“Qualification for the marital deduction must be determined as of the time of death.”
How later courts described this case
- “Qualification for the marital deduction must be determined as of the time of death.”
Written by the judges who cited it.
The opinion
FILED
Mar 24 2023, 9:04 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Jeffrey S. Dible Clifford M. Robinson
Margaret L. Smith The Law Office of Clifford M.
Frost Brown Todd LLC Robinson, LLC
Indianapolis, Indiana Rensselaer, Indiana
William T. Sammons
The Law Office of William T.
Sammons, P.C.
Rensselaer, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Indianapolis Museum of Art, March 24, 2023
D/B/A Newfields, Corrected
Appellant, Court of Appeals Case No.
22A-TR-767
v. Appeal from the Marion Superior
Court
Kathleen Hurley, et al, The Honorable Steven R.
Eichholtz, Judge
Appellee.
Trial Court Cause No.
49D08-2011-TR-39783
Opinion by Judge Pyle
Judges Robb and Weissmann concur.
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 1 of 14
Pyle, Judge.
Statement of the Case
[1] Put simply, a trust is a fiduciary relationship whereby one person, the trustee,
holds property for the benefit of another, the beneficiary.1 Relevant to this case
is what has become known as the bypass or credit shelter trust. This type of
trust allows a married couple to maximize their estate tax exemption. It can
also provide protection from claims by creditors and bankruptcy. The strategy
involves establishing two trusts after one spouse dies. The deceased spouse’s
portion of the couple’s property, normally up to their applicable exclusion
amount, is placed into a bypass trust; the deceased spouse can identify the
beneficiaries (usually children and grandchildren). A marital trust is then
combined with the bypass trust, which can provide lifetime benefits to the
surviving spouse, who controls its administration. In addition, the bypass trust
does not get counted as part of the surviving spouse’s taxable estate. The use of
these types of trusts requires the use of specific clauses signaling how assets are
to be valued and strict compliance with Internal Revenue Service rules.2
[2] In 1969, Alicia Ballard (“Alicia”) established a Revocable Trust by Alicia
Ballard (“the Trust”), which was twice amended in 1981. The beneficiaries of
the Trust were Alicia’s three children, Edward Ballard (“Edward”), Chad
1
IND. CODE § 30-4-1-1.
2
Rev. Proc. 64-19.
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 2 of 14
Ballard (“Chad”), and Sylvia Hurley (“Sylvia”), her brother, Stanley Chimiak
(“Stanley”), their descendants, and the Indianapolis Museum of Art d/b/a
Newfields (“Newfields”). All of Alicia’s children and her brother are now
deceased, but Sylvia is survived by five children and two grandchildren (“the
Children”).3
[3] Relevant to this appeal are: (1) a spendthrift provision providing periodic
income to Edward, whereby, upon his death, any undistributed income was to
pass to his descendants; and (2) a provision that upon the death of Alicia’s
children, brother, and their descendants, any remaining trust assets shall be
distributed outright to Newfields. Edward died childless on July 13, 2020. As a
result, the current trustee, JPMorgan Chase Bank, N.A. (“JPMorgan”),
believed that the Trust was ambiguous as to how the trust funds benefitting
Edward were to be distributed. In other words, should the funds being held in
trust be distributed to Sylvia’s children or Newfields? JPMorgan petitioned the
trial court for instructions and served the interested parties with notice of its
petition. The Children and Newfields eventually filed cross motions for
summary judgment, and the trial court held a hearing. After considering the
designated evidence, the trial court found that Alicia had intended that the trust
funds were to benefit all of her descendants before any funds were to be
3
Kathleen Hurley (“Kathleen”) is the surviving daughter of Sylvia. Dawn Cappelletti (“Dawn”) is the
surviving granddaughter of Sylvia. Kathleen and Dawn are the only two descendants of Sylvia who filed
appearances as interested parties in response to JPMorgan’s petition. However, because their interests are
inextricably linked with all of Sylvia’s descendants now living, we refer to them collectively as “the
Children.”
