University of Southern Indiana Foundation v. Baker
2006 WL 620287, 2006 Ind. LEXIS 208, 843 N.E.2d 528 (2006)
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Rule of Law:
When a trust instrument contains ambiguous language, all relevant extrinsic evidence, including direct evidence of the settlor's intention, may be considered to resolve the ambiguity, thereby abandoning the distinction between patent and latent ambiguities.
Facts:
- In 1996, Marian Boelson created an inter vivos trust, which initially declined to make any provision for her brother, Richard Baker, and left the residue to the University of Southern Indiana Foundation (USIF), with a $50,000 bequest to her friend, Faye Rucks.
- In August 2001, Boelson amended the trust, revoking the original sections concerning Baker and Rucks, and replacing them with new Sections 7 and 8.
- New Section 7 specified that upon Boelson's death, Richard Baker would receive "any and all proceeds and assets that were held in Trustor’s individual retirement accounts, if any, as well as, all of Trustor’s automobiles, furnishings and other personal property."
- New Section 8 provided a $10,000 bequest to Faye Rucks, to be paid after trust administration expenses.
- Section 9, which left the residue of the trust to USIF, remained unchanged after the 2001 amendment.
- Marian Boelson died on August 29, 2003, leaving a will that poured her assets over into the trust.
- At her death, Boelson owned a condominium in Indiana, a one-acre lot in Florida, bank accounts, certificates of deposit, treasury notes, bonds, and two individual retirement accounts in which Richard Baker was the designated beneficiary, along with an automobile and tangible personal property in the condominium.
- At the time the trust was amended in 2001, it primarily contained intangible personal property; Boelson transferred her Indiana condominium (and its tangible contents) into the trust approximately one month after the amendment, and her Florida property was conveyed at her death via the pourover will.
Procedural Posture:
- Following Marian Boelson’s death, the trustee petitioned the Vanderburgh Superior Court (probate court) for an interpretation of the amended trust.
- Richard Baker and USIF disagreed on the disposition of the remaining assets, with USIF moving for summary judgment and designating affidavits and exhibits concerning Boelson's intent.
- The probate court concluded that while Boelson's intention was to limit Baker to IRAs, automobiles, and household furnishings, it was bound by precedent to disregard USIF's extrinsic evidence because the trust's language unambiguously devised "personal property" to Baker without limitation, thereby granting Baker’s motion to strike USIF’s designated evidence.
- The probate court instructed the trustee to distribute all remaining tangible and intangible personal property to Baker and the real property to USIF.
- USIF appealed this decision to the Indiana Court of Appeals.
- The Indiana Court of Appeals affirmed the probate court’s ruling.
- USIF then filed a petition for transfer to the Indiana Supreme Court, which was granted.
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Issue:
Does the term "personal property" in a trust document, when appearing at the end of a list of specific tangible items, create an ambiguity that permits the admission of all relevant extrinsic evidence, including direct evidence of the settlor's intent, to ascertain the settlor's true intentions regarding the distribution of assets?
Opinions:
Majority - Justice Boehm
Yes, the term "personal property" as used in Marian Boelson's amended trust created an ambiguity that permitted the admission of all relevant extrinsic evidence, including direct evidence of her intent, to determine her true intentions regarding asset distribution. The court's primary purpose in construing a trust is to ascertain and give effect to the settlor's intention. While a document is not ambiguous merely because parties disagree about a term's meaning, the court found that in the context of Boelson's trust, the term "personal property" was ambiguous because reasonable people could come to different conclusions about its meaning, despite its technical legal definition encompassing all movable and intangible property. The internal structure of the trust, specifically the phrasing "automobiles, furnishings and other personal property," suggested a narrower interpretation of "other personal property" by applying the principle of ejusdem generis, implying it referred to tangible items of a similar kind. Furthermore, the subsequent specific cash bequest to Faye Rucks in Section 8, subordinate only to administrative expenses, implied that intangible property would remain in the residue to fund this gift, which would not be the case if Baker received all personal property. The Indiana Supreme Court explicitly abandoned the distinction between patent and latent ambiguities, stating that it no longer serves any useful purpose and that where an instrument is ambiguous, all relevant extrinsic evidence, both direct and circumstantial, may properly be considered to resolve the ambiguity. The extrinsic evidence presented by USIF, including Boelson's own notes, her attorney's affidavit, and affidavits from her trust officer and companion, unequivocally demonstrated Boelson's intention to limit Richard Baker's share to her IRAs, automobiles, and the tangible personal property within her condominium, while giving the majority of her estate to USIF. This evidence established no genuine issue of material fact and resolved the ambiguity.
Analysis:
This case represents a significant modernization of trust and will interpretation in Indiana by abandoning the long-standing distinction between patent and latent ambiguities. By allowing all relevant extrinsic evidence to resolve any ambiguity, the court makes it easier to ascertain and effectuate the true intent of the settlor, even when drafting errors or unclear wording might otherwise lead to unintended distributions. This approach aligns Indiana with the prevailing view in other jurisdictions and the Restatement Third of Property, emphasizing substantive intent over rigid procedural categorizations of ambiguity. The ruling enhances judicial flexibility in interpreting donative instruments and can prevent beneficiaries from receiving disproportionate or unintended inheritances based on overly technical readings of ambiguous terms.
