In re Estate of Oswald

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No. 103,512

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

IN THE MATTER OF THE ESTATE OF
IRMA M. OSWALD, Deceased.


SYLLABUS BY THE COURT

1.
The interpretation of a trust and the question of whether its terms are ambiguous
are issues of law subject to unlimited review.

2.
The primary function of a court in interpreting a trust is to ascertain the settlor's or
testator's intent as derived from the four corners of the document, and, once ascertained,
the intent will be executed unless contrary to law or public policy. If the settlor's or
testator's intent can be clearly divined from the words used, there is no reason to employ
the rules of construction; instead, the trust is simply enforced according with its express
terms and provisions.

3.
A written instrument is ambiguous only when its meaning is doubtful.

4.
A trust estate is vested in the trustee, but its duration and extent are governed by
the requirements of the trust. When no intention to the contrary appears, the trust estate
will not be continued beyond the purposes of its creation as set forth in the trust
instrument. When these purposes are accomplished, the trust estate ceases to exist and the
trustee's title becomes extinct.


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5.
A contention of ambiguity, to be cognizable, must be based on more than possible
contestability in the instrument. Moreover, an agreement is not made ambiguous merely
because the parties disagree as to its meaning when the disagreement is not based on
reasonable uncertainty of the meaning of the language used. Accordingly, an allegation of
ambiguity does not substitute for a true lack of clarity. Words do not become ambiguous
simply because lawyers or laymen contend for different meanings or even though their
construction becomes the subject matter of litigation.


Appeal from Russell District Court; MIKE KEELEY, judge. Opinion filed December 17, 2010.
Affirmed.

Michael N. Flesher and Don C. Staab, of Hays, for appellant Lloyd E. Oswald.

Robert E. Diehl, of Dreiling, Bieker & Hoffman LLP, of Hays, for Appellee Henrietta Werth.

Before PIERRON, P.J., GREEN and MARQUARDT, JJ.

GREEN, J.: In an estate proceeding following the death of Irma M. Oswald (Irma
Oswald), Lloyd E. Oswald (Lloyd), as trustee of the Irma M. Oswald Revocable Living
Trust, appeals the judgment of the trial court ordering immediate distribution of trust
assets to the named beneficiaries. Lloyd, one of the beneficiaries of the trust, sought to
hold surface title to certain real property in escrow rather than immediately distributing
title to the various beneficiaries. Lloyd maintained that the delay in conveying formal title
would carry out a material provision of the trust—allowing him to farm the land as long
as he wished.

The trial court interpreted the trust document as requiring immediate distribution
of the trust assets upon the settlor's death; the court entered a judgment both ordering
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immediate distribution of the title to the real property and holding that the trust language
giving Lloyd the right to continue to farm the land was an enforceable obligation on the
beneficiaries. We agree. Accordingly, we affirm.

On June 12, 1997, Irma Oswald executed her last will and testament. She
identified her children as follows: Irma Jule Stahl (Irma Stahl), Henrietta Rohleder Werth
(Werth), Carrie Dolven (Carrie), Charlotte Dockendorf, and Lloyd. On the same date,
Irma Oswald executed the Irma M. Oswald Revocable Living Trust (Trust).

In her will, Irma Oswald named two of her children, Lloyd and Carrie, as co-
executors. Carrie, however, resigned as coexecutor upon the opening of the probate
estate. Irma Oswald also devised her entire estate to the Living Trust to be "held or
disposed of in accordance with its provisions as the TRUST exists at the time of my
death." The will further provided that when making distribution of the estate, the Trust
beneficiaries "would be entitled to immediate receipt of their interests by reason of
having met age or other contingencies stated as conditions precedent to their taking, my
Executor may make distribution directly to such beneficiaries from the estate, rather than
turning such interest over to the Trustees for immediate distribution." (Emphasis added.)
Finally, the will included an in terrorem clause forfeiting any beneficiaries' share if the
beneficiary "attacks this Will and the TRUST or any provisions thereof."

