM S . EVERETT M. WILLIAM S. HOGLUPJD , Defendant. LUNDGREN, Plaintiff and R e s p o n d e n t , HOGLUND, Defendant. J E S S E WHITNEY, P l a i n t i f f and R e s p o n d e n t , W I L L I N 4 S. HOGLUND, Defendant. and F I R S T INTERSTATE BANK OF K A L I S P E L L , N.A., T r u s t e e and A p p e l l a n t . APPEAL FROM: D i s t r i c t C o u r t of t h e E l e v e n t h J u d i c i a l D i s t r i c t , I n and for t h e C o u n t y of F l a t h e a d , T h e H o n o r a b l e E . G a r d n e r B r o w n l e e , Judge p r e s i d i n g . COUNSEL OF RECORD: For Appellant: S t e v e n . E . C u m m i n g s ; M u r p h y , R o b i n s o n , H e c k a t h o r n and P h i l l i p s , K a l i s p e l l , Montana F o r Respondents: R a n d a l l S . O g l e , K a l i s p e l l , Montana S u b m i t t e d on B r i e f s : Decided: F i l e d ~ ~ 1985 31 ~ f%% Clerk Aug. 27, 1985 D e c e m b e r 31, 1 9 8 5 Mr. Justice John C. Court. Sheehy delivered the Opinion of the In this case we Zecide t.hat spendthrift provisions in a trust are valid in Montana, an2 that judgment creditors of a beneficiary under a spendthrift trust may not execute upon the proceeds due from the spendthrift trust to the beneficiary before distribution by the trustee. First Interstate Bank appeals from a judgment of the District Court, Eleventh Judjcial District, Flathead County, which ordered the bank as trustee to pay to judgment creditcrs the income due to the beneficiary of a spendthrift trust. Me reverse. There are fcur issues on appeal. have standing to appeal? First, does the Eank Second, did the Oistrict Court have jurisdiction over the Eank? Third, can a judgment creditor reach income from a spendthrift trust before the income has been distributed to the beneficiary? spendthrift provision be applied Fourth, should the under the facts and circumstances of this case? The plaintiffs-respcndents in this case maze unsecured loans to William S. Hoglund in 1970. William Hoglundrs father, Stewart Hoglund, died testate in 1980. after his father's death, VJilliam Foglund Four days assigned his distributive share of his father's estate to the respondents. At the same time he confessed ju6gment to the respondents. Stewart Hogl-und s will established a testamentary trust ' with a spendthrift provision. Tnterstate Rank as trustee. The will named First The will provided that William was to receive twc-thirds of the trust income during his life. On William's death the trust principal would be divided among Stewart's grandchildren. Ey writs of execution, the respondents, as judgment the trust income due to creditors, ettempted to levy on William in the hands of the trustee, prior to the time it was paid. The trustee returned the writs of execution unsatisfied saying all the money was held in a trust under a spendthrift provision. The judgment creditors instituted supplemental proceedings and the chief trust officer of the was summoned to be examined regarding the trust- provision. After an order the hearing, the judgment creditors moved for d.irecting the Bank as trustee to pay the income fro*. the trust to the judgment creditors. 2 The Cistrict Court entered judgment ordering the Eank as trustee to pay all income due to William Hoglund from the trust to the judgment creditors. The first issue Interstate Eank has on appeal is whether the First standing to appeal the order of the District Court directing it to pay the spendthrift trust income directly to the judgment creditors. The Montana Rules of Appellate Civil Procedure state: A party aggrieved may appeal from a judgment or . . in the following cases: . . (c) order From a judgment or order . allowing the payrent of a debt. Rule 1, h?.R.App.Civ.P. . . . . . . The respondents contend the Eank does not have standing to appeal because the intervenor in litigation below individual interest the in Bank the was neither a party outcome and of the Bank the nor an has no 1itiqs.ticn. Although the Fank was not a party below, it is the subject of an order by the District Court directi.ng it to pay trust income to the judgment creditors. a r e a l l o w e d t o a p p e a l i f t h e > are a g g r i e v e d Non-parties by a c o u r t o r d e r . 