Hutchings v. Hutchings

150 N.E.3d 548

2019 Ohio 5362

Charles R. HUTCHINGS, Appellee

v.John HUTCHINGS, Individually and as Trustee of the Hutchings Family Trust, Appellant

No. S-19-008

Court of Appeals of Ohio, Sixth District, Sandusky County.

Decided: December 27, 2019

Emmett E. Robinson, for appellant.

Jennifer J. Antonini, Sylvania, for appellee.

DECISION AND JUDGMENT

ZMUDA, J.

{¶ 1} This matter is before the court on appeal from the judgment of the Sandusky County Court of Common Pleas, Probate Division, following a jury trial. Because we find the verdict contrary to law and unsupported by the evidence, we reverse.

I. Facts and Procedural Background

{¶ 2} The parties in this dispute are brothers, appellant John Hutchings and appellee Charles (Chip) Hutchings. Chip filed suit to challenge the distribution of trust assets, placed in an irrevocable trust by their father Charles Hutchings. Both Charles and his wife Elise Hutchings passed away in 2014, shortly after creation of the irrevocable trust.

{¶ 3} During Charles' and Elise's lives, John managed their finances. His parents chose him because he worked as a financial advisor and had the training, education, and experience to manage their affairs. Chip never objected to this arrangement, and even approved of John's efforts on their parents' behalf.

{¶ 4} In 2012, Elise exhibited signs of dementia, and Charles soon became her full-time caregiver. While Elise was still competent to do so, she and Charles executed durable power of attorney documents, granting John broad authority over his parents' affairs. The durable power of attorney revoked all prior financial powers of attorney, and granted John the authority to act in each parent's name and on their behalf in matters including real property transactions, banking, retirement transactions, fiduciary transactions, and estate, trust, and other beneficiary transactions.

{¶ 5} Relevant to this appeal, the durable power of attorney specifically provided John with authority with respect to amending or creating trusts, permitting John to "create a new revocable or irrevocable inter vivos trust, under whatever terms my attorney-in-fact deems advisable[.]" The durable power of attorney expressly permitted self-dealing, providing, "My Agent can enter into transactions with me or in my behalf in which my Agent is personally interested, notwithstanding any law prohibiting acts of self-dealing."

{¶ 6} Charles' attorney, Louis Borowicz, drafted the power of attorney documents after consulting with Charles by phone. Chip never challenged the validity of the power of attorney, or disputed the broad authority granted to John. Instead, Chip argued that John exceeded this broad authority by having a gift-balancing clause included in the otherwise proper irrevocable trust.

{¶ 7} Both sons received gifts and money from their parents throughout their adult lives, and Elise was a meticulous record-keeper. She tracked funds given to John and Chip, as well as any money received back as repayment on loans. Elise preserved her ledgers in a lock box, and John indicated she called the ledgers her "bread crumbs," intended for John's use in sorting out the estate when she and Charles were gone. By 2013, Elise's health and mental state had deteriorated, and she moved into a nursing home. At this point, Elise required more care than Charles was able to provide, and Charles became concerned about the cost of long-term nursing home care. Charles' health also began to fail at this time, and eventually he, too, required nursing home care.

{¶ 8} After speaking with his father, John consulted with Borowicz, who recommended an irrevocable trust. Borowicz did not speak with Charles regarding the trust, but John indicated he shared all details with his father. As part of preparations for the trust, John ran a credit report for his parents and discovered several student loans taken out by Chip's daughter, totaling around $100,000. All but one of these loans listed Charles as cosigner without Charles' knowledge or consent, and all were in default. Fearing Sallie Mae would attach assets of the estate, Borowicz recommended quick execution of the trust.¹ On August 12, 2013, John executed the irrevocable trust, drafted by Borowicz, on behalf of Charles as expressly authorized by the power of attorney. Borowicz directed John to execute the trust on his father's behalf to avoid delay, because Charles lived a distance from Borowicz's office.

