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In re Trust of Barbara J. Rawlings

Court of Appeals of Indiana

October 25, 2018

In Re the Matter of the Trust of Barbara J. Rawlings
v.
Kim R. Rawlings, Appellee-Respondent. Rex R. Rawlings, Appellant-Petitioner,

          Appeal from the Clinton Circuit Court Trial Court Cause No. 12C01-1412-TR-110 The Honorable Brad Mohler, Judge

          Attorneys for Appellant Alex E. Gude Meaghan Klem Haller Bingham Greenebaum Doll, LLP Indianapolis, Indiana

          Attorneys for Appellee Gregg S. Gordon Dale & Eke, PC McCordsville, Indiana Erick P. Knoblock Dale & Eke, PC Indianapolis, Indiana

          RILEY, JUDGE

         STATEMENT OF THE CASE

         [¶1] Appellant-Petitioner, Rex R. Rawlings (Rex), appeals the trial court's summary judgment in favor of Appellee-Respondent, Kim R. Rawlings (Kim), granting equitable relief to Kim by enforcing the agreement between the parties in the termination and division of a trust.

         [¶2] We affirm.

         ISSUE [¶3] Rex raises three issues on appeal, which we consolidate and restate as the following single issue: Whether the trial court properly concluded that Kim is entitled to equitable relief in the division of the trust assets.

         FACTS AND PROCEDURAL HISTORY

         [¶4] On August 11, 1981, Anna Blanche Hillis (Hillis) established the Hillis Land Trust (Hillis Trust), with a sole asset of 422.803 acres of real estate (Hillis Land). At the time the Hillis Trust was established, 10, 000 units were apportioned between the various beneficiaries, with the majority of the units held by Hillis. Hillis passed away in November 1983, and pursuant to her Last Will and Testament, the interest in the Hillis Trust passed into testamentary trusts established for the benefit of her daughters, Barbara Rawlings (Barbara), the mother of Rex and Kim, and Julia Wilkinson (Julia). In 1984, Rex and his wife, Colleen Rawlings (Colleen), entered into a promissory note to acquire Julia's 50% interest in the Hillis Trust. This promissory note was secured by mortgages from Barbara's husband, Richard Rawlings (Richard), and Rex on 201.12 acres of the Hillis Land. On March 21, 1988, Richard and Barbara signed a personal guarantee on behalf of Rex and Colleen with the Summit Bank of Clinton County for a secured amount of $311, 515.79. As a result of the guarantee, Richard and Barbara became jointly and severally liable for Colleen's and Rex's "each and every debt, of every type and description, that [they] may now or at any time in the future owe[.]" (Appellant's App. Vol. III, p. 5). The Hillis Trust was not subject to the personal guarantee. Accordingly, by November 1988, members of the Rawlings family had become the only beneficiaries of the Hillis Trust through a buyout of the Wilkinson family by way of promissory notes secured by mortgages on part of the Hillis Land. Only 227 acres of the land remained unencumbered by mortgages or other encumbrances.

         [¶5] In an effort to release Barbara and Richard from their personal guarantee for Colleen and Rex's debts, Rex proposed to terminate the Hillis Trust and to mortgage the real estate therein. As a result, the Rawlings family could then allow the unencumbered portion of the real estate to be used as collateral to secure Colleen and Rex's debts, and Barbara and Richard would be released from their personal guarantee. However, to be successful, Rex required the consent of all beneficiaries of the Hillis Trust, including Rex's brother, Kim, and Kim's wife, Deborah Rawlings (Deborah).

         [¶6] It is undisputed that at that point, Kim and his family were vested beneficiaries of the 2, 321 units of the Hillis Trust (either directly or as a remainder beneficiary of Barbara's testamentary trust). Therefore, if the Hillis Trust had terminated at that moment and the real estate divided among the beneficiaries based on their unit ownership, Kim and his family would have been entitled to receive 121.09 acres of real estate.