6f31 P.2d Hcl-ter v . F4oore and Co. F a k a n i Cevelopn-.ent Co., 962; App. 1 9 8 3 ) , 670 P.2d Co., Inc. (Okla. (Co1.o. App. Ltd. v. 1983), Stahl (Hawaii 1284; T i s d a l e v . \/.?heel-erB r o t h e r s G r a i n 1 9 7 9 ) , 599 P.2d Further, 1104. as t r u s t e e of t h e S t e w a r t Hoglund t r u s t , t h e Bank h a s a f i - d u c i a r y d u t y The t r u s t e e h a s a n t o p r e s e r v e and p r o t e c t t h e t r u s t a s s e t s . a p p e a l a b l e i n t e r e s t where i t i s d i r e c t e d t o pay t r u s t a s s e t s to creditors suit. even Clay v. 20?; Pugh P-:o.App. v. 922, Hamilton St. 210 Police 179 S.Pi.2d N.C. no personal ( 1 9 4 5 ) , 116 1nd.App. Louis ( 1 9 4 4 ) , 268 App.Div. (1936), it has though S.E. Electri-Craft Knettle ¬38; the (19441, v. 237 Corp. 1.74; C h i n n i s v . 4 9 N.Y.S.2d 185 104, in 63 N.E.2d 214, Assoc. Cregg v . 927; 814, Relief stake Cohb Knettle ( 1 9 3 1 ) , 1 6 4 Wash. 468, 3 P.2d 133. The second i s s u e on a p p e a l i s whether t h e C i s t r i c t C o u r t had jurisdiction supplemental Hoglund. over the proceedings The Eank Bank. Thjs acticn began as t c discc-;ver t h e a s s e t s of William contends it was not a party to the p r o c e e d i n g s and became i n v o l v e d o n l y a f t e r t h e D i s t r i c t C o u r t o r d e r e d it t o pay t h e income o f t h e t r u s t i n v i o l a t i o n o f t h e spendthrift provision. spendthrift proceeding provision The Bank c o n t e n d s t h e v a l i d i t y o f t h e can a s p r o v i d e d hy be S ac?dressed 25-14-104, only in a plenary MCA, which states: 25-14-104. P r o c e d u r e when d e b t t o o r ownership o f judgment d e b t o r d e n i e d . I f i t appear t h a t a person o r c o r p o r a t i c n a l l e g e d t o have p r o p e r t y o f t h e -iudqnent debt-or o r t o be i n d e b t e d t o him c l a i m s a n i n t e r e s t - -- p r o p e r t y a d v e r s e - - - r d e n i e s i n the t o him o t h e -t , t h e c o u r t o r judge may a u t h o r i z e , by a n deb o r d e r made t o t h a t e f f e c t , t h e judqment c r e d i t o r t o acticr, against such person or institute an corporation f o r t h e recovery of such i n t e r e s t o r d e b t ; and t h e c o u r t o r judge may, by o r d e r , f o r b i d a t r a n s f e r o r o t h e r d i s p o s i t i o n o f such i n t e r e s t o r until a n a c t i o n can b e con-menced and debt p r o s e c u t e d t o juZgr.ent. Such o r d e r may be rcodified o r v a c a t e d by t h o j u d g e g r a n t i n g t h e same o r t h e c o u r t i n which t h e a c t i o n i s b r o u g h t , a t any t i m e , upon s u c h terms a s may be j u s t . (Emphasis a d d e d . ) i n t h i s c a s e t h e r e i s n o o n e who c l a i m s a n i n t e r e s t However, i n t h e t r u s t a d v e r s e t o t h e judgment d e b t o r s o r d e n i e s t h e The i s s u e h e r e i s n o t w h e t h e r W i l l i a m Iioglund owes t h e debt. d e b t s o r whether assets cver vn!.idlity the trustee the judgment c l a i m t-o t h e t r u s t creditors. The validity of PTichols v. s t a t e s which h a v e c o n s i d e r e d t h e spendthrift- provisions Eaton ( 1 8 7 5 ) , 91 U.S. I n re R u c k l i n ' s Estate 795; have 716, 1 O t t o 716, T r u s t Co. & 220 N.F:.c?d 407, 4 3 A.2d A.25 6 4 4 ; E r i e k s o n v . Rank o f C a l i f o r n i a 337, 623 P.2d 130; H u e s t i s v . In Manley 186; Sherrow v . Rogert, Rollins Erookover ( 1 9 4 5 ) , 352 Penn. s t a t e s have other states impose statutory 174 Ohio 8 [rev. 290, St. found 2di 179 A. 310, 189 27, Lj-nits B c g e r t , T r u s t s S 222 ( r e v . 