As originally drafted, the revocable Trust held unspecified property with Irma
Oswald as the grantor, trustee, and primary beneficiary. The Trust instrument referred to
property listed on Schedule A as funding the Trust. Nevertheless, there is no Schedule A
included in the record on appeal or with the copy of the Trust documents contained in the
Appendix of appellant's brief. Nevertheless, Irma Oswald's will had a pour over provision
pouring any of her individually owned assets into the Trust upon her death. It permitted
the trustee to distribute both the net income and principal of the Trust to Irma Oswald at
the trustee's discretion. If Irma Oswald became incapacitated, the successor trustee had
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sole discretion to apply all or any part of the income or principal toward Irma Oswald's
health, education, and support and to execute any documents needed to protect as many
of the assets of the Trust from the spend-down requirements for her eligibility for
Medicaid.

The key provisions at issue in this case are set forth in Articles IV and V of the
Trust. Article IV states:

"Administration on Settlor's Death. On Settlor's death, this Trust shall continue
for the period required to administer Settlor's estate and the assets of this Trust. Trustee
may accumulate income during this period. After this period of administration is
completed, any gifts or trusts designated below shall then be funded." (Emphasis added.)

Article V allocates the Trust assets. The first paragraph, as amended, made no provision
for Irma Stahl. The second paragraph, as amended, granted all of Irma Oswald's real
property in Fairport, Kansas, equally to the three children of Carrie. Paragraph three
addressed the distribution of Irma Oswald's jewelry. Paragraph four granted Lloyd title to
Irma Oswald's home in Russell County, Kansas, and all household goods contained in the
home. No issue arises as to those provisions.

The disputed portions of Article V provides, in relevant part:

"On Settlor's death, Settlor hereby orders the property to be distributed, as
follows:
. . . .
"Fifth: The trust hereby offers the right to farm all real estate for so long as he
desires and the first option to purchase real estate, unto my son, Lloyd E. Oswald. Lloyd
E. Oswald shall tender proper landlord shares to the owners of said real estate.
"Sixth: All the rest, residue and remainder of my trust, be it real, personal or
mixed, of whatsoever kind and nature and wheresoever situated shall be distributed to my
daughters, 1/4th to Carrie Dolven and 1/4th to Henrietta Rohleder and 1/4th to my son
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Lloyd E. Oswald. A 1/8th to pass onto Jessica Dockendorf to be held in trust by the
Trustees of this trust until Jessica Dockendorf reaches the age of 25and [sic] and 1/8th
shall pass and be to my daughter, Charlotte Dockendorf. (Emphasis added.)

The one obvious ambiguity in the Trust was created by the 2006 amendment. It states that
"[a]s to ARTICLE V, Property, Second Paragraph, that upon Settlor's death, Carrie is to
be removed completely as a beneficiary of my Trust. [Her] share shall pass equally to her
children . . . ." (Emphasis added.) Carrie was named as a beneficiary in two places in
ARTICLE V, Paragraph Second and Paragraph Sixth. The trustee apparently interpreted
this amendment to alter both paragraphs, with 1/12th of the residue property (Paragraph
Sixth) going to each of Carrie's children: Mable Walker, Sean Dolven, and Ian Dolven.
This interpretation apparently was not contested by any of the parties, was not addressed
specifically in the trial court's distribution order, and is not at issue in this appeal.

Irma Oswald died in March 2008. She was survived by all five of her children.
Lloyd filed a petition for probate of Irma Oswald's will in September 2008. In March,
2009, the will was admitted to probate, and Lloyd was issued letters testamentary. Within
a week of receiving his letters testamentary, Lloyd filed a petition with the Trust
documents attached requesting court permission to approve an escrow agreement and
new 1-year farm lease agreement. Under the escrow agreement, Lloyd would execute
deeds for the surface rights to the 1,340 acres of farm real property—made out in the
names of the various residuary beneficiaries—with the deeds to be delivered when he
retired or ceased farming. Upon the occurrence of either event, the "deeds would become
effective and delivered." In addition, Lloyd asked that the Trust be allowed to maintain
$15,000 in escrow as operating expenses for the farming operation. Lloyd asserted that
these actions were necessary to carry out the terms of the Trust and protect his "absolute
right" to farm the property as long as he wished. Lloyd attached copies of the proposed
trustee's deeds to the various beneficiaries and a 1-year crop sharing landlord and tenant
agreement, dated March 1, 2009, signed by himself as trustee and as tenant.
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Werth, one of the named beneficiaries, responded to Lloyd's petition. She
challenged Lloyd's interpretation of the Trust. Werth asserted that the Trust was
unambiguous and required immediate distribution of the Trust assets to all beneficiaries,
including full title to the real property. Werth also requested that if the title was to be held
in escrow, the trial court should determine whether the proposed lease agreement was
reasonable. Werth also challenged Lloyd's request that he be allowed to maintain $15,000
in escrow for farming operating expenses. Finally, Werth contended that Lloyd had failed
to comply with the Trust, which required the trustee to render an annual accounting of the
Trust and to make trust records available to beneficiaries for inspection.

