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Present: GEORGE v.

All the Justices B. TRUSTEE OPINION BY CHIEF JUSTICE HARRY L. CARRICO June 9, 1995 LITTLE,

Record No. 941475

WILLIAM S. WARD, JR., ET AL.

FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND Melvin R. Hughes, Jr., Judge This (Little) appeal and is from L. an order removing as George B. of a Little trust

Robert

Freed

(Freed)

trustees

because hostility developed between them.

Finding that the trial

court erred in removing George B. Little, we will reverse. Anne L. Ward (Mrs. Ward) executed the trust agreement on December 30, 1976, and funded the trust with shares of stock she owned in The Little Oil Company, Incorporated, of Richmond (Little Oil). In creating the trust, Mrs. Ward had three purposes in

mind, (1) to remove the stock from her gross estate in order to achieve substantial savings in estate taxes, (2) to provide

security for her husband, William S. Ward, Sr., one of the trust's beneficiaries whose affliction with alcoholism caused serious

financial problems, and (3) to provide for her children, William S. Ward, Jr., and Beverly Lewis Ward, the trust's other

beneficiaries. Article Seven of the trust agreement is central to the issues involved in the case. It provides as follows: This trust is irrevocable and the Grantor does hereby expressly relinquish all right, whether acting individually or in conjunction with others, to alter, amend, revoke, or terminate this Agreement, but the Grantor expressly reserves the right to add additional property acceptable to the Trustee of any nature whatsoever to the principal of this trust.

In the trust agreement, Mrs. Ward named Little, a Richmond attorney, as trustee. However, in the introductory clause of the

agreement, Little's name was followed by a blank space for the naming of a co-trustee. Blank spaces were provided for the co-

trustee's name in two other places in the body of the document, and there was an extra signature line and a third notarial

certificate included at the end.

Little explained on the witness

stand that he provided the blank spaces when he prepared the document because Mrs. Ward consistently named two persons in other documents he had prepared for her. Little testified further that although he and Mrs. Ward

discussed the naming of a co-trustee on a number of occasions after she executed the agreement and he delayed executing it for three months to give her time to name a co-trustee, she finally told him he should act as sole trustee, and he signed the

agreement on March 24, 1977.

Mrs. Ward testified, however, that

she "didn't trust [Little] to be sole trustee" and that when she left his office after she executed the trust agreement, she

understood she had "the ability to fill in that blank." Ten years later, in February 1987, Mrs. Ward telephoned

Freed, a Richmond attorney who then represented both Mrs. Ward and Little Oil, of which she was president. company was preparing to pay its Mrs. Ward told Freed the dividend, and she

annual

instructed him to "figure out some way" to avoid sending Little the dividends on the stock in the trust, amounting to some $9,000. Freed "got the trust agreement out and focused on the blank in the document." He also did some research and found no cases

either supporting Mrs. Ward's position or prohibiting her from appointing a co-trustee. Deciding that Mrs. Ward "had retained

the right to complete the blank," Freed "advised [Mrs. Ward] of the risk of [filling in the blank,] agreed that [he] would serve as a co-trustee of the trust, . . . agreed that [he] would accept the funds from Little Oil Company," and secured Mrs. Ward's

agreement to indemnify him. 1

However, neither Freed nor Mrs. Ward

informed Little of Freed's purported appointment as co-trustee. For more than three years, Freed periodically received checks from Little Oil, representing payments of dividends on the stock held in the trust. Freed deposited the checks in an account he

opened as "Escrow Agent" in a local bank but neither notified Little of the existence of the account nor reported the sums received to the Internal Revenue Service or Virginia tax

authorities. Finally, on March 23, 1990, realizing he was in "a dilemma because [he] had not reported [the dividends and knew Little could not have reported them] on any trust income tax return," Freed

sent bank "summaries" to the certified public accountant Little used to prepare tax returns for the trust. Little immediately

wrote Freed and demanded that he turn the funds over to Little. Freed refused the demand. Meanwhile, on December 23, 1986, Mrs. Ward and the three beneficiaries of the trust, with Freed as their counsel, filed a Mrs. Ward never filled in any of the blank spaces in the trust agreement. Apparently, Freed was content with her oral appointment of him as co-trustee.
1

petition against Little, as trustee, alleging that, due to recent changes in federal and state tax laws, the shareholders of Little Oil had resolved that the company "should elect [Subchapter] S Corporation status pursuant to the provisions of the Internal Revenue Code on or before December 31, 1986." The petition

alleged further that Little had refused to terminate the trust, to distribute the shares of the corporation to the beneficiaries, or to resign as trustee and appoint a successor trustee so the

corporation could elect Subchapter S status before December 31, 1986. The petition prayed that the court order Little to distribute to the beneficiaries the shares he held in trust, order that the

trust be terminated, or order Little to resign as trustee and appoint Freed as successor trustee. Little filed a response

denying that his refusal was without good cause.

