In re the Testamentary Trust Under the Will of Stuchell

BUTTLER, J. Petitioner appeals from the trial court’s dismissal of her petition for approval of an agreement to modify a trust. The stated purpose of the proposed modification is to protect a retarded remainder beneficiary. We affirm. Petitioner is one of two surviving life-income beneficiaries of a testamentary trust established by her grandfather, J.W. Stuchell, in his 1947 will. The trust will terminate on the death of the last income beneficiary, at which time the remainder is to be distributed equally to petitioner’s children or their lineal descendants, per stirpes. One of petitioner’s four children, John Harrell (Harrell), is a mentally retarded 25 year old who is unable to live independently without assistance. His condition is not expected to improve, and he will probably require care and supervision for the rest of his life. No guardian or conservator has been appointed for him. The Oregon Mental Health Division currently provides his basic care in the Eastern Oregon Training Center, a residential facility for mentally and physically disabled persons. He receives Medicaid and Social Security benefits, both of which have income and resource limitations for participants. In December, 1989, petitioner requested the court to approve, on behalf of Harrell,1 an agreement, which had been approved by the other income beneficiary and remaindermen,2 [335] to modify the trust. If the trust is not modified, Harrell’s remainder will be distributed directly to him if he survives the two life-income beneficiaries. If and when that happens, his ability to qualify for public assistance will be severely limited. The proposed modification provides for the continuation of the trust, if Harrell survives the two life-income beneficiaries, and contains elaborate provisions that are designed to avoid his becoming disqualified, in whole or in part, for any public assistance programs. The stated purpose is to ensure that the trust funds be used only as a secondary source of funds to supplement, rather than to replace, his current income and benefits from public assistance. Petitioner relies on ORS 128.135(2)(c) as authority for court approval of the agreement to modify the trust or, if the statute does not authorize it, on the common law. The statute provides, in part: “(2) Any beneficiary of a trust * * * may petition a court with jurisdiction to grant equitable remedies in any county where the trust assets are located or where the trustee resides for the purpose of any of the following: <<* 4c * * * “(c) Obtaining authority, approval or instructions on any matter concerning the interpretation of the trust or the administration, settlement or distribution of the trust estate.” Petitioner contends that, because the statute authorizes the court to approve “any matter concerning the * * * distribution of the trust estate,” the court has authority to approve her proposed modification of the trust. Clearly, the statute does not go that far. There are many instances in which a beneficiary or a trustee might seek approval or instructions concerning a proposed distribution of the trust assets under the terms of the trust. See Masters v. Bissett, 101 Or App 163, 182-83, 790 P2d 16 (1990). Because the statute does not even mention the modification of a trust, we conclude that it does not authorize the court to approve an agreement to modify a trust, unless the modification is one that might be made without statutory authority, that is, at common law. We agree with petitioner [336] that the statute does not limit or abrogate any right that she might have under common law principles. ORS 128.175.3 That leaves petitioner to her reliance on the common law. She contends that Clossett v. Burtchaell, 112 Or 585, 230 P 554 (1924), is authority for allowing a court to approve her proposed modification. That case holds that a trust may be terminated, if (1) all of the beneficiaries agree, (2) none of the beneficiaries is under a legal disability and (3) the trust’s purposes would not be frustrated by doing so. 112 Or at 597. The court said: “It is a well-established rule that where the purposes for which a trust has been created have been accomplished and all of the beneficiaries are sui juris, a court will, on the application of all of the beneficiaries or of one possessing the entire beneficial interest declare a termination of the trust[.]” Restatement (Second) Trusts § 337 (1959) follows that rule. By its terms, that rule applies only to the termination of a trust under very limited circumstances. Petitioner, relying on Restatement (Second) Trusts § 167(1) (1959), urges us to extend the rule to permit modification. That section provides: “The court will direct or permit the trustee to deviate from a term of the trust if owing to circumstances not known to the settlor and not anticipated by him compliance would defeat or substantially impair the accomplishment of the purposes of the trust; and in such case, if necessary to carry out the purposes of the trust, the court may direct or permit the trustee to do acts which are not authorized or are forbidden by the terms of the trust.” Comment b to that section states: “The court will not permit or direct the trustee to deviate from the terms of the trust merely because such deviation would be more advantageous to the beneficiaries than a compliance with such direction.” See In re Traung’s Estate, 207 Cal App 2d 818, 833-34, 24 Cal Rptr 872 (1962), and Dyer v. Paddock, 70 NE2d 49, 395 Ill 288 [337] (1946), which apply the rule as stated in that comment. Even assuming that the Restatement rule were to be adopted as the law in Oregon, it is clear that the limitation imposed by the comment would preclude permitting the proposed amendment, the only purpose of which is to make the trust more advantageous to the beneficiaries. The most obvious advantage would be to the three remaindermen who have consented to the amendment. . There being no statutory or common law authority4 for a court to approve the proposed agreement modifying the trust, the trial court did not err in dismissing the petition.5 Affirmed. Footnotes [1] ORS 126.227 provides: “(1) If it is established that a basis exists as described in ORS 126.157 for affecting the property and affairs of a person the court, without appointing a conservator, may authorize, direct or ratify: * * * * “(b) Any contract, trust or other transaction relating to the protected person’s financial affairs or involving the estate of the person if the court determines that the transaction is in the best interests of the protected person. “(2) Before approving a protective arrangement or other transaction under this section, the court shall consider the interests of creditors and dependents of the protected person and, in view of the disability of the person, whether the protected person needs the continuing protection of a conservator. The court may appoint a special conservator to assist in the accomplishment of any protective arrangement or other transaction authorized under this section who shall have the authority conferred by the order and serve until discharged by order after report to the court of all matters done under the order of appointment.” [2] Petitioner emphasizes that the petition is uncontested. However, no one who might be opposed to the proposed modification is a party. The trustee has not consented, because it will be entitled to additional compensation if the modification is approved, which creates a conflict of interest. The other remaindermen, who have approved the proposed modification, also stand to benefit from it. [3] ORS 128.175 provides: “The remedies provided by ORS 128.135 and 128.145 are cumulative and do not limit or abrogate any inherent power of a court with jurisdiction to grant equitable remedies, or in any manner limit any lawful power, express or implied, conferred upon the trustee by the instrument creating the trust.” [4] There is one other common law rule, inapplicable here, that permits a court to deviate from the express provisions of a trust. Under the doctrine of cy pres, when a charitable beneficiary of a trust ceases to exist, a court may substitute another charitable organization that performs beneficent work similar to that of the defunct one. See Quick v. Hayter, 188 Or 218, 215 P2d 374 (1950); US Nat’l Bank of Oregon v. Rhilander, 67 Or App 212, 677 P2d 745 (1984). [5] We express no opinion as to whether the proposed modification would survive a challenge by state or federal agencies that are providing assistance to Harrell.