Appeal by defendant Barbara A. Cone from an order and final
judgment entered 5 July 2002 by Judge James U. Downs in Macon
County Superior Court. Heard in the Court of Appeals 28 January
2004.
Jones, Key, Melvin & Patton, P.A., by R. S. Jones, Jr., for
plaintiff-appellee.
Philo & Spivey, P.A., by David C. Spivey, for defendant-
appellant Barbara A. Cone.
HUNTER, Judge.
Barbara A. Cone (“Cone”) appeals an order and final judgment
dissolving a trust of which she and Martha Horne (“Horne”) were the
sole beneficiaries. Having concluded that the parties did not
consent to dissolution of the trust or that such dissolution was
neither necessary nor expedient, we reverse.
Horne and her former husband, Clifton Dotter (“Dotter”),
established a common law business trust organization on or about 29
January 1990 entitled Timber Hill Holdings. The trust was to
continue for twenty years; however, the Board of Trustees were
allowed to terminate it earlier if “(1) any condition orcircumstance . . . threaten[ed] the value or corpus of the [trust];
(2) or any reason determined by the Board of Trustees to be good
cause.” Horne and Dotter were the sole beneficiaries of the trust,
and they both were issued fifty capital units of the trust, the
total number of capital units authorized and issued being one
hundred. Horne and Dotter subsequently conveyed a four-acre tract
of land (“the property”) that they had previously acquired in Macon
County to the trust by deed dated 1 February 1990. The property
constituted the sole asset of the trust.
Horne and Dotter divorced in March of 1993. In January of
1999, Dotter transferred his fifty capital units of the trust to
Cone. Around that time, Horne became dissatisfied with the
administration of the trust and sought its dissolution by complaint
filed 2 May 2000. Specifically, Horne alleged that the trustee of
the trust (LaTrobe, Ltd. and its successor, Morton & Oxley, Ltd.)
failed to take an active part in the management of the trust,
failed to pay real property ad valorem taxes to Macon County on the
property, and allowed the trust assets to “lie fallow to the great
harm and detriment of the Plaintiff.” Thus, Horne prayed that the
trust “be terminated and its assets distributed in kind to the unit
holders in proportion to their ownership interest.”
The matter, deemed to be an action in equity, was heard by the
trial court without a jury on 24 June 2002. Based on the evidence
offered at trial, the court found that the express purpose of the
trust was to insulate the couple's “assets from being seized as aresult of some potential judgment or other obligation[.]” However,
the trial court further found, inter alia:
That the purposes for which the Trust was
originally established no longer exist[ed] in
that: (a) the beneficiaries are no longer
married to each other, (b) except for the real
property that is the sole asset of this Trust,
the original beneficiaries have no common
interest in any property, and (c) that further
one of the beneficiaries has conveyed his
interest in the Trust to a lady-friend who
happens to be Barbara A. Cone.
Thus, in an order filed 5 July 2002, the court concluded that the
trust be “revoked, annulled and dissolved.” Cone and Horne were
declared “to be tenants in common of all assets of the Trust,
specifically including the four acre (4-acre) more or less tract of
land described in the deed . . . , each owning an undivided one-
half interest therein, without any restrains or prohibitions
imposed upon them by the terms of the Trust.” Cone appeals.
I.
Cone argues the trial court erred in dissolving the trust
because such dissolution was not necessary or expedient, or
consented to by all interested parties. We agree.
“[A] court of equity has the power by consent of the
interested parties . . . to close a trust and distribute the assets
thereof sooner than was contemplated by the trustor[.]”
Trust Co.
v. Laws, 217 N.C. 171, 172, 7 S.E.2d 470, 470 (1940).
See also
Cassada v. Cassada, 103 N.C. App. 129, 137, 404 S.E.2d 491, 495
(1991) (“a trust may be voluntarily terminated by act or agreement
of all the beneficiaries”). When there is a lack of consent as to
the continuation of a trust, ordinarily a court of equity has the power to
do what is necessary to be done to preserve a
trust from destruction, and in the exercise of
that power may, under certain unusual
circumstances, modify the terms of the trust
to that end, [but] such court has not the
power to defeat and destroy the trust.
Duffy v. Duffy, 221 N.C. 521, 528, 20 S.E.2d 835, 839 (1942).
However:
“A court of equity may have the power to
terminate a trust and distribute the trust
property prior to the happening of the
contingency prescribed by the trustor, but
only when such action is necessary or
expedient.” “[T]he condition or emergency
asserted must be one not contemplated by the
testator and which, had it been anticipated,
would undoubtedly have been provided for[.]”
