Siblings’ trust agreement enforced in probate splits COA

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The termination and division of a multi-generational trust containing more than 422 acres of land was affirmed Thursday by the Indiana Court of Appeals, which split on the question of whether a probate court could adjudicate a separate agreement between two heirs.

The question arose in a case dating to the 1981 establishment of a trust by Anne Blanche Hillis in which the land was the sole asset. Hillis established the trust to be divided equally between daughters Barbara Rawlings and Julia Wilkinson. After Hillis died in 1983, Barbara’s son Rex and wife Colleen Rawlings secured Wilkinson’s shares of the trust.

Rex and his brother, Kim, also shared interest in the trust shares that passed to Barbara, their mother. She intended for her shares of the trust to pass equally to her sons as co-successor trustees.

In 1988, the brothers signed an inheritance agreement allowing Rex to mortgage his share of the property. The agreement states the “parties acknowledge that in effect this is an advance on [Rex’s] inheritance,” and that Kim would be entitled to a credit against any mortgage balance Rex owed prior to the distribution of the estate.

Over the years, Rex leveraged the property, faced foreclosure on his share of the property and filed for bankruptcy, forcing them to sell 237 acres in the 1990s.

After Barbara died in 2013, Rex moved to docket the trust and asked for a successor trustee because he and Kim “cannot work together.” Kim objected and moved the trial court to compel final distribution of the trust and for equitable relief by enforcing the agreement, which the trial court granted.

The majority of an appellate panel affirmed the trial court Thursday.

“In harmonizing both the Trust and the Inheritance Agreement, the trial court viewed both documents as independent of each other, first mandating the division of the Trust and then almost simultaneously applying the Inheritance Agreement in equity,” Judge Patricia Riley wrote for the majority joined by Judge James Kirsch.

“Accordingly, upon the termination and division of the Revocable Trust, the trial court mandated the distribution of the assets of the Trust in accordance with Barbara’s wishes, while immediately the court ordered up to 121.09 acres of real estate otherwise transferred to Rex under the provisions of the Trust to be credited and distributed to Kim, along with his 50% interest in the Trust rem. We find that there is no genuine issue of material fact and the trial court properly applied the law,” Riley wrote.

Chief Judge Nancy Vaidik dissented.

“Once the trial court took it upon itself to administer the Trust, its tasks were to (1) determine Barbara’s intent and (2) give effect to that intent,” she wrote. “…The trial court completed the first task, acknowledging that Barbara’s intent was that the property in the Trust ‘would pass equally to Rex Rawlings and Kim Rawlings.’ …Having done so, however, the court did not complete the second task.

“Instead of giving effect to Barbara’s clear intent, the court ordered that the trust assets be divided in accordance with Rex and Kim’s ‘Agreement’ — an agreement that Barbara was not a party to, that was executed two years before Barbara established the Trust, and that is not mentioned in the trust instrument or the amendments thereto,” Vaidik wrote.

Vaidik wrote the trial court, sitting in probate, “had no business adjudicating Kim’s claim under that agreement.”

“I do not mean to suggest that Rex and Kim’s agreement is void or that Kim cannot seek to enforce it in a separate proceeding.” Those, though, “are matters that fall outside the scope of the trust proceeding initiated by Rex.”

The case is In Re the Matter of the Trust of Barbara J. Rawlings; Rex R. Rawlings v. Kim R. Rawlings, 18A-TR-345

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