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Collins v. Hearty Investment Trust

Court of Appeals of Ohio, Ninth District, Summit

April 5, 2017

JOHN C. COLLINS, Executor of the ESTATE OF HUGH HEARTY, Deceased, et al. Appellees
v.
HEARTY INVESTMENT TRUST, et al. Appellants

         APPEAL FROM JUDGMENT ENTERED IN THE COURT OF COMMON PLEAS COUNTY OF SUMMIT, OHIO CASE No. CV 2010 05 3319

          ROBERT L. TUCKER, JOHN R. CHLYSTA, and FRANK G. MAZGAJ, Attorneys at Law, for Appellants.

          MICHAEL J. ELLIOT and LAWRENCE J. SCANLON, Attorneys at Law, for Appellees. THOMAS F. HASKINS, JR., Attorney at Law, for Appellee.

          DECISION AND JOURNAL ENTRY

          JENNIFER HENSAL J.

         {¶1} The Hearty Investment Trust, its trustee, the Hearty Investment Trust's beneficiaries, and the Hearty Credit Bypass Trust appeal from a judgment of the Summit County Court of Common Pleas, granting judgment in favor of the executor of the estate of Hugh Hearty and his widow. We reverse in part, vacate in part, and remand the matter for further proceedings consistent with this opinion.

         I.

         {¶2} This case is again before this Court following our reversal and remand of the trial court's decision. Although the details of this case are fully set forth in Collins v. Hearty Investment Trust, we will summarize the procedural posture and underlying issues. 9th Dist. Summit No. 27173, 2015-Ohio-400.

         {¶3} In 1996, five of the Hearty siblings pooled certain assets and created the Hearty Investment Trust (the "Trust"), of which they were the grantors and beneficiaries. The Trust was designed to provide quarterly income distributions to the beneficiaries. Two provisions of the Trust are relevant to this appeal. First, the Trust contains a power-of-appointment provision governing the manner in which the beneficiaries can transfer their interest in the Trust. The beneficiaries amended that provision in 2007, which - as amended - provides:

[E]ach of the Grantors may appoint his or her trust share by Last Will and Testament made before or after the effective date of the Trust Agreement in the manner provided below. * * * The Grantor's Will must make specific reference to this limited power of appointment. * * *. If the exercise of the limited power of appointment is in the form of a trust, the trustee of this instrument shall also serve as trustee under the trust created in accordance with the power of appointment. In default of the exercise of this limited power of appointment, the Grantor's trust share at death shall pass in accordance with the terms and provisions of Section 3 [i.e., to the Hearty Credit Bypass Trust].

         {¶4} The second relevant provision of the Trust allows the trustee to distribute funds from the deceased beneficiary's share of the Trust to his or her estate if the beneficiary's estate lacks sufficient non-Trust assets to pay certain debts. Specifically, that provision provides:

Upon the Grantor's death, there shall be distributed to the Grantor's estate (to the extent the Trustee determines that non-trust assets are not available for such purpose) from his or her Trust Share such an amount as the Grantor's executor or administrator certifies is not greater than [the amount of death taxes, and normal and usual costs of administering the estate and debts of the grantor or his estate].

         {¶5} In 2007, Mr. Hearty contacted the executor of his estate[1] and asked him to prepare a codicil to his will because he wanted to transfer his interest in the Trust to his wife pursuant to the amended power-of-appointment provision. Mr. Hearty provided the executor with the language he wanted the codicil to include, and the executor prepared same, titling it "Codicil to the Last Will and Testament of Hugh G. Hearty." Although Mr. Hearty signed the purported codicil, there is no dispute that it was not signed by two witnesses as required under Revised Code Section 2107.03.

         {¶6} Mr. Hearty passed in 2008. Following his death, Mr. Hearty's interest in the Trust transferred to the Hearty Credit Bypass Trust, not to his widow. Additionally, pursuant to the Trust provision allowing the use of Trust assets to pay certain debts of a beneficiary's estate, the attorney for Mr. Hearty's estate submitted a notice of unpaid debts to the trustee of the Trust. The trustee did not evaluate the estate's claim for monies and Trust assets were not used to pay those debts.

         {¶7} As a result of these events, the executor of Mr. Hearty's estate and Mr. Hearty's widow (collectively, "Plaintiffs") filed a declaratory judgment action against the Hearty Investment Trust, its trustee, and the grantors/beneficiaries of the Trust (Mr. Hearty's siblings) (collectively, "Defendants"). Plaintiffs later amended their complaint to include the Hearty Credit Bypass Trust as a defendant. In summary, Plaintiffs' amended complaint asked the trial court to declare that Mr. Hearty effectively exercised the power of appointment in favor of his widow, and to declare that the estate was entitled to payment of certain debts from Mr. Hearty's share of the Trust. Plaintiffs also claimed that the trustee breached his fiduciary duties by not accepting the purported codicil as an effective means of exercising the power of appointment, and by failing to provide Trust monies to cover the unpaid debts of Mr. Hearty's estate.

         {¶8} The case proceeded to a bench trial. Plaintiffs presented evidence indicating that, despite the fact that his purported codicil was not signed by two witnesses, Mr. Hearty intended to execute the power of appointment in favor of his widow. Plaintiffs also presented evidence indicating that, at the time the estate demanded funds from the trustee, Mr. Hearty's estate lacked sufficient non-Trust assets to cover the debts of the estate.

         {¶9} The trial court entered judgment in favor of Plaintiffs, concluding, in part, that principles of equity mandated a determination that Mr. Hearty effectively exercised the power of appointment in favor of his widow by way of the purported codicil. In doing so, the trial court noted that the language of the Trust "does not specify a single manner or way a beneficiary must appoint his or her trust share[, ]" and that the evidence indicated that Mr. Hearty intended to transfer his interest in the Trust to his widow. Accordingly, the trial court declared Mr. Hearty's widow as a beneficiary of the Trust and concluded that she was entitled to distributions thereunder.

         {¶10} The trial court also concluded that Mr. Hearty's estate submitted a timely notice of unpaid debts to the trustee and that the trustee "improperly denied and otherwise refused" to pay those debts through Mr. Hearty's share of the Trust. The trial court, therefore, ordered $164, 513.51 (the amount of unpaid debts at the time of presentment minus the ...


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