2d e d . clauses. 222 87 N . H . 9 0 ; P e t i t i o n o f Smyth ! 1 9 2 7 ) , 49 R . I . N.E.?d 413, (1.981), 28 ~ a s h . ~ p p . Trusts (19351, (1363), 5 1 N.W.2d (1939), 110 V t . f a c t only t h r e e spendthrift t r u s t s invalid. 1 9 7 9 ) ; Drahmey v . 23 Il.Ed.2d ( 1 9 7 4 ) , 54 ~ i c h . ~ p p . In re I-Ieyl's E s t a t e 361, 721. f o u ~ d them val-ic?.. ( 1 9 5 2 ) , 243 Iowa 312, 432; P r e m i n g e r v . Union Fank Many the and e f f e c t o f a s p e n d t h r i f t p r o v i s i o n i n a P l o ~ t a n a The v a s t v a j o r i t y o f ed. is issue T h i s i s an i s s u e o f f i r s t i m p r e s s i o n . trust. 254; has p r i o r 139 A. 657. on spendthrift 1979). S p e n d t h r i f t p r o v i s i o n s i n t r u s t s a r e g e n e r a l l y u p h e l d on one ot two policy grcunds. testator, c3.s f a r a s p o s s i b l e , ccurts. Traditicnally, Fi.rst, the intention of the s h o u l d b e g i v e n e f f e c t by t h e a. t e s t a t o r who gives without ar,y p e ~ u r ~ i a rr y t u r n c a n a t t a c h c o n d i t i o n s t o t h e g i f t d u r i n g t h e e life o f t h e donee. "Why a p a r e n t , o r o n e who l o v e s a n o t h e r , and w i s h e s t o u s e tis own p r o p e r t y i n s e c u r i n g t h e o b j e c t o f h i s a f f e c t i o n , a s far a s p r o p e r t y c a n d o i t , from t h e i l l s o f life, the vicissitudes of fortune, and even his own i m p r o v i d e n c e , o r i n c a p a c i t y o f s e l f - p r o t e c t i ~ n ,s h o u l d n o t b e p e r ~ n i t t e d t o do s o , Eaton 9 1 U.S. (1875) recent i s not Washington 716, case r e a d i l y perceived-." 1 Otto upheld 716, the Ni-chols v . 23 L,.E1!.2d validity 254. A of spendthrift t r u s t s on t h e g r o u n d s o f freedom o f a l i e n a t i o n . "The cwner an3 d-onor o f t h e p r o p e r t y s h o u l d b e f r e e t o s e l e c t t h e t r u s t b e n e f i c i a r y who w i l l e n j o y h i s b o u n t y , put enfcrceable provisi.ons and should be a b l e t o i n t h e t r u s t which w i l l prevent h i s t r u s t b e n e f i c i a r y from v o l u n t a r i l y c o n v e y i n g o r a s s i g n i n g h i s i n t e r e s t , t h u s p r e c l u d i n g any c r e d i t o r s from t a k i n g t h a t interest away California from t h e b e n e f i c i a r y . " (Wash. 1 9 8 2 ) , 6 4 3 P.2d 670, 672. S e c o ~ d , spendthrift provisions c r e d i t c r h a s no spendthrift Bank o f Ericksor, v. a r e upheld because the r e a s o n t o r e l y on a s s e t s o r income from a trust. "[I]nasmuch as such a gift [in a s p e n d t h r i f t t r u s t ] t a k e s n o t h i n g from t h e p r i o r o r s u b s e q u e n t c r e d i t o r s o f t h e b e n e f i c i a r y t o which t h e y p r e v i o u s l y had t h e right to look for payment, they c a n r ~ o t complain that the d o n o r h a s p r o v i d e d t b z t t h e p r o p e r t y o r income s h a l l g o o r b e pa.id p e r s o n a l l y t o t h e b e n e f i c i a r y and s h a l l n o t b e s u b j e c t t o t h e c l a i n s of creditors." H u e s t j - s v. Manley ( V t . 