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 3 of 14
distributed to Newfields. As a result, the trial court’s judgment created a
resulting trust and ordered that the remaining funds that had been set aside for
Edward’s benefit be distributed to the Children. Newfields appeals the trial
court’s denial of its motion for partial summary judgment. Concluding that the
trial court properly granted summary judgment in favor of the Children and
against Newfield, we affirm the trial court’s judgment.
[4] We affirm.
Issue
Whether the trial court erred in granting summary judgment in
favor of the Children and against Newfields.
Facts
[5] In 1938, Alicia married Charles Ballard (“Charles”). They had two sons,
Edward and Chad. Alicia also had a daughter, Sylvia, who was not Charles’
daughter.
[6] On November 18, 1969, Alicia created the Trust. Article Three was entitled
“Disposition of Income and Principal of Trust Estate After Death of Settlor.”
(App. Vol. 2, p. 76). The Trust directed the trustee to provide income to family
members under various scenarios. For example, Section 3.3 provided that if
Charles survived Alicia, the trustee would establish a separate fund entitled
“Husband’s Trust” in an amount allowing Alicia’s estate to qualify for the
maximum estate tax marital deduction; the value of assets were to be
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 4 of 14
determined using the fractional share formula.4 (App. Vol. 3, p. 18). From this
fund, Charles would receive payments “for his comfort, maintenance and
support[.]” (App. Vol. 3, p. 16). If the value of the Trust’s assets exceeded the
amount of the maximum estate tax marital deduction, the excess amount would
be placed into a separate trust entitled the “Family Fund.” Upon Charles’
death, the contents of Husband’s Trust would be distributed in accordance with
his wishes as outlined in his Last Will and Testament. If Charles left no
instructions concerning the distribution of funds, they would be “added and
consolidated with the property designated as the ‘Family Fund’ created under
Article Three[.]” (App. Vol. 3, p. 17).
4
Enacted by Congress, the Revenue Act of 1948 created the federal estate tax marital deduction. See Jackson
v. State, 376 U.S. 503, 508 (1964) (“Qualification for the marital deduction must be determined as of the time
of death.”). At that time, it allowed the decedent to pass 50% of the adjusted gross estate to the surviving
spouse without paying estate tax. Mark B. Edwards, Marital Deduction Formulae – A Planners Guide, 1967
Duke L.J. 254, 255 (1967). Despite the deduction, significant tax consequences can be encountered by a
surviving spouse who receives the entire property in the estate as a bequest. “To take full advantage of any
available marital deduction and, at the same time, pass to the surviving spouse only the minimum amount of
property necessary to obtain the deduction which would be included in her gross estate, ‘formula clauses’
were devised.” Charles A. Cohen, The Estate Tax Marital Deduction – Revenue Procedure 64-19, 41 Indiana L.J.
711, 712 (1966). There are two basic types of formula clauses: fractional and pecuniary. The fractional
formula “measures the amount of the property transferred to the surviving spouse in terms of a fractional
share of the estate.” Id. at 713. Because the fraction remains constant relative to the value of the entire
estate, the value of any property transferred to the surviving spouse remains uniform with “any fluctuations
of the estate assets during the period of administration.” Id. However, the pecuniary formula “provides for a
dollar amount bequest which is carved out of the estate before disposition of the” remaining estate after
debts, taxes, costs of administration, and legacies have been paid. Id. “Thus, since the dollar amount of the
bequest to the surviving spouse is fixed, her proportion of the total assets of the estate would vary with the
fluctuation in value of the estate assets during the administration of the estate.” Id. Regardless of which
formula clause is chosen, if the will directs the executor to convert the estates assets to cash before payment
to a surviving spouse or trustee, the conversion will likely result in a gain or loss by the estate for income tax
purposes. Id. Treatment of the loss or gains will determine whether the chosen approach is a benefit for the
surviving spouse.
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 5 of 14
[7] Distributions from the Family Fund were governed by Section 3.5. The income
of this fund was to be distributed to Edward (40%), Chad (40%), and Sylvia
(20%). If they were not alive at the time of distribution, the amount would go
to their “children or more remote issue[.]” (App. Vol. 3, p. 19). Additionally,
Section 3.6 reduced the amounts Edward and Chad were to receive if they did
not take certain steps to invest proceeds received from a different trust. If any
income was left after distributions were made under Section 3.6, it was to be
distributed equally between Sylvia, Stanley, and to “their descendants if they
were not alive. Any net income which [was] not distributable under [Section
3.6] . . . shall be paid to the Northwood Institute, Midland, Michigan.” (App.
