In re Trusts F/B/O Marie C. Thomas Under Agreement of Charles D. Thomas Dated Dec. 17, 1986

Morgan T. Zurn Vice Chancellor

ORDER DENYING PETITIONERS' MOTION FOR JUDGMENT ON THE PLEADINGS

Morgan T. Zurn Vice Chancellor

WHEREAS, the Court having considered the petitioners' motion for judgment on the pleadings (the "Motion"), it appears as follows:

A. This action arises out of the disputed interpretation of the Revocable Trust of Charles D. Thomas dated December 17, 1986, as amended (the "Trust"). On the petitioners' motion for judgment on the pleadings, I draw the following background from the petition and answer.

B. Petitioners Donna Riesenberger and Mary Beth Pala ("Petitioners") are the daughters and agents of Marie C. Thomas ("Marie"). Marie is the surviving spouse of the deceased testator, Charles D. Thomas ("Charles"), and a current beneficiary of the Trust. Respondents Charles D. Thomas, Jr. and Lo Ann Thomas ("Respondents") are Dr. Thomas's children - Marie's stepchildren - and acting co-trustees under the Trust. Respondents and their two siblings are remainder beneficiaries under the Trust.

C. Charles created the Trust in 1986. During his life, all the Trust's net income was distributed to Charles. Article 4 of the Trust addresses how it would function in the event of Charles's death. Charles amended the Trust in 1992, 2005, 2006, 2015, and 2018. In each of these iterations, Article 4 directed that Marie should receive income; some amendments directed that she also receive a lump sum distribution.

D. In 2018, Charles amended the Trust to its current iteration, removing the lump sum distribution and inserting the language at issue in Section 4A: "If my wife survives me, she shall receive the minimum distribution from my IRA's that can be taken to use for her medical and living expenses." "[M]y IRAs" refers to one particular IRA that names the Trust as beneficiary, which I will refer to as the "Trust IRA."

E. Though Section 4A specifically benefits Marie, Section 4 as a whole also provides for Charles's children. Section 4C(2) directs that upon Marie's death or remarriage, "Trustee[s] shall distribute the remaining principal, on a per stirpes basis, to my issue who survive me." The Trust defines "issue" as synonymous with "children."

F. Charles passed away on February 5, 2019. Respondents became co-trustees, and Article 4 took effect. That year, pursuant to Section 4A, Respondents distributed to Marie the Trust IRA's entire required minimum distribution ("RMD"), as determined by the Internal Revenue Service ("IRS").

G. In 2020, at the advice of new counsel, Respondents did not make any distribution to Marie. Respondents asserted The Coronavirus Aid, Relief, and Economic Security ("CARES") Act, Pub. L. No. 116-136, § 2203, allowed them to forego taking the RMD from the Trust IRA in 2020 and making any distribution to Marie that year.

H. That decision inspired Petitioners to bring this action, filed on August 24, 2020. In Count I, Petitioners seek a declaratory judgment that under Section 4A, the trustees must withdraw the RMD every year and distribute it to Marie in its entirety, and that the trustees have no discretion in making said distribution; and an order directing the trustees to withdraw the RMD and convey those funds to Marie. In Count II, Petitioners claim Respondents breached their fiduciary duty "as a result of their failure to make distributions required by the Trust."

I. On September 29, 2020, Respondents answered the petition. Respondents assert that Section 4A entitles Marie to a Trust IRA distribution capped at the minimum amount required to pay for her medical and living expenses.Respondents argue that because Marie failed to supply an itemized bill of her medical and living expenses, they did not know the minimum amount required for those expenses, and were not required to compensate her until that amount was identified.

J. On October 9, Petitioners moved for judgment on the pleadings; they filed their opening brief on November 3. Respondents filed their answering brief on December 3, and Petitioners submitted their reply brief on December 18. A dispute over sur-replies spanned the first few months of 2021 until it was resolved, and argument was scheduled. I heard argument on July 1, 2021. The parties did not dispute Marie was entitled at a minimum to the amount necessary to pay her medical and living expenses, so I ordered that amount to be paid while the broader dispute was under advisement. On July 16, Respondents notified the Court that they had received an itemized receipt of Marie's medical and living expenses from Petitioners, and compensated her for those expenses for 2020 through July 1, 2021.Petitioners dispute that the distribution encompassed all of Marie's expenses.

K. "In determining a motion under Court of Chancery Rule 12(c) for judgment on the pleadings, a trial court is required to view the facts pleaded and the inferences to be drawn from such facts in a light most favorable to the non-moving party."

L. The guiding principle of trust interpretation is well established: the Court's mandate is to discern and honor the settlor's intent. When construing a trust, this Court attempts to discern the settlor's intent as expressed by the instrument, read as a whole, in light of the circumstances surrounding its creation.With that in mind, "[t]he words used in the [trust] generally are given their ordinary meaning and the Court will not consider extrinsic evidence to vary or contradict express provisions of a trust instrument that are clear, unambiguous and susceptible of only one interpretation." To determine the ordinary meaning of words not defined in the instrument, the Court will turn to the dictionary for assistance. In determining the settlor's intent the "court will prefer an interpretation that gives effect to each term of an agreement . . . to any interpretation that would result in a conclusion that some terms are uselessly repetitive."

