No Findings of Fact, No Appellate Review?
In re: Emma Short Revocable Living Trust (HSC June 18, 2020)
Background. Elaine Short and her husband, Clarence were married and had two sons, David Short and William Short. Elaine also had a brother, Leroy Cook, who had five children. Elaine first had a will made in 1979 in which she named her husband as the trustee of her estate and her sons and the First Hawaiian Bank as successor trustees if Clarence were to predecease her or was otherwise unavailable. In 1984 she established a revocable living trust along with her husband. The trusts were created to prove for the settlor’s respective spouse and the sons. The trust provided that if Elaine died before her husband, subtrusts would be created for the sons and the successor trustee could distribute principal and income to the sons as needed for health, education, and maintenance and support for their standards of living.
In 1993, Elaine amended the trust and allowed the successor trustee full discretion to withhold income for the sons. Elaine added that because William had a drug-related disability, income distributions were restricted to vital necessities unless he has been clean and sober for at least a year. The provision relating to the distribution of the principal after her death was not included. Later that year William passed away unmarried and without children. His interest was held by a trustee for David. Then Clarence passed away in 2010. Elaine was declared incapacitated in 2005 and died in 2012. David has not married and has no children.
First Hawaiian Bank petitioned the probate court, with the Hon. Judge Derrick Chan presiding, for instructions regarding distribution, termination, and modification of the trust. It requested that the subtrust for David be created and remain in effect upon his death, direct distributions of principal to David, and modify Elaine’s trust to give a termination date and discretionary distribution of the principal by amending the trust. It also sought attorneys fees and costs. FHB also listed the Cooks as contingent beneficiaries under Elaine’s trust. David supported the petition and filed an affidavit stating his mother had little to no contact with the Cooks for decades before she died. He believed that the intention of her trust was to make her husband and sons the “primary beneficiaries” of the trust.
The Cooks contested the petition and responded. The Cooks agreed that David’s subtrust should terminate at his death, but opposed the bank’s proposed modification that would permit distribution of the principal to David. The trust, according to the Cooks was not ambiguous and changing the language of the trust was improper. The Cooks also disputed David’s factual assertions and included an affidavit stating the Elaine had a good relationship with her brother and made several visits to the Cooks in Minnesota. They added that Elaine’s relationship with David was “strained” because of his dependence on her for financial support. They also noted at least one time they visited Elaine in Hawaii. The Cooks even provided photographs of the family and some visits with Elaine. The Cooks also asked for attorneys fees to be drawn from the principal.
FHB responded that it was premature for the Cooks to have an actionable interest while David was still alive. FHB also asserted that under Hawaii law, courts can modify the trust and that the amendment proposed by FHB was supported by extrinsic evidence of Elaine’s intent.
The Cooks also wrote a letter to FHB seeking information pursuant to HRS § 560:7-303(2) & (3). The Cooks requested essentially an accounting of the trust assets and information about the distribution of income. FHB objected to the request about information on David’s income and information.
The probate court held a hearing on the petition with counsel for FHB, David, and the Cooks present. No transcript was ordered for the appeal, but the court minutes showed that the court found an ambiguity in the trust and focused on the settlor’s intent. The probate court issued an order granting FHB’s petition, modifying Elaine’s trust to provide discretionary payments of principal to David and terminating his subtrust upon his death. It issued no findings of fact as to whether the trust was ambiguous and made no findings as to what evidence was considered in reaching this decision. The probate court also found that FHB did not have to provide financial information to the Cooks and ordered attorneys’ fees for all parties to be paid from the principal. The Cooks and David appealed.
The ICA—Judge Lawrence Reifurth, Judge Keith Hiraoka, and Judge Karen Nakasone presided—affirmed most of the order, but vacated the portion about attorneys’ fees. The ICA agreed that an ambiguity arose about the distribution of principal. It then considered the extrinsic evidence in the probate court record, including the 1979 will to discern Elaine’s intent and held that based on the evidence—not any findings by the lower court—there was no error in modifying the trust. It also rejected the Cooks’ argument that HRS § 560:7-303 superseded the trust terms and concluded that FHB did not have to provide information to the Cooks. A trust, according to the ICA, can alter how much information is given to a beneficiary and can limit the flow of information even if it is required by statute so long as the statute does not prohibit it. The ICA did hold that the probate court erred in awarding attorneys’ fees for the Cooks. The Cooks petitioned to the HSC.
Without Findings of Fact, the Appellate Court Should Decline Review. The HSC held that ICA’s grave error constituted combing through the record on appeal in the absence of a lower court’s finding of fact. According to the HSC, “when the lower court has failed to issue the requisite findings of fact to enable meaningful appellate review, it is not the function of the appellate court to conduct its own evidentiary analysis.” See Goo v. Arakawa, 132 Hawaii 304, 317, 321 P.3d 655, 668 (2014) (fact-intensive inquiry is best handled by trial court, not appellate court). Once the ICA concluded that the trust was ambiguous, it should have remanded the case back to the probate court to identify the facts that it found to be in support of the trust modification. The HSC noted that the ICA’s failure to remand the case contravened the well-settled principle that “fact finding should be left to a fact-finder.” See Pullman-Standard v. Swint, 456 U.S. 273, 291-292 (1982); Gussin v. Gussin, 73 Haw. 470, 489, 836 P.2d 484, 494 (1992); Hermann v. Hermann, 138 Hawaii 144, 155-156, 378 P.3d 860, 871-872 (2016). After all “this court has repeatedly stated that cases will be remanded when the factual basis of the lower court’s ruling cannot be determined from the record.” State v. Visintin, 143 Hawaii 143, 157, 426 P.3d 367, 381 (2018).