Vol. 3, p. 21).
[8] On June 22, 1981, Alicia amended the Trust. In establishing Husband’s Fund,
Alicia declared her intention to switch from a fractional to a pecuniary
valuation formula. In addition, Article 3 was amended. Relevant to this
appeal, Section 3.5 was amended to provide a one-time payment of $25,000 to
Sylvia and Stanley, but not to any of their descendants. In addition, Section
3.5(a) thru (c) of the amendment also provided income for Edward and Chad
and their descendants. However, neither son ever had children. Further,
Newfields, then known as the Indianapolis Museum of Art, was designated as
the beneficiary under Section 3.5(d). It provides as follows:
If the Settlor is not survived by any issue, or if the Settlor is
survived by issue but none of the Settlor’s issue survives to the date
of final distribution of trust assets to said issue, the Trustee shall
hold all of the assets of the trust estate in a single trust and shall
invest said assets as provided herein. The Trustee shall pay the net
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 6 of 14
income of said trust at least annually to the Settlor’s daughter,
Sylvia Hurley, and the Settlor’s brother, Stanley Chimiak, in equal
shares. If one of them is deceased or dies then all of the net income
shall thereafter be paid at least annually to the surviving one of the
two of them.
When the daughter, Sylvia Hurley, and the Settlor’s brother,
Stanley [C]himiak, are deceased, and if all of the Settlor’s is[s]ue have
died prior to the date when there would have been final distribution of trust
assets to them, the remaining assets of the trust estate shall be
distributed outright and not in trust to the Indianapolis Museum
of Art, Indianapolis, Indiana.
(App. Vol. 2, p. 67) (emphasis added). Section 3.8 defined the term “issue” as
follows:
As used throughout this indenture, the term “issue” shall include
adopted persons to the same extent as though they were natural
born children of their adopting parents and shall also include
descendants in any degree of remoteness from the ancestor
designated. A child in gestation which is later born alive shall be
considered a child in being throughout the period of gestation.
(App. Vol. 2, p. 69).
[9] Then, on August 18, 1981, Alicia amended the Trust again. In the second
amendment, the trustee was directed to offer to convey certain real estate
owned by Alicia to Charles. No other provision in Article 3 was affected by the
second amendment.
[10] Alicia died on April 20, 1982. Her husband, Charles, died in 1987. Alicia’s
daughter, Sylvia, died on April 10. 1999. Alicia’s sons, Chad, died in 2001, and
Edward died on July 13, 2020. As mentioned above, neither son had any
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 7 of 14
children. Alicia’s brother, Stanley, also died before Edward’s death. Four of
Sylvia’s children and two of her grandchildren remain alive.
[11] On November 10, 2020, JPMorgan, pursuant to INDIANA CODE § 30-4-3-18(a),
filed a petition seeking instruction as to how the Trust’s assets as applied to
Edward were to be distributed. In its petition, JPMorgan stated that Section
3.5(c) did not address how the Trust assets set aside for Edward were to be
distributed in the event neither son had children. In addition, JPMorgan
believed that because Section 3.5(d) was “self-contradictory on its face, as
Alicia’s daughter Sylvia is among the class of Alicia’s issue – yet Section 3.5(d)
purports to apply only where all of Alicia’s issue have died.” (App. Vol. 2, p.
44). JPMorgan asserted that it “has been unable to determine from the Trust
instrument [Alicia’s] intent regarding the proper distribution of the balance of
trust property remaining in Edward’s Trust, and respectfully requests the
Court’s instruction regarding the proper distribution of such property.” (App.
Vol. 2, p. 45). JPMorgan served notice of its petition on all interested parties.
