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In re Connell

Supreme Court of Nevada

May 4, 2017

IN THE MATTER OF THE W.N. CONNELL AND MARJORIE T. CONNELL LIVING TRUST, DATED MAY 18; 1972.
v.
JACQUELINE M. MONTOYA; AND KATHRYN A. BOUVIER, Respondents. ELEANOR C. AHERN, A/K/A ELEANOF CONNELL HARTMAN AHERN, Appellant, IN THE MATTER OF THE W.N. CONNELL AND MARJORIE T. CONNELL LIVING TRUST, DATED MAY 18, 1972, AN INTER VIVOS IRREVOCABLE TRUST. ELEANOR CONNELL HARTMAN AHERN, Appellant,
v.
KATHRYN A. BOUVIER; AND JACQUELINE M. MONTOYA, Respondents. IN THE MATTER OF THE W.N. CONNELL AND MARJORIE T. CONNELL LIVING TRUST, DATED MAY 18, 1972, AN INTER VIVOS IRREVOCABLE TRUST. ELEANOR CONNELL HARTMAN AHERN, Appellant,
v.
JACQUELINE M. MONTOYA; AND KATHRYN A. BOUVIER, Respondents.

         Consolidated appeals from orders issuing a preliminary injunction, appointing a temporary trustee, granting summary judgment, ; and awarding attorney fees in a trust action. Eighth Judicial District Court, Clark County; Gloria Sturman, Judge.

          Brownstein Hyatt Farber Schreck, LLP, and Kirk B. Lenhard, Tamara Beatty Peterson, and Benjamin K. Reitz, Las Vegas, for Appellant.

          Albright Stoddard Warnick & Albright and Whitney B. Warnick, Las Vegas; The Rushforth Firm, Ltd., and Joseph J. Powell, Las Vegas, for Respondents.

          BEFORE DOUGLAS, GIBBONS and PICKERING, JJ.

          OPINION [1]

          PER CURIAM.

         W.N. and Marjorie T. Connell established the W.N. Connell and Marjorie T. Connell Living Trust, dated May 18, 1972. Appellant Eleanor C. Ahern is the only surviving child of W.N. Connell and the adopted daughter of Marjorie. Eleanor has two daughters, respondents Jacqueline M. Montoya and Kathryn A. Bouvier. The 1972 Trust was funded in part with oil, gas, and mineral rights and leases (the oil assets) that were W.N. Connell's separate property and which generated royalties. During the trustors' joint lifetimes, they served as trustees and subtrust No. 1 governed principal and distributions.

         W.N. Connell died in November 1979. Upon the first trustor's death, the 1972 Trust provided that the assets therein were to be divided into two subtrusts, Trust No. 2, of which Eleanor was the beneficiary, and Trust No. 3, of which Marjorie was the beneficiary. Marjorie remained trustee. In May 1980, Marjorie filed a substitution of trustee, adding Eleanor "as [c]o-[t]rustee of the separate property [the oil assets] of W. N. Connell presently held in the [1972] Trust." Between 1980 and Marjorie's death in 2009, Marjorie received 65% of the oil royalties and Eleanor received 35%. During this time, K-l tax forms were prepared for Marjorie for Trust No. 3, and Eleanor for Trust No. 2, reflecting this distribution. The oil assets remained titled in the 1972 Trust and were not split into Trust No. 2 or Trust No. 3. While division orders from the oil companies listed Marjorie and Eleanor as cotrustees of the 1972 Trust, starting in 1986, Marjorie provided the oil companies with an IRS employee identification number (EIN) for Trust No. 2. An affidavit from Marjorie's tax preparer for the 1972 Trust stated that Marjorie provided Trust No. 2's EIN to the oil companies because it was associated with the bank account that Marjorie used to collect and distribute the royalties and so that the oil companies would have an EIN for recordkeeping purposes, not to reflect any change in ownership.