         [¶7] In order to safeguard his inheritance, Kim agreed to allow Rex to terminate the Hillis Trust and to use the land as collateral for Rex's financial obligations in exchange for the execution of an agreement stipulating to the parties' respective rights and obligations. On November 28, 1988, Kim and Rex entered into the Inheritance Agreement, which provided, in relevant part, that Rex "is desirous of having the [Hillis Trust] terminated and having all of the beneficiaries to said Trust receive their undivided interest in the assets of said Trust[.]" (Appellant's App. Vol. IV, p. 3). To pursue his goal, it was Rex's "intent to borrow certain sums of money and obtain a mortgage on the real estate currently held by the [Hillis Trust] and the undersigned parties acknowledge that in effect this is an advance on [Rex's] inheritance." (Appellant's App. Vol. IV, p. 3). In exchange, Kim agreed to

sign all necessary documents to allow [Rex] along with his wife, [Colleen], to serve as successor Co-Trustees to the [Hillis Trust] for the sole purpose of terminating said Trust and distributing the assets in said Trust to the beneficiaries of said Trust. And [Kim] further agrees to consent to a mortgage being placed on the land which is presently owned by the [Hillis Trust] and [Rex] agrees that should a mortgage balance remain on the property which is currently owned by the [Hillis Trust] at the death of the survivor of [Barbara] and [Richard], then said mortgage balance shall be paid before [Rex] shall receive his inheritance from [Barbara] and [Richard] or a credit in favor of [Kim] in the amount of the mortgage balance owing shall be made prior to any distribution from the estates of [Barbara] and [Richard]. Parties further state that the purpose of this document is to insure that [Kim] and [Rex] are treated as equally as possible in the estates of their parents.

(Appellant's App. Vol. IV, pp. 3-4).

         [¶8] Upon the execution of the Inheritance Agreement, Rex and Colleen filed their petition of beneficiaries to docket the Hillis Trust, clarify title to property and terminate the Hillis Trust. On December 2, 1988, the Hillis Trust was terminated by court order and four days later, on December 6, 1988, Rex and Colleen, as co-trustees of the Hillis Trust, conveyed the Hillis Land to the Rawlings family.

         [¶9] Richard passed away on December 16, 1988, and an estate was opened. Barbara was appointed the personal representative of the estate and in February of 1989, Summit Bank filed a contingent claim for the amount of $311, 515.79 as secured by the personal guarantee. To resolve the debt, on March 29, 1989, Kim and Deborah, in accordance with the Inheritance Agreement, executed, along with Rex and Colleen, an indemnifying mortgage on the Hillis Land, as well as on other certain real estate held by Barbara's testamentary trust, to Summit Bank, in order

to induce Mortgagee to renew existing indebtedness, to make new loans, and to secure the due and punctual payment of all such indebtedness of [Rex and Colleen], husband and wife, hereinafter called 'Borrower', to Mortgagee whether now existing or hereinafter incurred, including all renewals and extensions thereof, not to exceed an aggregate principal amount of [$600, 000] and all interest accrued thereon and fees and expenses of Mortgagee incurred in connection therewith, all without relief from valuation and appraisement laws.

(Appellant's App. Vol. III, p. 111). A second indemnifying mortgage on the Hillis Land and other real estate held by Barbara's testamentary trust was executed in favor of Summit Bank on May 13, 1992.

         [¶10] On October 12, 1990, Barbara executed a Revocable Trust, which included certain real estate located in Clinton County and Tipton County, Indiana. Barbara executed several Amendments to the Revocable Trust, of which the Second Amendment, executed on July 22, 2002, included the following language:

Settlor hereby declares that she has helped each of her sons financially and otherwise over the years, but she hereby states that she does not consider there to be any debt owed to her, her estate, or this Trust by either son or their respective issue. Successor Trustees [Kim and Rex] are directed to make distribution of the Trust assets without trying to take into ...

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