Kelsey McEwen Alexander v. Frederick John McEwen and First National Bank of Fort Smith
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SUPREME COURT OF ARKANSAS
No.
KELSEY MCEWEN ALEXANDER,
APPELLANT,
VS.
FREDRICK JOHN MCEWEN and FIRST
NATIONAL BANK OF FORT SMITH,
APPELLEES,
06-57
Opinion Delivered September
21, 2006
APPEAL FROM THE SEBASTIAN
COUNTY CIRCUIT COURT,
NO. PR04-354,
HON. JIM D. SPEARS, JUDGE,
AFFIRMED ON DIRECT APPEAL;
AFFIRMED IN PART ON CROSSAPPEAL AN D REV ERSED AND
REMANDED IN PART ON CROSS
APPEAL.
JIM HANNAH, Chief Justice
Kelsey Alexander McEwen appeals a September 30, 2005, Order of the Sebastian
County Circuit Court finding that upon the death of Anne Stodder McEwen, the beneficiary
designation to her Individual Retirement Account with SolomonSmithBarney directed that
the funds remaining in the account be divided 67% to Kelsey and 33% to the Anne Stodder
McEwen Trust for the benefit of John Fred McEwen. The circuit court found that while the
Sixth Amendment to Anne’s trust revoked Fund E, that same amendment added new trust
terms that were in lieu of the revoked Fund E. Kelsey also appeals a finding by the circuit
court that the equitable principle of unjust enrichment prohibited transfer of all the funds in
the account to Kelsey. Fred appeals a finding by the circuit court awarding Kelsey $125,000
in fees and the circuit court’s refusal to remove Kelsey as trustee.
Facts
On July 10, 1997, Anne created the Anne Stodder McEwen Trust. The trust provided
Fund E, “for Frederick John McEwen,” and Fund F, “for Kelsey McEwen Alexander.” Other
funds were set up that are not relevant to this case.
On June 3, 2002, Anne filled out a beneficiary designation to her IRA naming Kelsey
and Fund E of the Anne Stodder McEwen Trust for Frederick John McEwen as the primary
beneficiaries in the event of Anne’s demise. However, on March 17, 2003, Anne executed
a Sixth Amendment to her trust, which revoked that portion of her trust creating Funds E and
F and in their place created a trust “for Frederick John McEwen” and a trust “for Kelsey
McEwen Alexander.” Both Funds E and F, and the trusts created in the Sixth Amendment
distributed the residue of Anne’s trust assets either directly or under trust one-third to Fred
and two-thirds to Kelsey. Anne died on November 6, 2003. Kelsey believes that when Anne
revoked that portion of her trust establishing Fund E, any right Fred had to the assets in
Anne’s IRA were extinguished, and she remains as the sole beneficiary. Fred asserts that he
remains a beneficiary.
Beneficiary Designation
An IRA constitutes a contract between the person who establishes the IRA for his or
her retirement and the financial institution that acts as the custodian for the IRA. Smith v.
Smith, 919 So.2d 525 (Fla. Dist. Ct. App. 2006).
An IRA includes designation of
beneficiaries to receive the residue in the event of the retiree’s death. Id. The question
presented in this case is who or what entity, if any, is identified on the beneficiary
designation form by the references to “Fund E,” “Trust,” a social security number, and Fred’s
birth date.
We are called upon to interpret the contract. In Coleman v. Regions Bank, 364 Ark.
59, ___, ___ S.W.3d ___ , ___ (Nov. 3, 2005), we stated:
The first rule of interpretation of a contract is to give to the language employed
the meaning that the parties intended. See First Nat’l Bank of Crossett v.
Griffin, 310 Ark. 164, 832 S.W.2d 816 (1992); Valmac Indus., Inc. v.
Chauffeurs, Teamsters & Helpers Local Union No. 878, 261 Ark. 253, 547
S.W.2d 80 (1977). In construing any contract, we must consider the sense and
meaning of the words used by the parties as they are taken and understood in
their plain and ordinary meaning. Id. The best construction is that which is
made by viewing the subject of the contract, as the mass of mankind would
view it, as it may be safely assumed that such was the aspect in which the
parties themselves viewed it. Missouri Pac. R.R. Co. v. Strohacker, 202 Ark.
645, 152 S.W.2d 557 (1941). It is also a well-settled rule in construing a
contract that the intention of the parties is to be gathered, not from particular
words and phrases, but from the whole context of the agreement. First Nat’l
Bank of Crossett, 310 Ark. 164, 832 S.W.2d 816.
The IRA Beneficiary Designation form at issue provides:
In the event of my death, pay the full value of my SolomonSmithBarney, Inc.
