Hamel v. Hamel

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IN THE SUPREME COURT OF THE STATE OF KANSAS

No. 102,744

LAWRENCE HAMEL,
Appellant/Cross-appellee,

v.

DENNIS HAMEL and LEONA NEWELL,
Co-Trustees of the ARTHUR HAMEL LIVING TRUST,
Appellees/Cross-appellants.


SYLLABUS BY THE COURT

1.
When a district court or an appellate court is called upon to interpret a trust, the
court's primary function is to ascertain the intent of the settlor by reading the trust in its
entirety. If the settlor's intent can be ascertained from the express terms of the trust, the
court must give effect to those terms unless they are contrary to law or public policy.

2.
The interpretation and legal effect of a written instrument is a matter of law over
which an appellate court exercises unlimited review.

3.
As a general rule, a trust terminates to the extent the trust is revoked or expires
pursuant to its terms, no purpose of the trust remains to be achieved, or the purposes of
the trust have become unlawful, contrary to public policy, or impossible to achieve.

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4.
An in terrorem clause is a clause in a will in which a testator imposes upon a
devisee or legatee a condition that he or she shall not dispute the provisions of the will or
the gift shall be void.

5.
In terrorem, or no-contest, clauses in wills are valid and enforceable against a
beneficiary who attacks the validity of the will, or provisions therein, unless the
beneficiary had probable cause to challenge the will or its provisions.

6.
A no-contest clause in a trust serves the same purpose as such a clause in a will
and is construed according to the same rules applied to wills.

7.
Courts apply a two-part analysis to determine whether a no-contest clause should
be enforced against a beneficiary. First, the court determines whether the beneficiary's
action or actions violated the express terms of the no-contest clause. Second, the court
determines whether the beneficiary had probable cause to take the action or actions that
violated the no-contest clause.

8.
In determining whether a beneficiary has probable cause to challenge the
provisions of a will or trust, the term "probable cause" means the existence, at the time of
the initiation of the proceeding, of evidence which would lead a reasonable person,
properly informed and advised, to conclude there is a substantial likelihood that the
contest or attack will be successful.

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9.
Under K.S.A. 58a-1004, in a judicial proceeding involving the administration of a
trust, the district court, as justice and equity may require, may award costs and expenses,
including reasonable attorney fees, to any party, to be paid by another party or from the
trust that is the subject of the controversy.

Appeal from Rooks District Court; EDWARD E. BOUKER, judge. Opinion filed April 5, 2013.
Affirmed in part, reversed in part, and remanded with directions.

Norman R. Kelly, of Norton, Wasserman, Jones & Kelly, L.L.C., of Salina, argued the cause, and
Robert A. Martin, of the same firm, and Ronald S. Shalz, of Law Office of Ronald S. Shalz, of Colby,
were with him on the briefs for appellant/cross-appellee.

Carol M. Park, of Glassman, Bird, Braun & Schwartz, L.L.P., of Hays, argued the cause, and
John T. Bird, of the same firm, was with her on the brief for appellees/cross-appellants.

The opinion of the court was delivered by

MORITZ, J.: This appeal arises from a dispute over the administration of a trust
between a beneficiary of the trust, Lawrence Hamel (Lawrence), and the trustees of that
trust, Dennis Hamel (Dennis) and Leona Newell (collectively Trustees).

Lawrence sought termination of his deceased father's trust, the Arthur L. Hamel
Living Trust, dated February 7, 2003, and the First Amendment to the Arthur L. Hamel
Living Trust, dated February 17, 2003, (collectively Trust) and immediate distribution of
Trust assets based on the Trustees' alleged failure to properly administer the Trust.
Lawrence later moved to set aside a contract for deed executed between Dennis and his
wife, as buyers, and the Trustees, as sellers, for the sale of farmland owned by the Trust.
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Lawrence also sought to remove the Trustees, alleging they engaged in self-dealing and
breached their fiduciary duties.

Lawrence appeals from the district court's conclusions that (1) Arthur did not
intend the Trust to terminate immediately upon his death; (2) the Trust permitted the
Trustees to finance the sale of the farmland to Dennis under the terms set forth in the
contract for deed; (3) Lawrence violated the Trust's no-contest clause by challenging,
without probable cause, the Trustees' sale of the farmland to Dennis; (4) Lawrence's
violation of the no-contest clause required his disinheritance; and (5) Lawrence was not
entitled to attorney fees and costs under K.S.A. 58a-1004.

