Virginia Lawyers Weekly VA Lawyers Weekly
A beneficiary’s declaratory action to determine rights and duties did not violate a trust’s no-contest clause.
Background
Charles and Theresa Hunter had two children, Chip and Eleanor, and a granddaughter. Charles and Theresa each created trusts naming the children and the grandchild as equal contingent beneficiaries. When Charles died, his trust passed to Theresa. The Theresa Trust provided that after her death, Chip would receive one-third, minus the value of some loans previously made to him. Eleanor and the grandchild would each receive a one-third share.
Eleanor became trustee upon Theresa’s incapacity. After Theresa died, Eleanor provided Chip a brokerage statement showing trust assets had declined from $4.25 million to $1.77 million in less than six years, a period in which the stock market’s general performance was good.
Chip asked for more documentation but, according to Chip, “Eleanor’s counsel refused to provide the additional information in reliance on a trust provision stating that the settlor ‘waive[d] the Trustee’s formal requirements to inform and report set forth under Section 55-548.13 of the Code of Virginia[.]’”
Chip filed a declaratory action for a “favorable interpretation” of the trust that would compel Eleanor to provide more information. With the no-contest provision in mind, he “divided his declaratory judgment complaint into two carefully worded counts.”
In Count I, Chip asked the court to decide whether asking for a declaration of rights and duties under the trust would violate the no-contest clause. If, and only if, the sought-after declaration would not violate the clause, the court should proceed to Count II.
In Count II, Chip sought a declaration of rights and duties, including whether Eleanor must report and inform “under Code § 64.2-775, other various provisions of the Virginia Uniform Trust Code, or stand-alone principles of common law and equity jurisprudence.”
In a brief, Chip explained “was that he interpreted the language of the inform-and-report waiver provision to only apply to the duty to inform and report under former Code § 55-548.13 and to have no effect on what he interpreted as freestanding inform-and-report duties arising under other sources of law. …
“Based upon prior communications with Eleanor’s counsel, Chip understood Eleanor’s position to be that the waiver provision relieved her of any and all inform-and-report duties. …
“Eleanor responded by filing a counterclaim seeking a declaratory judgment that Chip’s complaint, when read as a whole, constituted a contest of the Theresa Trust – thereby triggering the self-executing forfeiture of Chip’s entire beneficial interest in the trust.
“As Eleanor read the complaint, Chip was not truly requesting an interpretation but rather was attempting to avoid the effect of the inform-and-report waiver provision, and thus, Chip was contesting a material term of the trust.”
The circuit court agreed with Eleanor, revoked Chip’s interest in the trust and ordered him to pay Eleanor’s attorney fees.
Analysis
We hold that the circuit court incorrectly applied the no-contest clause to Chip’s complaint. The complaint, “taken as a whole or analyzed count-by-count,” did not violated the trust’s no-contest clause.
“We addressed an alternatively pleaded complaint in [Virginia Foundation of Independent Colleges v.] Goodrich, 246 Va. 435 (1993), in which a beneficiary of a will filed a declaratory judgment action ‘seeking an interpretation of a phrase in the will.’ …
“The executor interpreted the phrase ‘personal property’ to mean only tangible personal property, but the beneficiary believed that the phrase included both tangible and intangible personal property. … The beneficiary insisted that he was not contesting the phrase itself, only the executor’s flawed interpretation of it. …
“The will in Goodrich contained a no-contest provision which, if triggered, would have caused the forfeiture of the beneficiary’s interest if his complaint were construed as a contest of the personal-property provision. The beneficiary’s complaint sought to navigate through those straits by ‘request[ing] the trial court initially to determine whether his declaratory judgment action was a “contest” under [the no-contest clause], which would result in forfeiture of his interests under the will.’ …
“The court should ‘proceed with a determination of the phrase “personal property,”’ the complaint clarified, ‘[i]f and only if’ the court determined that doing so would not constitute a contest triggering a forfeiture. … In this way, the beneficiary emphasized that he was filing a will-construction case and not a will-contest case. The circuit court accepted that qualification, holding that the declaratory judgment action did not constitute a contest of the will.
“We agreed and explained: ‘As a general principle, one who seeks the guidance of a court in interpreting a provision in a will is not considered to have “contested” the will in a manner which would actuate a forfeiture clause. While forfeiture clauses or “no contest” clauses effectuate the testator’s legitimate interest in preventing attempts to thwart his intent, a request for interpretation does not challenge the intent of the testator or the validity of the will.’ …
“We now give our express approval to the alternative-pleading model implicitly accepted in Goodrich. … Count I of Chip’s complaint closely followed the Goodrich template for seeking a preliminary determination on the scope of the no-contest provision in the Theresa Trust prior to a resolution of the disputed meaning of the inform-and-report waiver provision[.] …
“The circuit court held that Count II of the complaint had triggered the no-contest provision and, on this basis, ordered the forfeiture of Chip’s interest[.] …
“Even if it were true that Count II had violated the no-contest provision, the court erred by disregarding the if-and-only-if proviso of Count I[.] … [T]he circuit court should have entered judgment on Count I in Eleanor’s favor and dismissed Count II as moot. …
“[W]e do not accept the first premise of the circuit court’s reasoning that Count II violated the no-contest provision. … Strictly construed, the proviso in the no-contest provision of the Theresa Trust does not equate a request for an interpretation of the trust’s provisions with a contest of the trust.
“Instead, the no-contest provision enumerates the actions constituting a ‘contest’ as ‘any action seeking to invalidate, nullify, set aside, render unenforceable, or otherwise avoid the effect of such instrument, action or transaction.’ …
“These verbs – invalidate, nullify, set aside, render unenforceable, and avoid the effect of – are not synonyms for interpret.”
Reversed and remanded for further proceedings.
Hunter v. Hunter, Record No. 190260 (Kelsey) March 12, 2020, Williamsburg City and James City County Cir. Ct. (McGinty). William Wiley Sleeth III, Brett Charles Herbert for Appellant, Daniel Read Quarles for Appellee. VLW 020-6-013, 21 pp.