1939), 8 A.2d 644, 6 4 6 . W e h o l d s p e n d t h r i f t p r o v i s i c n s t o b e v a l i d i n Mcntzna. The spendthrift provision a t issue here s t a t e s : b?o i - n t e r e s t o f any b e n e f i c i a r y o f any t r u s t c r e a t e d hereunder s h a l l be s u b j e c t t o s a l e , a s s i g n ~ . e ~ t , p l e d g e , o r t r a n s f e r by any b e n e f i c i a r y i n any form o r manner w h a - t s o e v e r , n o r s h a l l t h e p r i ~ c i p a l o f t h e t r u s t o r t h e income a . r i s i n g t h e r e f r o m b e l i a b l e c * o r a n y d e b t o f o r a n y judgrient a . g a i n s t any b e n e f i c i a r y t h r o u g h t h e p r o c e s s o f any c o u r t . T h i s p r o v i s i o n m a k e s t h e e t t e m p t e 6 a s s i g n m e n t by Wi!-li-am Boglunc; e x e c u t e on t h e i r to paid the judgment, a f t e r t-he t r u s t beneficia.ry. Respondent here. However , t h e f udgment c r e d i t o r s c a n s t i l l i-nval-id. Restatement contends that S income h a s b e e n of Trusts, 72-24-210, 152, controls MCA, That s e c t i o n s t a t e s : 72-24-210. P r o f i t s of land l i a b l e t o c r e d i t o r s i n certain cases. Khen a t r u s t i s c r e a t e d t o r e c e i v e t h e r e n t s a n 2 p r o f i t s o f r e a l p r o p e r t y and no v a l i d d i r e c t i o n f o r accumulation i s given, t h e s u r p l u s of s u c h r e n t s and p r o f i t s , beyond t h e sum t h a t may b e n e c e s s a r y f o r t h e e d u c a t i . o n and s u p p o r t o f t h e p e r s o n s f o r whcse b e n e f i t s t h e t r u s t i s c r e a t e d , i s l i a b l e t o t h e claims of t h e c r e d i t o r s of such p e r s o n i n t h e same r e a s persopal property which c a n n o t b e r e a c h e d by e x e c u t i o n . 72-24-210, Section Montana . statute power However, was to in interpreted create has MCA, not California a as a been substantially statutory spend-thrift t r u s t s . F i r s t N a t i o n a l Bank interpreted similar 1.irr.itation Canfie.1-c! v . ( 1 9 3 9 ) , 13 Cal.2d 1, 8 7 P.2d i~ on the Security 830. In C a n f i e l d , t h e C a l i f o r n i a c o u r t h e l d t h a t a judgment c r e d i t o r of a beneficiary of a discretionary spendthrift trust can r e a c h t h e s u r p l u s o f t r u s t income i n t h e h a n d s o f t h e t r u s t e e beyond t h e amount n e c e s s a r y f o r t h e educa.ti.on and s u p p o r t o f The C a l i f o r n i a c o u r t s d e v e l o p e d a " s t a t i o n the beneficiary. i n l i f e " t e s t t o d e t e r m i n e t h e amount n e c e s s a r y f o r s u p p o r t : How much station live? is in necessary to maintain the beneficiary do n o t the l i f e t o which h e i s and h a s b e e n accustomed t o In Canfjeld, t h e b e n e f i c i a r y arqued, "every c e n t he r e c e i v e d from t h e t r u s t h a s gone f o r ' n e c e s s i t i e s ' 8 7 P.2d in a t 843. The C z l i f o r n i a c o u r t h e l d r e a s o n a b l e n e e d s include extravagances, entertainment, of l i f e . " nor gambling luxuries, losses. expenses f o r 1-avish Rut the C o u r t s t a t e d evidence of e::pcr;ses, t h e c o s t of reasonable l j v i - n g , wages o f entertainment servants, ~edical and expenses other reasonably n e c e s s a r y e x p e n s e s i s p r c p e r t o f i x t h e amount cf necessities. have F7e long adhered to the principle that where a sister s t a t e has a s t a t u t e s i m i l a r t o o u r s , w e should g i v e c o n s i d e r a t i o n t o t h e c o n s t r u c t j . o n it. r e c e i v e d i n t h e c o u r t s of sister the state. However, b i n d i ~ gupoii t h i s C o u r t . ( 1 9 6 2 ) , 140 Mont. of is construction Cahi.l.1-Mooney C o n s t . v. Co. not Ayres 464, 373 P.2d 703. I n c o n s t