The Trustees cross-appeal from the district court's determination of the effective
date of Lawrence's disinheritance and from the court's conclusion that they acted in bad
faith by failing to provide Lawrence with an adequate accounting before being ordered to
do so by the court.

We hold the district court reasonably interpreted ambiguous Trust provisions as
not requiring the Trust's immediate termination upon Arthur's death. However, we
conclude the Trustees lacked authority to sell the farm to Dennis under a contract for
deed that exceeded the 3-year period expressly provided by the Trust. But for reasons
discussed herein, we decline to set aside the sale. Instead, because the Trustees' execution
of the contract for deed violated the terms of the Trust, we hold that Lawrence had
probable cause to challenge the Trustees' sale of the farm to Dennis under the terms set
forth in that contract. Thus, we reverse both the district court's ruling regarding the
Trustees' authority to finance the sale of the farm as well as its enforcement of the no-
contest clause against Lawrence. We remand to the district court for further proceedings
necessary, if any, to effectuate our rulings and for consideration of Lawrence's claim for
attorney fees and costs.
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Additionally, while the Trustees cross-appealed the district court's determination
as to the date of Lawrence's disinheritance, our reversal of the district court's enforcement
of the no-contest clause renders that issue moot. Finally, in light of Lawrence's
abandonment of any issue regarding the district court's denial of his motion to remove the
Trustees, the Trustees' challenge to the district court's conclusion that the Trustees
breached their duty to provide an accounting also is moot.

FACTUAL AND PROCEDURAL BACKGROUND

In 2003, Arthur established a revocable living trust naming himself and his son
Dennis as Trustees. Arthur named as beneficiaries all of his surviving children (Dennis,
Lawrence, Leona Newell, Elaine Befort, and Linda Leiker) and the children of Arthur's
deceased son (Lisa Riebel and John Hamel). Arthur included a no-contest clause in the
Trust itemizing several actions that, if taken by a beneficiary, could result in that
beneficiary's disinheritance.

After preparation of the Trust documents, Arthur, Elaine, Lawrence, Dennis,
Leona, and Linda met with an attorney to discuss the terms of the Trust. Arthur asked
each of the siblings if they had any interest in buying the family farm. After Dennis
expressed an interest, the family decided Arthur would give Dennis a first option to buy
the farm. The family also discussed naming an additional person to serve as a trustee after
Arthur's death.

A few days after the meeting, Arthur amended the Trust to name Dennis and
Leona as Trustees upon Arthur's death. Additionally, Arthur amended Article Eight,
Section One of the Trust, to include an option for Dennis to purchase the farm:

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"It is my intention that my son, DENNIS HAMEL, have the first option to purchase any
or all of the farmland (including cultivated and pasture) owned by my trust and/or by me
individually. Upon my death, my Trustees shall have the farmland appraised. Based upon
that appraisal, DENNIS HAMEL has the option to purchase any or all of the farmland for
three years immediately following my death at the appraised price. During such time
period, the trust shall continue to hold the farmland not yet purchased by DENNIS
HAMEL. All net income from the farmland shall be distributed annually to the
beneficiaries in accordance with the above listed beneficiary's fractional share of the
trust. If DENNIS HAMEL has not purchased the farmland within the allotted time
period, then it shall be divided in accordance with the above beneficiary's fractional
shares."

Arthur died on June 14, 2004. Thereafter, Elaine, Lawrence, Dennis, and Leona
met on several occasions to discuss funeral arrangements, the sale of Arthur's personal
property, and administration of the Trust. Lawrence obtained a copy of the Trust in July
2004. In August 2004, Elaine, Lawrence, Dennis, and Leona met to discuss the third-
party appraisal of the farmland and Dennis' intent to purchase the farm on a 6-year
contract at 5 percent interest. At the meeting, Lawrence did not object to the method or
terms of Dennis' purchase, but Lawrence later told his children he did not like the concept
of Dennis buying the farm on contract.

In October 2004, Dennis executed a contract for deed between himself and his
wife, as buyers, and the Trustees, as sellers, to purchase the farmland for $244,000 to be
paid over 6 years with 5 percent interest and a down payment of $10,000. Over the next
several months, the beneficiaries, including Lawrence, received distributions based in
part on Trust income from Dennis' purchase of the farm.