Individual Retirement Account (in equal proportions in the case of multiple
beneficiaries unless otherwise indicated) to the Primary Beneficiary(ies) listed
below. I understand that if a primary beneficiary predeceases me, his or her
share will be divided equally among all surviving primary beneficiaries. You
may add the notation per stirpes (or “by rights of representation”) or per capita
next to each name if you wish the children of a beneficiary that predeceases
you to receive a share of this account.
Name of Primary Beneficiary
Relationship Date of Birth Social Security No. Percent of
benefits
Kelsey McEwen Alexander Daughter
xx-xx-xxxx xxx xx xxxx
67%
Fund E of the Anne Stodder Trust
McEwen Trust for Frederick
John McEwen
xx-xx-xxxx
xxx xx xxxx
33%
From this form, it is clear that Anne wished that two beneficiaries receive the residue of her
account upon her death. It is clear that Kelsey was to directly receive 67%. What is to
happen to the remaining 33% is the issue.
Had Anne not executed the Sixth Amendment to her trust, Fund E would have been
easily identified as Fund E of the Anne Stodder McEwen Trust for Frederick John McEwen.
However, Fund E was revoked by the Sixth Amendment.
Kelsey argues that upon revocation, Fund E predeceased her under the terms of the
IRA Beneficiary Designation form, leaving her as the only beneficiary. Predecease means
to die before another. Black’s Law Dictionary 1216 (8th ed. 2004). Thus, Kelsey argues that
the fund “died.” The IRA Beneficiary Designation form was obviously drafted under the
assumption that the beneficiaries would be natural persons. A natural person is a human
being. Black’s Law Dictionary 1178 (8th ed. 2004). This court has recognized the difference
between natural and artificial persons. See Standard Pipeline Co. v. Burnett, 188 Ark. 491,
66 S.W.2d 637 (1933). We reject the argument that revocation of a trust term equates to
predecease.
The terms of the beneficiary designation indicate that 33% is to be distributed to the
Anne Stodder McEwen Trust for John Frederick McEwen. The Sixth Amendment simply
substituted new trust terms providing for Fred, “in lieu of,” which is defined as “in the place
of” or “instead of.” Gramling v. Baltz, 253 Ark. 361, 362, 485 S.W.2d 183, 189 (1972).
Thus, there was and there remains an Anne Stodder McEwen Trust, and that trust contains
terms providing for distribution to John Frederick McEwen.
Additionally, we note that the beneficiary designation of Fund E also includes a
reference to a social security number and birth date. The parties agreed that the birth date
was Fred’s. The social security number was not identified, but the parties assert that it is
either Fred’s or the tax identification number for Anne’s trust. In either case, the presence
of the social security number, as well as the birth date, further support the conclusion that
Fred is to receive 33% through Anne’s trust.
The IRA beneficiary designation made it clear that Anne intended Fred to receive onethird of the residue in trust. However, as of the date of Anne’s death, the IRA beneficiary
designation form indicated that the third was to be paid to Fund E of Anne’s trust, which
benefitted Fred. The Sixth Amendment revoked Fund E. As of the date of Anne’s death, the
beneficiary designation was uncertain. As the circuit court noted in its August 25, 2006,
letter, attorney Pat Moore informed Anne by a letter of January 27, 2003, that the Sixth
Amendment to the trust was “basically a restatement of the plan you already had, setting it
in one document and making the additions you requested.”
The Sixth Amendment
specifically stated that the additions to benefit Fred were “in lieu of” the revoked fund. Thus,
the circuit court implicitly found an ambiguity and correctly applied parol evidence to resolve
the uncertainty. Where there is uncertainty of meaning in a written instrument, an ambiguity
is present. Black’s Law Dictionary 88 (8th ed. 2004). Where an ambiguity is found within
the contract, parol evidence may be admitted. Ultracuts Ltd. v. Wal-Mart Stores, Inc., 343
Ark. 224, 33 S.W.3d 128 (2000). It may not be admitted to alter, vary, or contradict the
written contract, but it may be admitted to prove an independent, collateral fact about which
the written contract was silent. Id. The circuit court properly considered the letter, which
supports the conclusion that Anne intended for Fred to receive in trust 1/3 of the remainder
of her trust. We find no error in the decision that the beneficiary designation form directs
that 33% of the residue in the IRA be paid into the Anne Stodder McEwen Trust for the
benefit of Fred.
Kelsey also argues that the circuit court erred in basing its decision on unjust
enrichment. Because we hold that the circuit court correctly awarded the funds to Fred based
on the contract, whether the circuit court erred in asserting an alternative basis for its decision
becomes moot. We do not address moot issues. Davis v. Williamson, 359 Ark. 33, 194
S.W.3d 197 (2004).