Moore v. Trust Co., 24 N.C. App. 675, 677, 212 S.E.2d 170, 171
(1975) (citations omitted).
By the very nature of this action, it is clear that Horne and
Cone did not consent to dissolution of the trust. There was also
no evidence that Horne sought the trust's dissolution pursuant to
the termination provisions set forth in the trust. Therefore, we
must determine whether the trial court's dissolution was necessary
or expedient. Horne essentially argues that dissolution of the
trust was necessary or expedient because the value of the property
would likely erode as a result of she and Cone being unable to
reach a viable arrangement regarding the administration of the
trust. She contends that the lack of such an arrangement (due in
part to their strained relationship) would prevent the purpose of
the trust from being fulfilled, i.e., protection of the trust
assets. In
Moore, this Court addressed a similar argument whereby a
plaintiff/beneficiary sought the termination of a trust because she
was dissatisfied with the benefits and administration of that
trust. We held as follows:
Although plaintiff's challenge stems from her
dissatisfaction with the consideration and
benefits of the trust, and with the
administration of the trust, we cannot say
that these are conditions or emergencies which
were not contemplated by the testator. Trusts
will not be modified on technical objections
merely because interested parties' welfare
will be served thereby. Furthermore, the
grandchildren of the testor [sic] have, under
the terms of the will, an expectancy in the
marital trust. As interested parties, the
trust cannot be terminated without their
consent. “It is not the province of the
courts to substitute their judgment or the
wishes of the beneficiaries for the judgment
and wishes of the testator. The controlling
objective is to preserve the trust and
effectuate the primary purpose of the
testator.” The trial court's entry of
judgment dismissing the action was correct.
Id. at 677, 212 S.E.2d at 171 (citations omitted).
The purpose of the trust in the instant case was to insulate
the trust assets “from being seized as a result of some potential
judgment or other obligation[.]” The trial court subsequently
dissolved the trust after concluding that the divorce of Horne and
Dotter, as well as Dotter transferring his interests in the trust
to Cone, was contrary to that original purpose. Yet, there was no
evidence, and the trial court did not find, that the continuation
of the trust was contingent (1) on the continued marriage of the
original beneficiaries, or (2) on either beneficiary agreeing not
to transfer some or all of his/her capital units in the trust toanother. Without more, all we have is Horne's dissatisfaction with
the administration of the trust, which merely amounted to
“technical objections” that could have occurred even if she and
Dotter had remained the beneficiaries of the trust and regardless
of their marital status. As stated previously, “[t]rusts will not
be modified on
technical objections merely because interested
parties' welfare will be served thereby.”
Id. (emphasis added).
Thus, like the
Moore Court, we cannot conclude the trial court's
reasons for dissolving the trust were not contemplated and/or
anticipated when the trust was formed.
Finally, we note that our Supreme Court has recognized that
the dissolution of a trust may occur when there is change in
conditions regarding the trust parties that was not anticipated by
the trustor. Specifically, in
Trust Co. v. Johnston, 269 N.C. 701,
153 S.E.2d 449 (1967)
, the Supreme Court stated:
“Sometimes a settlor gives instructions
in the trust instrument with regard to the
administration of the trust which turn out to
be highly disadvantageous and obstruct the
trustee in carrying out the purposes which the
settlor expressed. These difficulties are
usually due to a change in conditions
regarding the trust property or
parties which
have occurred since the trust was established
and were not anticipated by the trustor
. . . .”
Id. at 708, 153 S.E.2d at 455 (citation omitted) (emphasis added).
However, unlike
Johnston, the present case involved a change in
the trust parties and not the trust property. Moreover, the trial
court's findings of fact in the instant case do not indicate that
the trust administrative instructions themselves are now highlydisadvantageous and obstruct protection of the trust assets as a
result of that change. Therefore, there is no change of conditions
that necessitate the trust being dissolved pursuant to the rule set
out in
Johnston.
Accordingly, in light of a lack of consent between Horne and
Cone, as well as dissolution of the trust being neither necessary
nor expedient because its purpose can still be fulfilled, we
conclude the trial court erred.
See 90 C.J.S.
Trusts § 118 (2002)
(recognizing that some jurisdictions allow the dissolution of a
trust when the purpose of that trust is impossible to fulfill).
Based on this conclusion, we need not address Horne's second
assignment of error.
Reversed.
Judges McCULLOUGH and LEVINSON concur.
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