Following a case management conference, Lloyd was ordered to provide an
inventory and accounting of the Trust. The inventory shows the probate assets, including
real estate, cash, and other property totaling more than $1.5 million. It is not clear if these
assets were preexisting assets of the Trust or became part of the Trust on Irma Oswald's
death. After a second case management conference, the parties were ordered to brief the
question of whether the surface rights to all the farm real property should be immediately
transferred or held in escrow.

Both Lloyd and Werth, in their trial briefs, argued that the Trust language was
clear and unambiguous. Both parties cited to various cases discussing the interpretation
of trusts as well as to the Kansas Uniform Trust Code (KUTC), K.S.A. 58a-101 et seq.
None of the other beneficiaries filed a response.

Lloyd argued that permitting him to farm the land was, upon Irma Oswald's death,
"a primary purpose" of the Trust. Lloyd contends that this would be beneficial to "all
concerned" because the Trust would be responsible for overseeing the farming operation,
paying for insurance and taxes, and enrolling the farmland in government programs.
Lloyd contends that his proposal implements Irma Oswald's intent and would safeguard
against having to appoint a financial institution as successor trustee. In addition, Lloyd
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cites to the various powers given to him as trustee, including "operating farming
enterprises." In his reply brief, Lloyd argued that he would have no enforceable right to
continue to farm the real property if the Trust was terminated.

Werth maintained in her trial brief that the unambiguous language of the Trust
required immediate distribution of all property on Irma Oswald's death and contained no
language allowing Lloyd to hold title to the farmland in escrow. Werth further asserted
that all of the other property in the Trust had been distributed by the trustee according to
the Trust's terms, except for the surface rights of the farmland. Werth noted that the
powers given to the trustee did not include delaying distributions following Irma
Oswald's death. Werth further contended that no farm landlord advances cash to his
tenant for operating expenses.

In October 2009, the trial court issued its decision. The trial court examined the
four corners of the Trust document and concluded that the Trust was unambiguous and it
was clear that Irma Oswald intended that all property be distributed immediately or
within a reasonable timeframe for closing her estate. The trial court concluded that the
Trust language was sufficient to protect Lloyd's right to farm the land and his right to a
first option to purchase the real property. In conclusion, the trial court ordered Lloyd to
transfer the residue of the Trust to those entitled under the terms of the Trust. It denied
Lloyd's request to hold title in escrow and to withhold $15,000 in Trust funds for farming
expenses. The trial court further held that Lloyd was entitled to farm the land on a
landlord and tenant sharing arrangement as regularly practiced.

Did the Trial Court Err in Finding the Trust Language Did Not Permit the Trustee to
Retain Surface Title to the Farmland in Escrow?

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On appeal, Lloyd contends that the trial court erred in interpreting the Trust as
terminating on Irma Oswald's death. Lloyd asserts that there was still a "material
purpose" for the Trust—allowing him to farm the real property as long as he wished.

Both the interpretation of a trust and the question of whether its terms are
ambiguous are issues of law subject to unlimited review. In re Testamentary Trust of
Keys, 40 Kan. App. 2d 503, 508, 193 P.3d 490 (2008).