         Marjorie executed a pour-over will that exercised the power of appointment in Trust No. 3, which on her death transferred the assets in Trust No. 3 to the MTC Living Trust, whose beneficiaries were respondents. After Marjorie's death, title to the oil assets remained with the 1972 Trust, but the parties continued to split the royalties, 65% to respondents and 35% to Eleanor. In 2013, Eleanor ceased distributions of the royalties to respondents, claiming that Trust No. 2 owned 100% of the oil assets and that the previous 65% distribution of royalties had been gifts from Eleanor.

         Respondents initiated the underlying litigation, petitioning the court in 2013 and 2014 for declarations that the MTC Trust owned 65% of the oil assets, for attorney fees based on Eleanor's alleged breach of fiduciary duties, and for a preliminary injunction directing Eleanor to distribute 65% of the royalties to the MTC Trust. The parties subsequently filed cross-motions for summary judgment.

         The district court ordered the appointment of a new temporary trustee pending the resolution of this litigation and granted a preliminary injunction conditioned on respondents posting a bond. The district court later granted summary judgment in respondents' favor, construing the 1972 Trust as requiring a split of the oil assets with Trust No. 2 receiving a 35% interest and Trust No. 3 receiving a 65% interest, and that regardless, laches barred Eleanor from asserting that Trust No. 2 owned 100% of the oil assets. The district court also granted summary judgment on respondents' breach-of-fiduciary-duty claim and awarded them attorney fees under NRS 153.031. Eleanor appeals.

         Summary judgment regarding the trust interpretation

         Under the 1972 Trust, Trust No. 1 held all of the oil assets during the trustors' joint lifetimes. Upon the first trustor's death, the trustee was required to allocate to Trust No. 3 the fractional share of W.N. Connell's separate property (i.e., the oil assets) "equal to the maximum marital deduction allowed" by federal tax law, less any other amounts that qualified as a marital deduction but that were not a part of the 1972 Trust. The remaining fractional portion of the oil assets was to be allocated to Trust No. 2. In light of the evidence, the district court correctly determined that under the 1972 Trust, Trust No. 2, and thus Eleanor, received a 35% interest in the oil assets and the remaining 65% was apportioned to Trust No. 3, and thus to respondents as beneficiaries under the MTC Trust. Wood v. Safeway, Inc., 121 Nev. 724, 729, 121 P.3d 1026, 1029 (2005) (reviewing de novo a district court's summary judgment and recognizing that summary judgment is proper where there are no genuine issues of material fact); see In re Cable Family Trust, 231 P.3d 108, 111 (N.M. 2010) (reviewing trust interpretation de novo).

         Although Eleanor contends that the fourth article, which provides that "[a] 11 income received by this Trust from the separate property of the Decedent shall be paid to [Eleanor], " governs the entire trust, that article governs Trust No. 2, only. Applying the fourth article to the entire 1972 Trust instead of just Trust No. 2 would create an inconsistency by requiring income from other portions of the 1972 Trust, of which Eleanor is not a beneficiary, to be paid to Eleanor as the beneficiary of Trust No. 2. Thus, interpreting the 1972 Trust as a whole requires rejecting Eleanor's construction. Rd. & Highway Builders, LLC v. N. Nev. Rebar, Inc., 128 Nev. 384, 390, 284 P.3d 377, 380-81 (2012) (explaining that the intentions of contracting parties are ascertained by considering documents as a whole).

         Eleanor's interpretation would also render the third article superfluous. See Musser v. Bank of Am., 114 Nev. 945, 949, 964 P.2d 51, 54 (1998). The third article provides that a fractional share of the oil assets "equal to the maximum marital deduction" shall be allocated to Trust No. 3, and when making that allocation, the determination of the amount allocated "shall be as finally established for federal estate tax purposes." Although a copy of the federal estate tax return filed on W.N. Connell's behalf could not be located, respondents provided an IRS closing letter, which reflected a net federal estate tax for W.N. Gonnell of $18, 081, and a Texas estate tax return for W.N. Gonnell, which was facially based on the federal estate tax form and which indicated 64.493% of the oil assets had been distributed to Marjorie, via Trust No. 3, and 35.507% had been distributed to Eleanor, via ...


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