In May 2005, Lawrence hired attorney Joseph Jeter to assist in acquiring
information from the Trustees "regarding certain financial matters." Jeter advised
Lawrence that under the Trust's provisions, Lawrence could request copies of the third-
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party appraisals of farmland and farm equipment purchased by Dennis, an inventory of
Trust assets, and an accounting, including all receipts and disbursements from the Trust.
Jeter explained that Lawrence's request would not violate the Trust's no-contest clause
because the Uniform Trust Code of Kansas entitled Lawrence to this information.

Between May 2005 and March 2006, Jeter corresponded with the Trustees'
attorneys, requesting specific information about Trust activity, including bank statements,
canceled checks, and copies of deeds related to Trust assets. In this correspondence, Jeter
made at least three requests for an accounting or a trust report pursuant to K.S.A. 2012
Supp. 58a-813. In response, the Trustees provided an inventory and appraisement, bank
statements, canceled checks, printouts of Trust account activity, a list of Trust assets
including the value of the assets, copies of appraisals, and a copy of the contract for deed
for the sale of the farm.

In May 2006, Jeter filed a petition in district court seeking a formal accounting,
termination of the Trust and immediate distribution of Trust assets, and attorney fees;
asking the court to compel the Trustees to perform their duties; and alleging Dennis
breached his duty of loyalty by purchasing and selling Trust property without notice to
Lawrence.

Several months later, Jeter withdrew as Lawrence's counsel, and Lawrence
retained the services of attorney Leslie Hess. After meeting with Jeter, Hess agreed with
Jeter's assessment that the Trustees had failed to provide an adequate accounting. In
letters to the Trustees' attorneys, Hess questioned whether Dennis' purchase of the farm
had generated Lawrence's distribution checks, and Hess suggested that Dennis "should
obtain a loan and pay the purchase price in full rather than over a period of years." Hess
also asked the Trustees' attorneys to identify and provide a copy of any Trust provisions
or statutory authority permitting Dennis to purchase the farm on contract.
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In January and February 2007, Hess corresponded with the Trustees' attorney and
again sought a copy of the contract for deed, other information about Trust activity, and
identification of the provisions of the Trust authorizing the Trustees to sell the farm on
contract. Hess specifically inquired: "How do you believe the Trustees have the authority
to enter into a contact [sic] which is in violation of the trust provisions?" In response, the
Trustees' attorney provided the requested information and directed Hess to specific
sections of the Trust providing the Trustees with the same authority as an absolute owner
regarding the sale of real estate owned by the Trust.

Hess filed a "Motion to Set Aside Contract for Deed," on March 12, 2007, alleging
the contract for deed violated the Trust by allowing Dennis to purchase the farm over 6
years instead of the 3 years expressly permitted by the Trust. The motion further
contended the Trust did not authorize either the financing of the sale of the real estate or
the 5 percent interest rate. Hess sought an order setting aside the contract and requesting
the farm property revert back to the Trust beneficiaries unless Dennis paid the full
contract price on or before June 14, 2007, and paid to the Trust the income derived from
the real estate "until the entire purchase price is paid in full."

On March 26, 2007, the district court ordered the Trustees to file a formal
accounting within 30 days. The Trust's accountant prepared formal accountings for the
years 2004, 2005, and 2006. After the Trustees timely filed the formal accountings in the
district court and provided copies to the Trust beneficiaries, Lawrence objected to the
accountings. Hess also sought to remove the Trustees, alleging several instances of self-
dealing by the Trustees, particularly Dennis, and alleging the Trustees had breached their
fiduciary duties.

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The District Court's Decisions

In a July 2007 memorandum decision, the district court determined the Trustees
had authority to sell the farm to Dennis under the terms of the contract for deed. In
support of its conclusion, the court cited specific Trust provisions giving the Trustees the
powers of an individual with "absolute ownership and control of property" and the power
"to lend money to . . . any beneficiary under [the] Trust . . . as may be agreed upon
between my Trustee and such parties, provided, however, that any such loan shall be
adequately secured and shall bear a reasonable rate of interest."