r u i n g S 72-24-210, laiiguage that the statute, we begin with t h e p l a i ~ KCA, "[wlllen a is trust created tc r e c e i v e t h e r e n t s a n d p r o f i t s o f r e a l p r o p e r t y a n d no v a l i d is given d i s c r e t i o n f o r accumulation MCA. number A states of hzve sta-1:ute s h o u l d b e c o n s t r u e d an2 Wisconsin 72-24-210, MCA, have (Yinn. 776. of held statutes (Minn. 1 9 5 9 ) , 97 N.FJ.2d 46 of 667; N.W.2d 441; this Finnesota similar t-o S In r e I n re Moulton's Erickson 426; Lamberton v . P e r e l e s v. Erickson (Wis. 1894), However C a l i f o r n i a a n d N e w York have h e l d t h e i r s t a t u t e s which trusts language a p p l y o n l y t o t r u s t s cf r e a l p r o p e r t y . (Minn. 1 9 3 6 ) , 267 N.W. 58 N.W. the 72-24-210, § n e e n what it s a y s . tc, 1951), Schmidt's W i l l Estate courts held . . ." are similzr persona.1 to property 72-24-210, as well as MCA, real apply to property. C a n f i e l d ( 1 9 3 9 ) , 1 3 C a l . 2 d 1, 87 P.2d 830; Wetmore v . Wetmore (1896), 149 N . Y . 520, holding i s t h a t N e w York ha.s a s t a t u t e which makes f u t u r e , 44 N.E. c o n t i ~ g e n tp e r s o n a l p r c p e r t y GI) real N.W.2d Wetmore, property. 441. P-nd 149 N . Y . In re The 4 4 K.E. reason. f o r this i n t e r e s t s s u b j e c t t o a 11 r u l e s Schmidt' s W i l l California 520, 169. followed 169. the (Minn. New 1 9 5 9 ) , 97 York rule. However, Montana d o e s fiat have such a statute, and we decline to follow the New Ycrk decision. Instead, we follow Minnesota and -/A-24-210 n c~nstruing to apply only to in trusts of real property. The second phrase of the statute requires that "no valid direction for accumulation he given." This clause was construed in In re Estate of Lawrence (1968), 267 Cal.App. 2d 77, Cal. 72 Rptr. 851 to nean that unexpended portions of income is given. 72-24-210, FCA, to apply twc no direction Thus, in order for 5 conditions must be there must be a trust for real property and (1) for met: (2) no valid direction for the accunluiation of income may exist. TP the case at hand, the record shcvjs the trust is made up of persoral prcpcrty a ~ l three contracts for deed, which ic wider the doctrine of equitable property to the seller. Font. 51, 518 F.2d entirely a trust persona1 In re Estate of Rickner (1974), 164 1160. of conversion are Thus the trust in questicn is perscnal property. And the trust contains the following language: Any i n c ~ n enot so distributed. shall be accumulated and added to principa.1. This is a valid direction fcr accumulation, thus 5 72-24-210, MCA, does not apply to the Stewart Hoglund trust. The fourth issue is whether the spendthrift provisien should be applied under the facts and circumstances of this case. Respondents ccntend that they should be entitled to execute on the trust funds in the han6.s of the trustee because of four theories: equi-ty. waiver, renunciation, estoppel an6 Respondents contend that the assignments made by William Hoglund constitute waivers of the right to receive income from his father's trust. W e hold the assignments made by Vil.l.ierL I I o g l u n d spendthrift trust. are voil under the terms of the An a.ttempted t r a n s f e r o f a n i n t e r e s t i n a s p e r d t h r i f t t r u s t i s not bindin.g on t h e t r u s t e e : An a t t e m p t e d t r a n s f e r o f t h e i n t e r e s t o f t h e b e n e f i c i a r y under a s p e n d t h r i f t t r u s t i s g e n e r z l l y treated a s void, suhject t o the qualifications hereinafter discussed. I t need n o t b e r e s p e c t e d by t h e t r u s t e e , t h e a s s i g n e e c a n n o t e n f o r c e i t , and