Law School Case Brief
Rose v. Rose - 2013 Ark. App. 256, 427 S.W.3d 698 (Ct. App.)
The exclusive jurisdiction in cases involving trusts, and the construction, interpretation, and operation of trusts are matters within the jurisdiction of the courts of equity, which have inherent and exclusive jurisdiction of all kinds of trusts and trustees. Arkansas appellate courts have traditionally reviewed matters that sounded in equity de novo on the record with respect to factual and legal questions. The appellate court will not reverse a finding by a circuit court in an equity case unless it is clearly erroneous. A finding of fact by a circuit court sitting in an equity case is clearly erroneous when, despite supporting evidence in the record, the appellate court viewing all of the evidence is left with a definite and firm conviction that a mistake has been committed.
Arkansas statutory law allows a settlor to amend a revocable trust by any method manifesting clear and convincing evidence of the settlor's intent. Ark. Code Ann. § 28-73-602(c)(2)(B).
A trustee is generally entitled to reimbursement for expenses incurred reasonably and properly in the course of administering a trust. This is true even in the absence of an express provision for reimbursement in the trust instrument. Arkansas statutory law provides explicitly for this right, mandating that a trustee is entitled to be reimbursed out of the trust property for reasonable expenses that are properly incurred in the administration of the trust. Ark. Code Ann. § 28-73-709(a)(1).
On January 17, 1994, spouses Woody and Ruth Rose created the Rose Family Revocable Trust. The only item placed in the trust was the residence occupied by Woody and Ruth. The trust instrument provided that the trust was modifiable at any time while both grantors were alive. However, upon the death of either grantor, the trust was to become irrevocable. Upon the death of the second grantor, the residence was to be sold, with three-fifths of the net proceeds to be distributed equally between the Woody’s three children, and two-fifths to be distributed between Ruth Rose's two children. In the alternative, if the surviving spouse no longer wanted to live in the residence, he or she could direct the trustee to sell it for fair-market value, with the proceeds being distributed one-fifth to each of the children of the deceased grantor and the remainder being distributed to the surviving grantor. The trust was silent as to the reimbursement of any expenses relating to the residence. There was also a spendthrift provision. Attorney Thomas Stone was appointed to be the trustee, with attorney Patrick Hollingsworth designated to serve as successor trustee. Over the next several years, the Roses purchased several homes, each of which was subject to a mortgage. Although the homes were titled in Woody and Ruth's names individually for the execution of any mortgage, the residences were always conveyed to the trust. Until 2003, all deeds conveying property to and from the trust identified Thomas Stone as the trustee. Beginning with a deed signed on June 1, 2005, the deeds began identifying Woody and Ruth Rose as the trustees. Stone was never informed that he was being removed as trustee, nor did he ever resign as trustee. On May 31, 2007, Woody Rose unexpectedly died. Hereafter, Ruth, as trustee, conveyed the residence to herself, individually. She then sold the home to an unrelated third party for $310,000 and deposited the proceeds of the sale in her personal checking account. She retained approximately $90,000 of the proceeds, which represented 60% of the net proceeds from the sale of the residence. Woody’s children filed a petition sought a declaratory judgment, a preliminary injunction, damages, and the imposition of a constructive trust for appellee's breach of her fiduciary duties. The circuit court found that the attempted amendments to the trust were invalid and ordered the Woody’s children were entitled to profit from the sale of the property. The circuit court, however, allowed reimbursement to Ruth for the expenses she incurred in administering the aforementioned trust. The children of Woody appealed.
Did the circuit court err in its decision to allow reimbursement to Ruth for the expenses she incurred in administering the trust jointly established by her and her husband?
The court held that the circuit court did not err in allowing Ruth to be reimbursed for her expenses in maintaining the residence, because she and Woody (the settlors) were de facto trustees by the time Woody died and the award of trustee expenses to Ruth was not clearly erroneous. According to the court, the settlors bought and sold property from the trust and the deeds listed them as trustees of the trust.
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