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Tiffany L. Carter v. Audrey E. Dressen Carter

February 7, 2012

TIFFANY L. CARTER, PLAINTIFF-APPELLANT,
v.
AUDREY E. DRESSEN CARTER, AS TRUSTEE FOR THE MARITAL TRUST, DEFENDANT-APPELLEE
(VICTOR J. CHIGAS, JR., AS TRUSTEE FOR THE GST SEPARATE TRUST AND THE FAMILY TRUST, )
DEFENDANT.



Appeal from the Circuit Court of Cook County. No. 07 CH 32669 Honorable Rita M. Nowak, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice Quinn

PRESIDING JUSTICE QUINN delivered the judgment of the court, with opinion.

Justices Cunningham and Harris concurred in the judgment and opinion.

OPINION

¶ 1 This cases arises out of the provisions of the Luther Reynolds Carter, Jr., living trust executed by Luther Reynolds Carter, Jr., now deceased, who was the father of plaintiff, Tiffany L. Carter and the husband of defendant, Audrey E. Dressen Carter, Tiffany's stepmother. The living trust created a marital trust that went into effect upon Luther Carter's death. Audrey is the trustee and sole income beneficiary of the marital trust, and Tiffany is the sole remainder beneficiary. Tiffany filed a complaint against Audrey as trustee of the marital trust, alleging breach of fiduciary duties and unjust enrichment and seeking punitive damages on the grounds that Audrey's strategy of investing only in tax-free municipal bonds benefits Audrey while damaging Tiffany's interest in the trust's principal. Following cross-motions for summary judgment, the trial court entered an order in favor of Audrey. Tiffany now appeals. For the reasons set forth below, we affirm.

¶ 2 I. BACKGROUND

¶ 3 Luther Reynolds Carter, Jr. (Luther), created the Luther Reynolds Carter, Jr., Living Trust (hereinafter, the Living Trust) in 1993 and subsequently amended it twice during his lifetime, once in 1997 and again in August 2003, shortly before his death. The Living Trust provided for the creation of three trusts: a marital trust, a generation-skipping-tax separate trust, and a family trust (hereinafter the Marital Trust, the GST Separate Trust and the Family Trust, respectively). The Living Trust appointed Audrey as trustee of the Marital Trust. Defendant Victor J. Chigas, Audrey's son from a previous marriage, was named as successor trustee of the Marital Trust and is the trustee of the GST Separate Trust and the Family Trust.*fn1 Under the provisions of the Living Trust, Audrey is entitled to "all the income" from the Marital Trust during her lifetime, but is not entitled to any of the principal. Upon Audrey's death, Tiffany will receive the principal of the Marital Trust. Section 11.5 of the Living Trust, describing the Trustee's power to invest, provides as follows:

"In addition to all powers granted by law, the trustee shall have the following powers, to be exercised in a fiduciary capacity: 11.5 Investing. To invest in bonds, common or preferred stocks, notes, options, common trust funds, mutual funds, shares of any investment company or trust, or other securities, life insurance, partnership interests, general or limited, limited liability company interests, joint ventures, real estate, or other property of any kind, regardless of diversification and regardless of whether the property would be considered a proper trust investment[.]"

¶ 4 Audrey assumed her trusteeship of the Marital Trust upon Luther's death on August 28, 2003. In October 2003, the Marital Trust was funded with $2 million. Since assuming trusteeship of the Marital Trust, Audrey has invested 100% of the trust funds in tax-free municipal bonds, which pay interest over time but do not increase the value of the principal. Tiffany contends that this investment strategy has maximized Audrey's net income at the expense of Tiffany's remainder interest in the Marital Trust, in contravention of the terms of the Living Trust, which is silent as to any priority of beneficial interests, and in violation of Audrey's fiduciary duties as trustee. Tiffany argues that Audrey's self-interested investment strategy has failed to protect the principal of the Marital Trust against inflation, and as a result, she has been damaged because $2 million in 2003 is worth approximately $300,000 less today and, therefore, she will not receive the value of $2 million when Audrey dies. There is no dispute that Audrey is a sophisticated investor, who has a diversified portfolio in her other investments, speaks regularly to her broker, reads articles on investing and confers with her sons who are brokers and with friends who are investors. Therefore, Tiffany contends, Audrey deliberately elected to invest the Marital Trust solely to benefit herself while knowingly harming Tiffany's interest.