Both parties maintained that the Trust was unambiguous, and they only disputed
the legal effect of the terms used. The primary function of a court in interpreting a trust is
to ascertain the settlor's or testator's intent as derived from the four corners of the
document, and, once ascertained, the intent will be executed unless contrary to law or
public policy. Keys, 40 Kan. App. 2d at 508. If the settlor's or testator's intent can be
clearly divined from the words used, there is no reason to employ the rules of
construction; instead, the trust is simply enforced according with its express terms and
provisions. Keys, 40 Kan. App. 2d at 508 (citing In re Estate of Berryman, 226 Kan. 116,
119, 595 P.2d 1120 [1979]). A written instrument is ambiguous only when its meaning is
doubtful. See Weber v. Tillman, 259 Kan. 457, 476, 913 P.2d 84 (1996).

In reading within the four corners of the Trust, it is clear that Irma Oswald
intended the Trust to terminate and the Trust res to be distributed upon her death. Article
III established the primary purpose of the Trust was to provide for Irma Oswald's needs
during her lifetime. Article IV provides for administration of the Trust upon Irma
Oswald's death and explicitly provides that after the period of administration is
completed, "any gifts or trust designated below shall then be funded." Article V provides
that on Irma Oswald's death, she "orders the property to be distributed." While the fifth
paragraph offers Lloyd the right to farm all real property for as long as he desires, he is
required to pay proper landlord shares "to the owners of said real estate."

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In the phrase "to the owners of said real estate," the phrase clearly refers to the
beneficiaries' ownership rights in the farmland. According to Black's Law Dictionary
1105 (6th ed. 1990), the word "owner," when referring to land, is defined as "one who
owns the fee and who has the right to dispose of the property." Indeed, the right to sell,
mortgage, convey, or otherwise alienate a person's real property is considered the most
important incident of fee-simple title.

As a result, Lloyd's position requires a distorted reading of the express language
under Article V, Paragraph Fifth: "Lloyd . . . shall tender proper landlord shares to the
owners of said real estate." (Emphasis added). Lloyd's position is contrary to the plain
language of the Trust because under his interpretation of the Trust, the beneficiaries
would not enjoy the right of disposal until Lloyd ceased farming the farmland.

Further, the Trust gave Lloyd the immediate right of first refusal: "the first option
to purchase all real estate." Admittedly, the various beneficiaries under Article V would
need title to the real property and a desire to sell before Lloyd's enforceable right to
purchase the real property would be triggered. See Bergman v. Commerce Trust Co., 35
Kan. App. 2d 301, 306, 129 P.3d 624 (2006) (A right of first refusal requires the owner,
when and if the owner decides to sell, to offer the property first to the person entitled to
the preemptive right at the stipulated price.). This is another clear indication that Irma
Oswald intended the beneficiaries under Article V to receive immediate title to their
share of the real property.

Indeed, there is no express or implied provision in the Trust that provides for the
continuation of the Trust to permit Lloyd to continue his farming operations. In fact, the
Trust lacked any language that the Trust was to continue for a stated time. Under such
circumstances, a trust is generally held to last until the settlor's purpose has been
accomplished. If the purpose has been accomplished, a further continuation of the trust is
useless, and the trust should be terminated. See Clement v. Charlotte Hospital Ass'n, Inc.,
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137 So. 2d 615, 617 (Fla. Dist. App. 1962) ("A trust estate is vested in the trustee, but its
duration and extent are governed by the requirements of the trust. When no intention to
the contrary appears, the trust estate will not be continued beyond the purposes of its
creation as set forth in the trust instrument. When these purposes are accomplished, the
trust estate ceases to exist and the trustee's title becomes extinct."); see also 76 Am. Jur.
2d, Trusts § 85 ("The termination of a trust is authorized if its purpose has been
fulfilled.").

Here, the Trust simply imposed an obligation on the beneficiaries: to allow Lloyd
the right to farm the land "so long as he desires" and the right of first refusal if any
beneficiary should desire to sell his or her real property. It is apparent that this obligation
on the beneficiaries would have accomplished Irma Oswald's purpose: the beneficiaries
receiving title to the real property and Lloyd receiving the right to farm the real property
as long as he wished.