The district court further found that although the Trust contained ambiguous
provisions regarding when Arthur intended the Trust to terminate, Arthur did not intend
for the Trust to terminate immediately upon his death.

The court subsequently appointed a Master to consider the adequacy of
accountings provided by the Trustees. The Master's report concluded the Trustees had a
duty to provide an accounting upon a request by a beneficiary and the Trustees failed to
do so until required by the court. The Master's report further determined the court-
ordered accountings were inadequate only because they failed to adhere to the
promptness and reasonableness requirements of the Trust and the Uniform Trust Code of
Kansas.

In February 2009, the district court conducted an evidentiary hearing on two
issues: (1) removal of the Trustees, and (2) enforcement of the no-contest clause.
Further, Lawrence's counsel asked the court to consider Lawrence's entitlement to
attorney fees.

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In a May 2009 memorandum decision, the district court concluded the Trustees
breached their duty to provide an accounting but found no evidence to support the
remaining allegations of misconduct on the part of the Trustees. Further, the district court
held Lawrence lacked standing to seek the Trustees' removal because he lost his status as
a "qualified beneficiary" when he violated the Trust's no-contest clause.

The district court concluded Lawrence's challenge to the Trustees' authority to sell
the farm to Dennis on contract breached the Trust's no-contest clause. Additionally, the
court determined Lawrence lacked probable cause to challenge the Trustees' sale of the
farm, and thus he forfeited any benefits he received under the Trust as of the date he filed
his motion to set aside the contract for deed. Finally, the court assessed costs against
Lawrence.

Both parties timely appealed to the Court of Appeals, and this court transferred the
case upon Lawrence's motion. See K.S.A. 20-3017; Supreme Court Rule 8.02 (2012 Kan.
Ct. R. Annot. 71).

On appeal, Lawrence asserts the district court erroneously concluded (1) the Trust
did not terminate immediately upon Arthur's death; (2) the Trustees had authority to sell
the farm to Dennis under the terms of the contract for deed; (3) Lawrence's actions in
challenging the Trust violated the no-contest clause; (4) Lawrence lacked probable cause
to challenge the Trustees' sale of the farm to Dennis; and (5) Lawrence's violation of the
no-contest clause required forfeiture of his benefits.

The Trustees cross-appeal from both the district court's determination as to the
date of Lawrence's disinheritance and its conclusion that the Trustees breached their duty
to provide an accounting.

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TERMINATION OF THE TRUST

Lawrence first contends the district court erroneously concluded that Arthur did
not intend for the Trust to terminate immediately upon Arthur's death. Lawrence reasons
that Arthur intended the Trust to terminate immediately upon his death and therefore the
sale of the farm to Dennis violated the Trust. In support, Lawrence points to Trust
language which he claims reflects Arthur's intent that the Trust terminate upon Arthur's
death. The Trustees contend the district court's contrary interpretation is reasonable and
supported by the Trust's provisions.

When a court is called upon to interpret a trust, the court's primary function is to
ascertain the intent of the settlor by reading the trust in its entirety. If the settlor's intent
can be ascertained from the express terms of the trust, the court must give effect to those
terms unless they are contrary to law or public policy. See In re Estate of Haneberg, 270
Kan. 365, 371, 14 P.3d 1088 (2000); In re Estate of Berryman, 226 Kan. 116, 118-19,
595 P.2d 1120 (1979); In re Estate of Oswald, 45 Kan. App. 2d 106, 112, 244 P.3d 698
(2010), rev. denied 292 Kan. 965 (2011); see also K.S.A. 58a-112 (providing that the
same rules of construction apply to interpretation of wills and trusts); Restatement (Third)
of Property: Donative Transfers § 10.1 (2001) ("The controlling consideration in
determining the meaning of a donative document is the donor's intention. The donor's
intention is given effect to the maximum extent allowed by law.").