M. A claim for breach of fiduciary duty requires proof of two elements: (1) that a fiduciary duty existed and (2) that the defendant breached that duty[.]"Determining a breach naturally involves findings of fact, "which generally cannot be resolved on the pleadings or without first granting an adequate opportunity for discovery."

IT IS HEREBY ORDERED this 2nd day of August, 2021:

1. The Motion is DENIED as to Count I.

a. As clarified at argument, it appears the parties no longer dispute that the Trust mandates Marie receive a distribution every year; the parties only dispute the amount. Still, in pursuit of clarity, I note that the term "shall" is a mandatory term. Accordingly, the phrase "shall receive the minimum distribution from my IRA's" is a mandatory directive, which requires the trustees to give Marie a distribution every year.

b. The issue presented is whether Marie's distribution must be the total amount of the Trust IRA's RMD, or some smaller amount capped at her medical and living expenses. Resolving this issue requires construing Section 4A's phrase "the minimum distribution from my IRA's that can be taken to use for her medical and living expenses." Petitioners parse the language into two phrases. First, Petitioners contend "minimum distribution . . . that can be taken" is synonymous with the RMD. Second, Petitioners construe "can be taken to use for medical and living" to permit Marie to use whatever portion of the RMD she wants for medical and living expenses, and spend or save the rest as she wishes. Under Petitioners' reading, Marie is entitled to the entire RMD as established by the IRS. Respondents parse the language as one phrase, "minimum distribution . . . that can be taken to use for her medical and living expenses," which they contend means Marie's distribution from the Trust IRA is capped by Marie's medical and living expenses. Under Respondents' reading, Marie is entitled only to the minimum dollar amount necessary to pay her medical and living expenses.

c. I agree with Respondents. Petitioners' interpretation fails as "uselessly repetitive." Petitioners dilute the meaning of Charles's language by equating Charles's chosen phrase of "minimum distribution . . . that can be taken" with the IRS's official RMD term, and by interpreting "can be taken to use for medical and living" to give Marie discretion to use the funds in that manner if she wishes. In contrast, Respondents' interpretation gives Charles's chosen language specific meaning: the "minimum distribution" is an amount other than the RMD, and "can be taken to use for medical and living expenses" sets the amount of Marie's distribution. Respondents' interpretation respects the settlor's longstanding intention of providing for Marie and honors the Trust's specific language.

d. Respondents' interpretation also respects the settlor's intention of funding the Trust with principal for his children. Following Charles's death, the Trust directed various distributions and the sale of real property held in the Trust, leaving no principal remaining. "It is fair to infer that the testator . . . was aware of his own assets at the time of the execution" and that Charles intended to exhaust the Trust principal at the time of his death. But Sections 4B and C(2), drafted contemporaneously with Section 4A, reference the "remaining principal," with its income to be paid to Marie and the principal itself to be distributed to Charles's children upon Marie's death or remarriage. With the Trust IRA as the only Trust asset, holding the portion of the RMD not distributed to Marie in the Trust as "remaining principal" gives Sections 4B and C(2) "the force and effect [they] demand[], " and allows a harmonious reading with Section 4A.

e. Accordingly, I interpret Article 4 to mandate the Trustees to make distributions from the Trust IRA to the Trust; distribute from the Trust to Marie funds sufficient to pay her medical and living expenses; leave the rest of the Trust IRA distribution as Trust principal; distribute income from that principal to Marie; and convey the Trust's principal to the remaining beneficiaries upon Marie's death or remarriage. Read as a whole, Article 4 indicates Charles intended for the Trust IRA distributions to benefit both Marie and his children.

2. The Motion is DENIED as to Count II. "[T]he most fundamental duty of a trustee is the [] duty of loyalty to the beneficiaries . . . ." In this case the trustees have simultaneous duties to Marie and the contingent beneficiaries to "manag[e] trust property . . . with skill, care, diligence and prudence in light of the circumstances. . . [while] exercis[ing] the skill and care that a man of ordinary prudence would exercise in dealing with his own property." Petitioners claim Respondents acted disloyally in their stingy construction of Marie's distribution and the CARES Act, while Respondents plead they were acting with due care, loyalty, and the advice of counsel to preserve the Trust corpus. Reviewing these pleadings in a light most favorable to Respondents, I cannot conclude that the trustees breached their duties to Marie and failed to "manag[e] trust property . . . with skill, care, diligence and prudence" when they declined to make Marie's 2020 distribution.

3. Counsel shall confer on efficient means to make Marie's distributions in compliance with the above interpretation of Section 4A, and on a scheduling order for Count II.