¶ 5 Audrey asserts that she has complied with the express terms of the Living Trust, which permits her to invest in "bonds *** or other property of any kind, regardless of diversification." She argues that her decision to invest only in municipal bonds is intended "to provide a good, safe income in a highly fluctuating and problematic marketplace." She asserts that before his death, Luther expressed concerns about the safety of the principal and advised her that municipal bonds were a good investment, and that she has followed an investment strategy aimed at minimizing risk. She states that since 2003, she has continued to reevaluate her investment decisions, discussing her options with her broker, her sons and her friends, and that she might someday consider equities for the Marital Trust portfolio if the bond market changes.

¶ 6 On July 11, 2008, Tiffany filed a first amended complaint against Audrey in her role as trustee of the Marital Trust and Victor Chigas as trustee for the GST Separate Trust and the Family Trust alleging four breach of fiduciary counts: duty of impartiality (count I), duty of prudent investment (count II); duty to properly manage the trust assets (count III); and duty to preserve trust property (count IV). Tiffany also sought punitive damages for intentional misconduct (count XII), and alleged unjust enrichment (count XIII). In July 2010, Tiffany and Audrey filed cross-motions for summary judgment on the four breach of fiduciary duty counts and Audrey alone filed a motion for summary judgment as to the punitive damages and unjust enrichment counts. On November 23, 2010, following a hearing, the trial court granted summary judgment in favor of Audrey on the four breach of fiduciary duty counts and the punitive damages and unjust enrichment counts.*fn2 In reaching this decision, the trial judge tried to ascertain Luther's intent for the Marital Trust by looking at his Living Trust and his estate planning as a whole. The court stated:

"So what Luther did--that's Mr. Carter--was he wanted income payments to go to Audrey without any discretionary payments of the corpus and that at the end, at Audrey's death, trust will terminate and the proceeds will be distributed to Tiffany, and I think that this is important because by creating the marital trust if Audrey lives with the trust terminating at her death, Luther's intent was clear: And that was his desire to provide for Audrey during the remainder of her lifetime. And although Tiffany does receive a distribution when the trust fund terminates, this allocation does not appear to be for her benefit, but rather guidance of where the money should go when the trust ceases to exist."

¶ 7 Further, noting that the Living Trust does not require diversification and that bonds were permitted as an investment, the court found:

"[T]he marital trust was really aimed at a conservative investment strategy that was designed to produce a safe investment where there would be some preservation of the principal, but it did not and does not appear from the overall plan here that his goal was to set this up in any particular way. And I don't think he set it up in a way that requires Audrey to exercise her investment strategy in one way or the other."

¶ 8 The court also cited Audrey's testimony, which it found to be "uncontroverted" that "she is evaluating over the course of time whether or not this investment in municipal bonds is a proper one. She reads the newspapers, the various financial reports, listens to television, talks to her friends and her children, who are stockbrokers, et cetera, et cetera." Therefore, the court found that whether or not Audrey's investment of the Marital Trust solely in municipal bonds "results in inflation *** taking something of a toll on what remains of principal," it "was consistent with [Luther's] intent in establishing the trust" and does not constitute a breach of fiduciary duty or a violation of the prudent investor rule. Therefore, the circuit court granted Audrey's motion for summary judgment in its entirety and denied Tiffany's motion.

ΒΆ 9 On February 25, 2011, the trial court entered an order under Illinois Supreme Court Rule 304(a) (eff. Feb. 26, 2010), finding that there is no just reason for delaying enforcement or appeal of the court's November 23, 2010 order, and this timely appeal followed. Tiffany argues on appeal that the trial court erred in granting summary judgment in favor of Audrey on the breach of fiduciary duty claims because (1) it misinterpreted Luther's intent in creating the Marital Trust when it found that the trust was primarily intended to provide income to Audrey and was to be invested conservatively, and (2) Audrey breached her fiduciary duties of impartiality and prudence and the prudent investor rule by investing solely in municipal bonds, and those duties are not abrogated by a term in the Living Trust that permits investment "regardless of diversification." Further, Tiffany asserts that the trial court erred in granting summary judgment on the unjust enrichment count where Audrey had a portion ...


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