Trustee Fees
Fred cross-appeals arguing that the trust only allowed for fees to be paid to a corporate
trustee, and because Kelsey is not a corporate trustee, she is not entitled to fees. This court
long ago adopted the American rule that a trustee is entitled to reasonable compensation for
his or her time and trouble. Sutton v. Myrick, 39 Ark. 424 (1882). A trustee is entitled to
reasonable compensation out of the trust estate for services as trustee, unless the terms of the
trust provide otherwise or the trustee agrees to forgo compensation. Restatement (Third) of
Trusts §38 (2003). Where a trust specifically states that a trustee is to serve without
compensation, such a provision might be enforceable. See, e.g., Hill v. Zanone, 184 Ark.
594, 43 S.W.2d 238 (1931). No such provision is found in Anne’s trust.
Fred argues that the fees were arbitrarily awarded. He also argues that Kelsey seeks
compensation for tasks that were performed by others who have already been paid for their
services. Kelsey testified that she requested $125,000 because her attorney told her to seek
that amount. Accountant Norris Taylor reportedly told her to ask for a higher figure;
however, Taylor did not testify, and Kelsey testified that she was unaware of the
methodology Taylor used in reaching the sum sought in fees.
Where a trustee has rendered services for which he or she has not been fully
compensated, the court should allow compensation out of the trust principal or income.
George Gleason Bogert, The Law of Trusts and Trustees, §975, at 121 (2nd ed. 1983). As
noted in our early cases, the trustee is entitled to a reasonable fee. In arriving at a reasonable
fee, the circuit court may consider such factors as: the time consumed in carrying out duties
under the trust; the costs the trustee may have incurred; the nature of the services performed,
including whether such services were routine or required skill and judgment; fees received
by the trustee from beneficiaries to compensate the trustee; the fidelity or disloyalty displayed
by the trustee; and the value of the services offered by the trustee in light of the trustee’s
experience and skill level. See id. at §977, at 154 (2nd ed. 1983). This matter is remanded
for reconsideration of compensation of the trustee consistent with this opinion.
Removal of the Trustee
On cross-appeal, Fred also alleges that the circuit court erred in refusing to appoint
a new trustee. Fred asserts that Kelsey is biased, that there is a hostile relationship between
he and Kelsey, and Fred also expresses concern with respect to the division of personal
property. Kelsey argues that Fred failed to obtain a ruling on this issue and is precluded from
raising the issue on appeal. The September 30, 2005, order states that, “[t]he request by Fred
that Kelsey be replaced in her duty to divide the personal property is denied.” A ruling was
obtained.
The removal of a trustee lies in the sound discretion of the trial court. Festinger v.
Kantor, 272 Ark. 411, 616 S.W.2d 455 (1981). The circuit court suggested but did not order
that an independent party make the division due to the ill feelings between the parties.
Mutual hostility between beneficiaries and the trustee is grounds for removal. Blumenstiel
v. Morris, 207 Ark. 244, 180 S.W.2d 107 (1944). Fred alleges mutual hostility but does not
develop his argument. We will not develop an issue for a party at the appellate level. Carter
v. Four Seasons Funding Corp., 351 Ark. 637, 97 S.W.3d 387 (2003). No abuse of
discretion is shown on the record presented.
Affirmed on direct appeal; affirmed in part on cross-appeal and reversed and
remanded in part on cross-appeal.
G LAZE, J., dissenting in part.
Tom Glaze, Justice, dissenting in part. Removal of a trustee is within the sound
discretion of a trial court. Here, I strongly believe there is evidence that the trial court abused
its discretion when it allowed Kelsey to remain trustee.
The facts reveal that Fred is wheelchair bound due to a neuropathy condition, and he
was in dire need of and received payments for his health care costs from the trust. The record
reflects that Kelsey, acting as trustee, quit making Fred’s necessary health care payments.
Kelsey’s refusal to see that Fred’s necessary health costs and benefits are paid, seriously
ignores Fred’s health needs.
In addition, Anne’s trust specifically awards fees only to a corporate trustee 1 , not an
individual trustee. Concerning these two matters above,2 I believe that trial court should have
removed Kelsey as trustee. At the very least, the trial court should reconsider this issue when
it conducts the fee issue this court has ordered on remand. In my opinion, when the trial
court ignored information regarding Kelsey’s conflict of interest coupled with Anne’s intent
to only have a corporation serve as the trustee of her trust, it abused its discretion.
Accordingly, I would also reverse and remand for the trial court to appoint a new corporate
trustee.
D ICKEY, J., joins.
1
2
Specifically, the Trust stated in relevant part:
Any corporate trustee shall be entitled to reasonable fees commensurate
with its duties and responsibilities, taking into account the value and nature
of the trust estate and the time and work involved. The Trustee shall be
reimbursed for the reasonable costs and expenses incurred in connection
with its fiduciary duties hereunder.
The conflict of interest between Kelsey and Fred is even more apparent by Kelsey’s refusal to
share family “pictures and memorabilia” with Fred.
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