{¶ 9} The new trust identified John and Chip as beneficiaries, but unlike prior estate plans, included a gift-balancing clause, requiring offset of any distribution after the death of both parents, according to amounts already given to John or Chip during their parents' lifetimes. Both John and Chip were aware of gifts and money received by the other, but there was no evidence that either knew the exact amounts each had received, prior to execution of the trust. Borowicz indicated this clause was standard where there have been lifetime gifts given to the beneficiaries. Chip argued this new provision did not reflect his parents' intent, but did not otherwise seek to void the trust. Chip also never claimed that John exerted undue influence over their father.

{¶ 10} The terms of the irrevocable trust designated John as trustee, and granted him the authority to make distributions of principal and interest, during the lifetimes of Charles and Elise, with "absolute discretion." As trustee, John could make these discretionary distributions to himself, to Chip, and to his father's financial advisor.² At trial, John testified that the goal of the irrevocable trust was, first, to take care of his parents, who were expending large sums each month for nursing home care. As structured, John indicated the trust assets would have depleted over time had his parents lived longer, taking them through the Medicaid look-back period. A second goal of the trust was creditor protection, and John testified that the surprise of the student loan debt acted as an impetus for quick execution of the documents. Based on the evidence and testimony, John authorized distributions of both income and principal, as expressly permitted, to care for his parents until they passed away.

{¶ 11} Chip asserted no claim based on distributions, during his parents' lifetime. Chip, furthermore, did not dispute the authority granted to John as trustee, to make distributions while their parents lived, solely at John's discretion. Chip also cited no provision within the trust language that granted him ownership or a right to possession of trust assets, prior to the deaths of both parents. Instead, the trust provided for distribution after death, as follows:

3.1. Distributions following the Death of the Survivor.

Upon the death of the second to die of my spouse and me, all of the remaining principal and accumulated income, if any, of this Trust shall be divided into as many shares, allocated as hereinafter provided, as are necessary to provide one such share for each then living child of mine.

3.1.1. Funding Each Child's Trust Share . The Trustee shall fund such separate shares so as to provide as nearly equal shares as practicable after crediting to the value of such separate shares the amount of all gifts made by the Grantor to, or for the benefit of, the beneficiaries of each such separate share, or to, or the benefit of, the spouse or descendant of any such beneficiary. It is the Grantor's intention that the family units represented by such separate shares be treated equally by aggregating all such gifts to the members of such family units as provided above and allocating the amounts used to fund the separate shares hereunder, so that the total amount of funds benefiting each family unit will be as nearly equal as is reasonably practicable. In making such allocations, the Grantor expressly realizes that a share or shares may not be funded to any extent hereunder.

{¶ 12} On August 22, 2013, days after execution of the irrevocable trust, Charles personally conveyed his assets into the trust by executing and recording a deed and memorandum and affidavit of trust to convey his home from the prior revocable trust to the newly created irrevocable trust.

{¶ 13} Within a year of executing the irrevocable trust, Charles and Elise passed away, Charles on May 18, 2014, and Elise on July 27, 2014. John, as trustee, sold the home and personal property, and used Elise's ledgers to conduct the gift balancing. John sent a detailed spreadsheet to Chip containing the results of his calculations. Based on Elise's records, both brothers received substantial lifetime gifts, but Chip and his family received the larger share. John calculated lifetime gifts to Chip and his family totaling over $400,000, and lifetime gifts to himself and his family totaling nearly $120,000. The proceeds from the trust, however, only totaled around $300,000. After gift balancing, Chip received no funds in distribution from the trust.

{¶ 14} Chip filed suit, seeking to void only the gift-balancing provision of the trust, and alleged claims for an accounting, conversion, and unjust enrichment. Chip also sought declaratory judgment regarding proper division of the trust proceeds. Additionally, Chip requested punitive damages for John's alleged malice in denying him his inheritance. The matter proceeded to trial, with Chip prosecuting only his claim for conversion, seeking compensatory and punitive damages.

{¶ 15} Chip's complaint for conversion alleged as follows:

Upon information and belief, the original estate plan of Charles and Elise Hutchings provided for equal distribution of the residuary of their assets;

By inserting a "gifting clause" into the irrevocable trust, John purposely intended to and in fact did, utilize such "gifting clause" to make the claim that Chip was not entitled to his share of trust assets;

The gifting clause was invalid as it was not within the 1999 trust, and as such, was not the intention of Charles and Elise Hutchings;

...