The interpretation and legal effect of a written instrument is a matter of law over
which we exercise unlimited review. National Bank of Andover v. Kansas Bankers Surety
Co., 290 Kan. 247, 263, 225 P.3d 707 (2010); see Shamberg, Johnson & Bergman, Chtd.
v. Oliver, 289 Kan. 891, 900, 220 P.3d 333 (2009) ("Regardless of the district court's
construction of a written contract, an appellate court may construe a written contract and
determine its legal effect.").
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Generally, "a trust terminates to the extent the trust is revoked or expires pursuant
to its terms, no purpose of the trust remains to be achieved, or the purposes of the trust
have become unlawful, contrary to public policy, or impossible to achieve." K.S.A. 58a-
410(a); see In re Estate of Somers, 277 Kan. 761, 768, 89 P.3d 898 (2004) (beneficiaries
cannot compel termination of a trust "'[i]f the continuance of the trust is necessary to
carry out a material purpose of the trust'"); Oswald, 45 Kan. App. 2d at 112 (concluding
language of trust was sufficient to establish settlor's intent for trust to terminate
immediately or within a reasonable time after her death where, inter alia, expressed
primary purpose of trust was to provide for settlor's needs during her lifetime).

Here, in concluding Arthur did not intend for the Trust to terminate immediately
upon his death, the district court noted some ambiguity between various Trust provisions,
particularly Articles Five through Eight.

Article Five of the Trust provides for payments of certain debts and taxes upon
Arthur's death but does not expressly call for the Trust's termination. Article Six directs
the distribution of a $1,000 gift to a designated beneficiary "[u]pon [Arthur's] death" but
states that "[e]xcept for the specific distributions directed" in Article Six, "all
distributions of trust property shall be made in accordance with the Articles that follow."
Similarly, Article Seven prohibits the Trustees from creating a "Common Pot Trust" after
Arthur's death, instead requiring that "[a]ll of [the] Trust Estate that has not been
distributed under prior provisions . . . shall be held, administered, divided and distributed
according to the provisions of the Articles that follow."

The primary article governing division and distribution of Trust property, Article
Eight, contains conflicting provisions regarding termination. Article Eight, Section One
expressly directs the Trustee to "divide, into separate shares, all of my Trust Estate not
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previously distributed under the preceding Articles of my Trust Agreement . . . as
follows . . . ." It then identifies each named beneficiary and his or her proportionate share,
but does not indicate when such division is to occur. The next paragraph in Article Eight,
Section One expressly provides that Dennis

"has the option to purchase any or all of the farmland for three years immediately
following my death at the appraised price. During such time period, the trust shall
continue to hold the farmland not yet purchased by DENNIS HAMEL. All net income
from the farmland shall be distributed annually to the beneficiaries in accordance with the
above listed beneficiary's fractional share of the trust. If DENNIS HAMEL has not
purchased the farmland within the allotted time period, then it shall be divided in
accordance with the above beneficiary's fractional shares."

Immediately following this provision, Article Eight, Section One, subsections (a)
through (g) provide that "[t]he trust share set aside for [named beneficiary] shall be held,
administered and distributed as follows" and directs the Trustee to "immediately pay to,
or apply for the benefit of, such beneficiary, all net income from such beneficiary's trust
share, free of trust" and to "immediately pay to, or apply for the benefit of, such
beneficiary, all principal from such beneficiary's trust share, free of trust." (Emphasis
added.)

Faced with the conflicting provisions of Article Eight, the district court reasoned
that in light of Arthur's express requirement that the Trust "shall continue to hold the
farmland" during the 3-year period in which Dennis could purchase the farmland, Arthur
did not intend the Trust to terminate immediately upon his death. Implicitly, the district
court determined that a material purpose of the Trust was to hold the farmland for 3 years
following Arthur's death to permit Dennis an opportunity either to exercise his option to
purchase the farmland or until that option expired.

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Under these circumstances, we conclude the district court fairly interpreted the
ambiguous Trust provisions to conclude Arthur did not intend the Trust to terminate
immediately upon his death. Consequently, we reject Lawrence's argument that the sale
of the farm to Dennis was void based on that intent.

TRUSTEES' AUTHORITY TO SELL FARM UNDER TERMS OF CONTRACT FOR DEED

Lawrence next argues the district court erroneously concluded the Trustees had
authority to finance the sale of the farm to Dennis under the terms of the contract for
deed. Specifically, Lawrence argues the Trust's terms did not permit Dennis to (1)
purchase the farm over 6 years instead of 3 years, (2) pay an interest rate of 5 percent
with no interest required during the last year, (3) finance the sale of the farm through the
Trust, (4) make a down payment of only $10,000, or (5) receive all income and profit
from the land for the term of the contract. The Trustees contend various powers granted
to them under the Trust authorized the sale of the farm to Dennis under the terms of the
contract for deed.