[12] On February 2, 2021, Newfields filed a brief outlining its position. Specifically,
Newfields argued that Alicia clearly intended that the Trust assets were not to
benefit Sylvia’s children or grandchildren. The June 1981 Amendment clearly
made changes that eliminated the beneficiary interests of Sylvia’s children. In
subsequent filings, the Children filed pleadings seeking to invalidate the June
1981 Amendment or, in the alternative, have the trial court determine whether
Alicia had the mental capacity to make the amendments. Newfields objected to
the Children’s pleadings, and the parties engaged in discovery.
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 8 of 14
On September 8, 2021, Newfields filed its motion for partial summary
judgment. Newfields argued that the designated evidence showed that Alicia
had the unilateral authority to amend the Trust and that an ambiguity existed as
to the Trust provisions under Section 3.
[13] On January 10, 2022, the Children filed their motion for summary judgment
and designated evidence. As a part of their designated evidence, the Children
submitted an affidavit of Brian Hewitt (“Hewitt”) as an expert in estate
planning and trust administration. Hewitt stated that the common practice in
Indiana when an individual wants to disinherit a class of beneficiaries is to
include specific language clearly expressing that desire. Further, in Hewitt’s
experience, most trust settlors only name a charity as a beneficiary when the
trust must be dissolved because there are no further beneficiaries. In Hewitt’s
opinion, the plain language of the Trust, the lack of any language expressing
Alicia’s desire to disinherit Sylvia and her descendants, and several references
to the Rule Against Perpetuities indicated that Alicia intended for the Children
to benefit from the Trust. As a result, the Children asked for the trial court to
enter judgment in their favor because they believed there was no ambiguity
between the various provisions in the Trust. Because they are the known heirs
of Alicia, they argued that they are entitled to the Trust assets previously left to
Edward.
[14] On February 10, 2022, the trial court held a hearing on the parties’ cross
motions for summary judgment. On March 15, 2022, the trial court issued its
order finding “that the Son’s trusts created in Sections 3.5(a) and (c) are fully
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 9 of 14
executed, but a residue exists without a named beneficiary to receive the
residuary assets. According to well established precedent, such assets shall pass
by law to the successors in interest of Alicia Ballard.” (App. Vol. 2, p. 39). As
a result, the Children’s motion for summary judgment was granted; Newfields’
motion was denied.
[15] Newfields now appeals.
Decision
[16] Newfields argues that the trial court incorrectly granted summary judgment in
favor of the Children and denied its motion for partial summary judgment.
Specifically, Newfields argues that Section 3.5(d) is ambiguous. As a result,
they contend that summary judgment should have been granted in its favor, and
the case should be “remanded so that available extrinsic evidence may be used
to resolve the ambiguities and determine . . . [Alicia’s] intent.” (Newfields’ Br.
at 24). In the alternative, Newfields argues that even if Section 3.5(d) were
found to be unambiguous, summary judgment should also be granted in its
favor because: (1) there is no legal requirement that Alicia specifically declare
her intention to disinherit Sylvia and her descendants; and (2) a comparison of
the original trust with the first amendment provides no basis for inferring that
Alicia “intended for a share of the Trust’s principal or income pass [sic] or to be
distributed at any time to [her] grandchildren or great-grandchildren from her
prior marriage.” (Newfields’ Br. at 25).
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 10 of 14
[17] The Children argue that the trial court properly determined that the Trust
provision regarding Edward’s residue created a situation where the Trust has
been “fully performed without exhaustion of the trust property or a designated
beneficiary.” (The Children’s Br. at 15). According to the Children, the trial
court properly used its equitable powers to create a resulting trust. In addition,
the Children argue that the trial court properly determined that the plain
language of Section 3.5(d) provided that Newfields would receive the Trust
funds only if all of Alicia’s issue had died. As a result, they argued that the trial
court properly determined that the Trust relating to Edward should be
distributed to the Children.
[18] The interpretation of a trust is a question of law for the court. University of
Southern Indiana Foundation v. Baker, 843 N.E.2d 528, 531 (Ind. 2006). In
reviewing the grant or denial of summary judgment, our standard of review is
de novo. Id. “Summary judgment should be granted only if the evidence
authorized by Indiana Trial Rule 56(C) shows that there is no genuine issue of
material fact and the moving party deserves judgment as a matter of law.” Id.
[19] It is well settled that the “primary purpose of the court in construing a trust
instrument is to ascertain and give effect to the settlor’s intention.” Id. at 532.