Lloyd, however, contends that protecting his right to farm the land was a "material
purpose" of the Trust and, therefore, the Trust could not be terminated. Lloyd asserted
that continuing the Trust and holding the surface rights to the real property would be
beneficial to "all concerned" because the Trust would be responsible for overseeing the
farming operation, paying for insurance and taxes, and enrolling the farmland in
government programs. Nevertheless, convenience to the beneficiaries, Lloyd in
particular, was not a material purpose of the Trust as set forth under the plain language of
the Trust. Clearly, the Trust could have been written to give Lloyd a life estate in the
property as long as he farmed the real property, but it did not. It called for distribution of
the property subject to Lloyd's rights, with Lloyd's payment of landlord shares to the
owners.

"'Material purposes [in trusts] are not readily to be inferred. A finding of such a
purpose generally requires some showing of a particular concern or objective on the part
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of the settlor, such as concern with regard to a beneficiary's management skills,
judgment, or level of maturity. Thus, a court may look for some circumstantial or other
evidence indicating that the trust arrangement represented to the settlor more than a
method of allocating the benefits of property among multiple intended beneficiaries, or a
means of offering to the beneficiaries (but not imposing on them) a particular advantage.'
Restatement of the Law Third, Trusts § 65, comment d, p. 477 (2001)." In re Trust of
Darby, 290 Kan. 785, 792, 234 P.3d 793 (2010).

Lloyd contends on appeal that once there is a distribution of surface rights to the
beneficiaries, the Trust is terminated and the beneficiaries would have no obligation to
honor Lloyd's right to farm the land or to honor his option for first purchase. This
contention fails for several reasons. First, Lloyd cites no legal authority to support his
contention that the beneficiaries would not be bound by the Trust's provision allowing
him to farm the land. Failure to support a point with pertinent legal authority or show
why it is sound is akin to failing to brief the issue. State v. Conley, 287 Kan. 696, 703,
197 P.3d 837 (2008). Second, the trial court's journal entry specifically ordered that the
real property be distributed subject to Lloyd's right to farm. No party cross-appealed that
ruling. Finally, the in terrorem clause of Irma Oswald's will prohibits challenges to the
will or the terms of the Trust. Any beneficiary making such a challenge could be divested
of his or her share of the Trust.

Although a trust may terminate in more than one way, the KUTC recognizes that a
trust "terminates to the extent the trust . . . expires pursuant to its terms." K.S.A. 58a-
410(a). "[O]n termination of the trust," a trustee's duty under the KUTC is to "exercise
the powers appropriate to wind up the administration of the trust and distribute the
property to the persons entitled to it." K.S.A. 58a-816(26). This suggests that the "persons
entitled to" the trust property may be determined at termination of the trust. Keys, 40
Kan. App. 2d at 510.

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Werth cites In re Hilgers, 371 B.R. 465 (Bankr. 10th Cir. 2007), in support of her
position. In that case, trustees attempted to continue the trust to protect the remainder
beneficiary's distribution from becoming an asset of his bankruptcy estate. Both the
bankruptcy court and the appeals panel interpreted the trusts as only continuing during
the lifetime of the life beneficiaries and that, upon the death of the life beneficiaries, all of
the remaining property was to be distributed to the Hilgers' children or grandchildren.
371 B.R. at 469-70. The court refused to delay distributions because the possibility of tax
issues or to impose a spendthrift provision to benefit the beneficiary when no such clause
was contained in the trust. 371 B.R. at 471.

Under the terms of the Trust, the only ground for maintaining the Trust after the
administration of Irma Oswald's estate was if one of the named beneficiaries was under
the age of 25. We assume that Jessica Dockendorf had achieved the age of 25 because
Lloyd issued a title for her share of the property as part of his proposed escrow agreement
and has not used her age as a justification to extend the Trust. In any event, the Trust
contained a separate provision for setting aside an underage or incompetent beneficiary's
share in a separate trust.

Our Supreme Court has defined a trust as follows: "[W]e adopt for our purposes
the definition of a trust as being a fiduciary relationship with respect to property
subjecting the person by whom the property is held to equitable duties to deal with the
property for the benefit of another person, and arising as the result of an intention to
create the relationship." In re Estate of Sheets, 175 Kan. 741, 746, 267 P.2d 962 (1954).
Here, under this definition, the beneficiaries would have been the obligees of the
equitable obligations which Lloyd (as trustee) assumed.