In determining the Trustees had authority to sell the farm to Dennis under the
terms of the contract for deed, the district court cited the Trust's provisions granting the
Trustees "'the power to do all acts that might legally be done by an individual in absolute
ownership and control of property,'" and providing the Trustees with "'the power to lend
money to . . . any beneficiary under [the] Trust . . . as may be agreed upon between my
Trustee and such parties, provided, however, that any such loan shall be adequately
secured and shall bear a reasonable rate of interest.'"

At first blush, the district court's ruling on this issue appears consistent with the
terms of the Trust. Article Eleven, Section One grants to the Trustees "any power my
Trustee needs to administer my Trust Estate, which is not hereinafter listed." This
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paragraph also provides that Trustees with "the power respecting property in [the] Trust
Estate that an absolute owner of such property would have." In addition to these broad
powers, Article Eleven vests in the Trustees several specific powers.

Article Eleven, Section One, subsection "aa" provides: "Except as otherwise
provided in my Trust Agreement, my Trustee shall have the power to do all acts that
might legally be done by an individual in absolute ownership and control of property."
Subsection "gg" gives the Trustees "the power to lend money . . . to any beneficiary
under [the] Trust . . . as may be agreed upon between my Trustee and such parties,
provided, however, that any such loan shall be adequately secured and shall bear a
reasonable rate of interest."

While we agree that the Trust contains several general provisions broadly
authorizing the Trustees to control and administer Trust property, including the power to
lend money to beneficiaries, we cannot agree that those provisions authorized the
Trustees to finance the sale of the farm to Dennis over a period exceeding the 3 years
anticipated by the more specific provision of the Trust that relates to the sale of the farm.

In amending the Trust, Arthur gave Dennis the first option to buy any or all of the
farmland owned by the Trust and specifically directed:

"Upon my death, my Trustees shall have the farmland appraised. Based upon that
appraisal, DENNIS HAMEL has the option to purchase any or all of the farmland for
three years immediately following my death at the appraised price. During such time
period, the trust shall continue to hold the farmland not yet purchased by DENNIS
HAMEL. All net income from the farmland shall be distributed annually to the
beneficiaries in accordance with the above listed beneficiary's fractional share of the
trust. If DENNIS HAMEL has not purchased the farmland within the allotted time
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period, then it shall be divided in accordance with the above beneficiary's fractional
shares." (Emphasis added.)

The Trustees argue that while Arthur provided Dennis with an "option to
purchase" the farmland for the 3-year period following Arthur's death, Arthur did not
require that the purchase be completed in 3 years—only that the option be exercised. But
this narrow interpretation ignores the remainder of the clause which provides for division
of the farmland in accordance with the beneficiaries' fractional shares if Dennis has not
"purchased the farmland within the allotted time."

The language of the Trust conveys Arthur's clear intent that the farmland would be
disposed of within 3 years of his death—either through Dennis' purchase of the farm or
by a division of the farm property among the beneficiaries. The Trustees frustrated that
intent when they entered into a contract for deed with Dennis to pay the purchase price
over a 6-year period with title passing at the end of that period. See Restatement (Third)
of Property: Donative Transfers § 3.4(a), comment a (1998) (explaining that in contract
for deed purchaser acquires equitable title and immediate possession of real estate but
legal title is not conveyed until final payment is made). Under the terms of the contract
for deed at issue here, the purchase of the farmland would not be final, if at all, for more
than 6 years after Arthur's death. Further, if for some reason Dennis' purchase of the farm
fell through beyond the 3-year period but before the end of the 6-year contract period, the
property would not have been divided among the beneficiaries within 3 years in
contravention of Arthur's intent.

The dissent takes issue with our conclusion that the language of the trust conveys
Arthur's intent that the beneficiaries receive a final payout within 3 years and points out
that "there is nothing in the quoted language that says anything about a final payout
17



within 3 years." Further, the dissent suggests our conclusion regarding Arthur's intent
"misconstrues the nature of a contract for deed."