He also offered

to resign as trustee in favor of "any corporate fiduciary in the City of Richmond," provided his successor concurred with his

position that the trust should not be terminated because there were contingent beneficiaries who could not be ascertained until the occurrence of future events.
2

The Subchapter S issue became moot for reasons unrelated to the questions involved in the present case.
2

However, the petition

On appeal, Little stresses the point that because there were contingent beneficiaries who could not be ascertained until the occurrence of future events, it was his duty to resist the efforts to terminate the trust. His opponents deny there is any substance to the point. In view of the disposition we make of the case infra, we need not decide the point.

filed by Mrs. Ward and the beneficiaries was not dismissed, and negotiations continued for several years concerning a successor to Little as trustee. Then, on July 26, 1990, after Little learned

of the "Escrow Agent" account into which Freed had been depositing dividends accruing on the stock held in the trust, Little filed a cross-bill against Freed and his law firm seeking judgment "in an amount equal to the total dividends diverted . . . together with appropriate interest and an additional sum equal to the total of all penalties and interest payable to the United States Government and the Commonwealth of Virginia." filing of the cross-bill. Freed and his law firm filed an answer to the cross-bill on April 23, 1991. From this answer, Little learned for the first By order
3

A consent order allowed the

time of Freed's purported appointment as co-trustee.

entered August 23, 1993, the case was continued, and Freed and his law firm were permitted to withdraw as counsel for the

beneficiaries of the trust. 4 With leave of court, the beneficiaries, with new counsel, filed an amended petition on October 12, 1993. This petition

sought the removal of both Little and Freed as trustees "due to At time of trial, the funds in Freed's "Escrow Agent" account amounted to "about $29,000." About this time, an incident occurred which caused friction between Little on the one hand and Mrs. Ward and the beneficiaries on the other. In a letter dated May 18, 1993, Mrs. Ward and the beneficiaries requested that Little pay hospital bills totalling some $14,000 that had been incurred for the hospitalization of William S. Ward, Sr. Little refused the request, taking the position that Mrs. Ward was responsible for the bills of her spouse.
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irreconcilable trustees."

disagreements

and

conflict

between

the

co-

After a hearing, in an order entered May 26, 1994, the trial court found that "because of the existence of the hostility and friction" between Little and the settlor and beneficiaries and between Little and Freed, "the best interests of the trust would be served by the removal of . . . Little and . . . Freed as trustees." The order removed Little and Freed, appointed The

Tredegar Trust Company as the sole trustee, and dismissed Little's cross-bill. We awarded Little this appeal.

William S. Ward, Sr., one of the trust's beneficiaries, died in December, 1993. Freed, his law firm, and the surviving

beneficiaries, William S. Ward, Jr., and Beverly Lewis Ward, have filed a joint brief and will be referred to hereinafter,

collectively, as Ward. 5 The initial question to be decided is whether Freed was validly appointed as co-trustee. In resolving this question, the

crucial consideration is whether Mrs. Ward validly reserved the power to name a co-trustee. On this point, the trial court noted in a letter opinion that "[t]he settlor, by terms of the trust instrument, may reserve to herself the power to modify or alter the trust with reference to the details of administration of the trust."
5

In its order of May

Anne L. Ward is not a party to this appeal, but she signed a statement at the end of the appellees' brief in opposition to the granting of an appeal that she agreed with the argument of appellees' counsel.

26, 1994, the court stated that "the terms of the trust . . . permitted . . . Anne L. Ward, to preserve the power to appoint a second trustee to the trust instrument" and that Mrs. Ward

"accomplished [this] by . . . appointing Robert L. Freed as cotrustee." 6 However, the court did not specify any term of the trust agreement that reserved the power to name a co-trustee and,

indeed, the instrument contains no such term.

Apparently, the

court considered that Mrs. Ward's stated intent to name a cotrustee, coupled with the presence of blank spaces in the trust agreement, constituted a reservation of the power to name a cotrustee. If this was the basis of the trial court's finding of a reservation of power, then the finding was in error for it is in contravention Restatement provides of Article of Seven of the (1959). and trust agreement. Seven any

(Second) the

Trusts is

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