And so, the HSC held that “when a trial court has failed to issue findings of fact and the appellate court is unable to discern the factual basis of the lower court’s ruling, . . . the case should be remanded to permit the lower court or agency to make the requisite findings.” The HSC explained why findings of fact are so important. First, findings of fact “facilitate a meaningful and more efficient appellate review.” Bank of Hawaii v. Kunimoto, 91 Hawaii 372, 390, 984 P.2d 1198, 1216 (1999). The trial court’s findings of fact will allow the appellate court to better understand the lower court’s reasoning and determine if it is consistent with the law. Second, findings will help assure litigants and the court that the decision was based on reasoned consideration and “evoke care on the part of the trial judge in ascertaining the facts.” Richards v. Kailua Auto Mach. Serv., 10 Haw. App. 613, 620-621, 880 P.2d 1233, 1237 (1994). Third, without findings of fact, the appellate court is “compelled to review the entire record to identify clear error, expending valuable time and effort that could easily be avoided” by making findings. A lack of findings also hinders a litigant’s ability to make argument son appeal because it is based on speculation. The HSC “strongly encourages” trial courts to issue findings of fact even when not required by rule or statute.
. . . A Curious Remedy. Without meaningful appellate review, the HSC vacated the judgment and remanded the case back to the probate court. The probate judge who made the decision based on the evidence, however, is no longer available to enter the findings of fact. Judge Chan was elevated the ICA. Instead of normally remanding to have the judge enter findings of fact, a new probate judge will consider the evidence. See Hana Ranch, Inc. v. Kanakaole, 66 Haw. 643, 649-650, 672 P.2d 550, 554 (1983).
The Cooks are Entitled to Financial Information as Contingent Beneficiaries. The HSC also found that the ICA’s holding about the flow of information was erroneous. “A fundamental rule when construing trusts is that the intention of the settlor as expressed in a trust instrument shall prevail unless inconsistent with some positive rule of law.” In re Lock, 109 Hawaii 146, 151-152, 123 P.3d 1241, 1246-47 (2005). Positive law include “enacted law—the codes, statutes, and regulations that are applied and enforced in courts.” Positive Law, Black’s Law Dictionary (11th ed. 2019).
Here, Elaine’s trust provides that the trustee deliver “regular accounts to . . . all adult beneficiaries then entitled to receive income or principal of the trust estate.” The intention—as expressed in the trust—was to limit the information to “then entitled” beneficiaries. That meant David and only David. The Cooks are contingent beneficiaries whose interest will not materialize until David’s death. See In re: Estate of Campbell, 46 Haw. 475, 483 n. 6, 382 P.2d 920, 943 n. 6 (1963) (“‘contingent beneficiaries’ . . . [are] those who are not presently income takers but who may become income takers and may also share in the distribution of the corpus upon the termination of the trust”). And so the HSC noted that unless positive law overrides it, the trust document controls.
Statutory Duties of Trustee Trump the Terms of the Trust. According to the HSC, HRS § 560:7-303 is positive law overriding it. that statute requires the trustee to “keep the beneficiaries of the trust reasonably informed of the trust and its administration.” The trust beneficiary is any person with a “future interest, vested or contingent.” HRS § 560:1-201. Keeping the beneficiaries informed is one of the affirmative duties of the trustee. Trust Created Under the Will of Damon, 140 Hawaii 56, 65, 398 P.3d 645, 65 (2017). Once requested by a beneficiary, the trustee is duty-bound to afford the information. Id. at 66 n. 19, 398 P.3d at 655 n. 19. Moreover, the HSC examined the statute and held that nothing in it suggested that the duties of the trustee were optional or subject to modification by the trust itself. Because the Cooks were contingent beneficiaries requesting financial information, FHB was required to provide the information pursuant to statute, not the terms of the trust.
Chief Justice Recktenwald’s Concurrence and Dissent. The Chief Justice disagreed on the question of factual findings and appellate review. For him, the ICA did not err in looking at the extrinsic evidence on the record. The Chief Justice would have relied on the well-established rule that when the trial court’s decision is correct, “its conclusion will not be disturbed on the ground that it gave the wrong reason for its ruling. An appellate court may affirm a judgment of the lower court on any ground in the record that supports affirmance.” Poe v. Hawai'i Labor Relations Bd., 87 Hawai'i 1891, 197, 953 P.2d 569, 575 (1998). For the Chief Justice the ICA did not err in affirming the probate court’s decision for FHB. The fact that it scoured the record to support it made no difference to him. Justice Nakayama joined.