We agree that the language of the Trust does not specifically indicate that the
Trust is to terminate in 3 years with a final payout. But the paragraph of the Trust at issue
here does specify a 3-year period related to the disposition of the farmland in three
different places: (1) in identifying the period in which Dennis may exercise his option to
purchase; (2) in identifying the period during which the Trust shall "continue to hold the
farmland not yet purchased" and pay net income to the beneficiaries; and (3) in
specifying that if Dennis has not "purchased the farmland within the allotted time
period," the farmland shall be divided in accordance with the beneficiaries' fractional
shares.

To suggest that the 3-year period pertains only to time in which Dennis has to
exercise his option to purchase ignores the last provision, which reflects Arthur's intent
that the title to the farmland be transferred within 3 years or the farmland be divided
among the beneficiaries. Moreover, our interpretation does not misconstrue the nature of
a contract for deed, but instead acknowledges its inconsistency with Arthur's intent as
expressed in the Trust. Namely, the contract for deed itself anticipated that if Dennis
defaulted on the contract, the Trustees could "declare the contract null and void," and
legal title to the farmland would remain with the Trust while equitable title would revert
back to the Trust. Thus, if Dennis breached the contract after more than 3 years had
passed, the farmland would neither have been purchased nor divided among the
beneficiaries within the 3-year period—frustrating Arthur's intent regarding the
disposition of the farmland within 3 years of his death.

Finally, we do not hold today, as the dissent suggests, that the language of the
Trust prohibits the Trustees from entering into a contract for deed with one of the
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Trustees. Instead, we find that the 6-year contract for deed entered into in this case
frustrates Arthur's intent that the farmland be disposed of within 3 years.

Because the terms of the contract for deed violated the express provisions of the
Trust requiring purchase or division of the farmland within 3 years, we conclude the
Trustees were not authorized to sell the farm to Dennis under the terms set forth in the
contract for deed, and we reverse the district court's ruling on this issue.

Further, while Lawrence claims the Trustees lacked authority to enter into the
contract for deed for other additional reasons, including that the Trustees lacked authority
to finance the sale of the real estate or to agree to a 5 percent interest rate, in light of our
reversal of the district court's ruling, we decline to address those remaining assertions.

Remedy for reversal of district court's ruling on motion to set aside contract

Although Lawrence characterized his trial court motion as a "Motion to Set Aside
Contract for Deed," he does not seek this remedy on appeal. Instead, he insisted at the
district court level, and maintains on appeal, that in filing this motion he sought only an
interpretation of the Trust. Although Lawrence's brief is not entirely clear as to the
remedy he seeks, it appears he contends the district court's interpretation error is relevant
to our consideration of the overarching issue of whether the court erred in enforcing the
no-contest clause. We agree.

Although the district court rejected Lawrence's characterization of his motion to
set aside the contract for deed, we note that Lawrence's motion sought to have the farm
property revert back to the Trust beneficiaries, or alternatively, to have "Buyers pay said
contract price in full on or before June 14, 2007 [or 3 years after the date of Arthur's
death]." Significantly, the appellate record establishes that Dennis did, in fact, pay the
19



contract price in full on June 8, 2007, approximately 6 days before the expiration of the
3-year period for finalizing the Trust.

Thus, while our conclusion that the Trustees lacked authority to sell the farm
under the terms of the contract for deed does not require that we set aside that contract as
void ab initio, it provides a predicate to our analysis of the district court's decision to
enforce the no-contest clause against Lawrence, as more fully discussed below.

ENFORCEMENT OF NO-CONTEST CLAUSE

Lawrence challenges the district court's enforcement of the Trust's no-contest, or
in terrorem, clause, primarily arguing the district court's ruling is contrary to public
policy. The Trustees contend the court's enforcement of the no-contest clause is
consistent with Kansas law and public policy because Lawrence lacked probable cause to
challenge the sale of the farm.

"An in terrorem clause is a clause in a will in which a testator imposes upon a
devisee or legatee a condition that he or she shall not dispute the provisions of the will or
the gift shall be void." In re Estate of Koch, 18 Kan. App. 2d 188, 207, 849 P.2d 977, rev.
denied 253 Kan. 858 (1993); see Restatement (Third) of Property: Donative Transfers
§ 8.5, comment a (2001) ("A no-contest [or in terrorem] clause typically provides for the
rescission of any benefit to a devisee, beneficiary, or donee who challenges the validity of
the [donative] document, or of a term of the document.").