In Indiana, we follow “‘the four corners rule’ that ‘extrinsic evidence is not
admissible to add to, vary or explain the terms of a written instrument if the
terms of the instrument are susceptible of a clear and unambiguous
construction.’” Id. (quoting Hauck v. Second Nat’l Bank of Richmond, 153 Ind.
App. 245, 260, 286 N.E.2d 852, 861 (1972)). Under this rule, if “a trust is
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 11 of 14
capable of clear and unambiguous construction, under this doctrine, the court
must give effect to the Trust’s clear meaning without resort to extrinsic
evidence.” Baker, 843 N.E.2d at 532.
[20] We first examine Section 3.5(d) to determine if Newfields is entitled to any
portion of the Trust relating to Edward when any of Alicia’s issue are still alive.
We find that the terms of Section 3.5(d) are clear and unambiguous. The
relevant portion of that section reads:
When [Alicia’s] daughter, Sylvia Hurley, and . . . [Alicia’s]
brother, Stanley [C]himiak, are deceased, and if all of . . . [Alicia’s]
i[s]sue have died prior to the date when there would have been
final distribution of trust assets to them, the remaining assets of the
trust estate shall be distributed outright and not in trust to
[Newfields].
(App. Vol. 2, p. 67) (emphasis added). A plain reading of this section shows
that a condition precedent to Newfields receiving any trust funds is that Sylvia
and Stanley must have died, as well as all of Alicia’s other issue. Section 3.8 of
the Trust states that “the term ‘issue’ shall include . . . descendants in any
degree of remoteness from the ancestor designated.” (App. Vol. 2, p. 69).
Since Alicia is the designated ancestor and the Children remain alive,
Newfields cannot take from the Trust.
[21] Next, we turn to whether the trial court properly used its equitable powers to
create a resulting trust to administer the funds relating to Edward’s portion of
the Trust. Sections 3.5(a) thru (c) established the Trusts relating to Edward and
Chad. If the sons died, the income from the Trust was to pass to their children.
The income from the Trust was to be used to provide for their support,
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 12 of 14
maintenance, medical expense, and education. However, it is undisputed that
Edward and Chad died without children. As a result, the Trust was fully
performed, but funds remained without a designated beneficiary.
[22] In Doll v. Post, 132 N.E.3d 34, 40 (Ind. Ct. App. 2019), trans. denied, we
addressed a situation where a trust failed to designate a beneficiary with
reasonable certainty. In that case, we held that “[w]here, as here, the express
terms of a trust are fully performed but there remains a residue and no valid
residuary clause, a resulting trust is created by operation of law over the
residue.” In addition, we noted that our supreme court held that when “‘no
provision in the terms of the trust . . . as to who shall receive the trust property
on the termination of the trust, the trustee will ordinarily hold the trust property
upon a resulting trust for the settlor or his successors in interest.’” Id. (quoting
Colbo v. Buyer, 235 Ind. 518, 530, 134 N.E.2d 45, 51 (1956)). Likewise, we also
noted in Pavy v. Peoples Bank & Trust Co., 135 Ind. App. 647, 656, 195 N.E.2d
862, 867 (1964) that:
It is an elementary rule of law that[,] when a person attempts to
create an express trust and fails to for any reason, a resulting trust
arises in favor of [the settlor] and[,] if he be deceased, then in favor
of his estate, and the trust property . . . reverts to the settlor or his
estate, as the case may be.
Based upon the holdings in these cases, we find that the trial court did not err in
establishing a resulting trust for the leftover portion of the Trust relating to
Edward for the benefit of the Children. It is clear from the terms of the Trust
that Alicia’s intent was to: (1) distribute her estate paying the least amount of
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 13 of 14
estate taxes; and (2) provide a benefit to her descendants before Newfields
would receive any benefit. As a result, we affirm the trial court’s grant of
summary judgment in favor of the Children and the denial of Newfields’
motion for partial summary judgment.
[23] Affirmed.
Robb, J. and Weissmann, J., concur.
Court of Appeals of Indiana | Opinion 22A-TR-767| March 24, 2023 Page 14 of 14