t h e b e n e f i c i a r y i s n o t bound by i t , a l t h o u g h i f h e h a s r e c e i v e d c o n s i d e r a t i o n f o r i t , be r a y b e r e q u i r e d t o make r e s t o r a t i o n t c t h e a t t e m p t e d a s s j gnee. The c h a r a c t e r of t-he t r u s t d o e s n o t p r e v e n t t h e b e n e f i ~ i ~ r from c o n t r a c t i n g t o pay y over tho benefits of the trust after the b e n e f i c i a r y h a s r e c e i v e d them. C-. E o g e r t , T r u s t s and T r u s t e e-, S 226 (2d e d . -- s ResponZents William also Ffoglund contend signed that the constituted 1966). essignments renunciation which of his i n t e r e s t i n h i s f a t h e r ' s e s t a t e p u r s u a n t t o s e c t i o n 72-2-101, That s e c t i o n allows a person t o renounce t h e i r i n t e r e s t KCA. under a testamentary o r nontestamentary i n s t r u m e ~ t . William F c q l u n d h a s n o t r e n o u n c e d h i s s h a r e of t h e t e s t a r r i e n t a r y t r u s t u n d e r t h e r e q u i r e m e n t s o f s e c t i o n 72-2-101, The s ~ ~ j g n n e n tdsi d properly describe the were n o t received nion.tl..s czfter the not declare MCA. the renunciation i n t e r e s t renounced. t h e t r u s t e e of by date of the the nor The a s s i g ~ s e r - t s t r u s t within nine creation of the trust. In a d d i t i o n , e v e n i f W i l l i a m Hoglund had r e n o u n c e d h i s s h a r e o f the trust, the property predeceased t h e t e s t a t o r . would devolve as S e c t i o n 72-2-101, though KCA. he had Thus t h e t r u s t income wculd go t o S t e w a r t Hog1.und1s g r a n d c h i l d r e n n o t to t h e judgment c r e d i t o r s . K e x t , r e c p o n d e n t s a r g u e t h e Bank and W i l l i a m Hoglund a r e estopy;ed! t o deny t h e a s s i g n m e n t s . on the assignments detriment, made by They c o n t e n d t h e y r e l i e d William Hoglund to thei-r t h e r e f o r e t h e y s h o u l d h e a b l e t o r e a c h t h e income This argument ignores the fact of the Stewart Hogl-und trust. rase by Vlilliam Hoglund, that the assignments were promi s e ~ not by Stewart Hoglund. Stewart Koglunc?, nade no assignments or promises to tke judgnent creditors. Stewa-rt Hoglund ' s testamentary trust fulfillei. intent in setting up the should be We hold the trustee and the Ineneficiary are not estopped to deny the assignrents. Finally, respondents contend they should he pajd from the trust income because other dehts were paid by the estzte. The estate paid debts which Stewart personally guaranteed Debts owed by Wjl-Liam to since they were a direct liability. the estal:~: j.tself are being repaid by partial offsets against F7illiam1s share of the trust income. We find that neither of these kinds of payments has any effect on the applicaticn of the spendthrift clause in this case. Debts paid by Stewart Kcglund or guaranteed by Stewart Hoglund during his lifetime are not subject to the trust with the spendthrift clause. The repayment by William II~glund of the debt owed to the estate innures to the benefit of the grandchildren of Stewart Foqlund, and fulfills his testamentary intent. OL A beneficiary a spe~dthrift trust may oriler the trustee to pay trust for the benefit of the beneficiary. income to ~r~cther Bogert, Trusts and Trustees, § 226 (2d ed. 1966) this case, the trust income is protectec? by . G. Thus, in spe~dthrift clause and the judgment creditors may not reach the i n c ~ m e until after its distribution. We reverse the order of the District Court and remand with directions to dismiss with prejudice. Justice ,,I V -- Fie C o n c u r :

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