Moreover, it is apparent that Irma Oswald intended that once Lloyd (as trustee)
furnished the beneficiaries with title to the real property, the beneficiaries would become
the obligors of the remaining equitable obligations which Lloyd (as trustee) had assumed:
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Lloyd's "right to farm all real estate for so long as he desires and the first option to
purchase all real estate." Indeed, the trial court recognized the beneficiaries' obligation to
Lloyd when it determined that the beneficiaries would take title to their respective real
property interests subject to Lloyd's right to continue to farm the land.

Finally, the legislature furnishes Lloyd with a way to protect his right to continue
to farm the land under K.S.A. 58-2221. See Misco Industries, Inc. v. Board of Sedgwick
County Comm'rs, 235 Kan. 958, 961, 685 P.2d 866 (1984) ("The purpose of [K.S.A. 58-
2221] is to provide a system of registration for instruments affecting the title to land. The
record is kept to insure the title and its history may be preserved and protected. The
statute makes readily available to the public notice of title to property or liens and
adverse claims against property.").

Based upon the plain language of the Trust, the trial court correctly concluded that
the Trust was unambiguous and that its assets were to be fully disbursed to the named
beneficiaries upon Irma Oswald's death. Accordingly, the trial court's rejection of
Lloyd's escrow plan, as well as its order requiring the beneficiaries to take the real
property subject to Lloyd's right to farm the land, was proper.

Whether the Trust Was Ambiguous and Permits the Use of Parol Evidence to Interpret
the Trust?

For the first time on appeal, Lloyd also contends that the Trust agreement is
ambiguous because it does not provide directions how the Trust is to be administered
during the period of time Lloyd is exercising his right to farm the land. Accordingly,
Lloyd now maintains that the Trust is ambiguous and that parol evidence should be
considered in ascertaining the meaning of the words used in the Trust. Lloyd contends
that his proposal for holding title in escrow and the terms of the lease he signed as both
trustee and lessor is based upon his "experience as tenant with the Settlor and customary
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practices in farm lease arrangements." Lloyd maintains that the trial court did not allow
testimony regarding Irma Oswald's intent and makes a proffer in his brief of his
knowledge of Irma Oswald's intent.

Nevertheless, Lloyd did not contend that the Trust was ambiguous in his
arguments to the trial court, nor did Lloyd request an evidentiary hearing to present parol
evidence to the trial court. Had he done so, Werth would have had a similar opportunity
to present parol evidence.

Generally, issues not raised before the trial court cannot be raised on appeal.
Miller v. Bartle, 283 Kan. 108, 119, 150 P.3d 1282 (2007). Moreover, Lloyd does not
argue that this issue falls within one of the recognized exceptions to this rule. Further, the
present issue does not fall within one of these exceptions. See In re Estate of Broderick,
286 Kan. 1071, 1082, 191 P.3d 284, cert. denied 129 S. Ct. 1320 (2008) (exceptions if
issue presents only a question of law arising on proved or admitted facts; review is
necessary to serve the ends of justice; and court's judgment is correct but based on the
wrong reason).

Finally, a contention of ambiguity, to be cognizable, must be based on more than
possible contestability in the instrument. Moreover, an agreement is not made ambiguous
"merely because the parties disagree as to its meaning when the disagreement is not
based on reasonable uncertainty of the meaning of the language used." Tri-Cor, Inc. v.
United States, 458 F.2d 112, 126 (Cl. Ct. 1972). Accordingly, an allegation of ambiguity
does not substitute for a true lack of clarity. "Words do not become ambiguous simply
because lawyers or laymen contend for different meanings or even though their
construction becomes the subject matter of litigation." Thomas v. Continental Casualty
Company, 225 F.2d 798, 801 (10th Cir. 1955).

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As noted earlier, the Trust is clear and unambiguous as to its termination, and the
trial court's judgment protects Lloyd's right to farm the land for as long as he desires.

Affirmed.