Our appellate courts have consistently held that in terrorem clauses in wills are
valid and enforceable against a beneficiary who attacks the validity of the will, or
provisions therein, unless the beneficiary had probable cause to challenge the will or its
provisions. See Meyer, Executor v. Benelli, 197 Kan. 98, 101, 415 P.2d 415 (1966); In re
20



Estate of Foster, 190 Kan. 498, 500, 376 P.2d 784 (1962); Wright v. Cummings, 108 Kan.
667, 668-72, 196 P. 246 (1921); In re Estate of Wells, 26 Kan. App. 2d 282, 285, 983
P.2d 279 (1999); In re Estate of Campbell, 19 Kan. App. 2d 795, 801, 876 P.2d 212
(1994); Koch, 18 Kan. App. 2d at 207.

A no-contest clause in a trust serves the same purpose as such a clause in a will
and is construed according to the same rules applied to wills. See K.S.A. 58a-112
(providing the same rules of construction apply to interpretation of wills and trusts);
Restatement (Second) of Property: Donative Transfers § 9.1, comment l (1981) ("No-
contest clauses and clauses restraining attacks on particular provisions in [revocable inter
vivos trusts] serve the same purpose as do such clauses in wills, and there is no justifiable
reason for applying a different test to determine the validity of those clauses in the two
comparable situations.").

Courts apply a two-part analysis to determine whether a no-contest clause should
be enforced against a beneficiary. First, the court must determine whether the
beneficiary's action or actions violated the express terms of the no-contest clause. See
Meyer, Executor, 197 Kan. at 101 (concluding in terrorem clause in a will did not apply
where alleged contestant "was simply seeking an interpretation of the provisions of the
will under which both parties claimed title"); Wright, 108 Kan. at 671-72 (determining
defendant's act of filing claim against estate did not amount to contest of validity of will
and therefore did not trigger forfeiture clause); see also Annot., 3 A.L.R.5th 590, § 2, pp.
611-12 (holding that in considering application of forfeiture clause, court must determine
whether testator intended for conduct in question to forfeit beneficiary's interest under the
will).

Second, the court must determine whether the beneficiary had probable cause to
take the action or actions that violated the no-contest clause. See Foster, 190 Kan. at 500
21



(adopting the rule of the Restatement of Property, § 429 [1944], holding "that a bona fide
belief in the invalidity of the will" and probable cause prevents application of in terrorem
clause as to beneficiary under the will, and finding in terrorem clause unenforceable
when beneficiary successfully challenged will provision violating rule against
perpetuities); see also Campbell, 19 Kan. App. 2d at 801 (concluding "an in terrorem
clause will not be enforced if the person challenging the will, or a provision thereof, does
so with probable cause"); Koch, 18 Kan. App. 2d at 207 (determining "that in terrorem
clauses are to be given effect when a beneficiary attacks the validity of the will without
probable cause to do so"); Restatement (Second) of Property: Donative Transfers § 9.1,
comment d (1981) ("a restraint against a suit for the construction of a dispositive
provision should not cause a forfeiture of any interest if there was probable cause for
bringing the construction suit").

Here, the no-contest clause in Article Twelve, Section Six of the Trust provides, in
relevant part:

"If any devisee, legatee, or beneficiary under my Trust or any amendment to it, no matter
how remote or contingent such beneficiary's interest appears, or any of my legal heirs, or
any person claiming under any of them, directly or indirectly, does any of the following,
then in that event I specifically disinherit each such person, and all such legacies,
bequests, devises and interests given to that person under my Trust or any amendment to
it, or any other Trust document created by me at any time, shall be forfeited and shall be
distributed as provided elsewhere herein as though he or she had predeceased me without
issue:

"a. unsuccessfully challenges the appointment of any person
named as a Trustee in said trust or any amendment to it, or
unsuccessfully seeks the removal of any person acting as a
Trustee;
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"b. objects in any manner to any action taken or proposed to be
taken in good faith by the Trustee under said trust or any
amendment to it, whether the Trustee is acting under court
order, notice of proposed action or otherwise, and said action
or proposed action is later adjudicated by a court of
competent jurisdiction to have been taken in good faith;
"c. objects to any construction or interpretation of said trust or any
amendment to it, or the provisions of either, that is adopted or
proposed in good faith by the Trustee, and said objection is later
adjudicated by a court of competent jurisdiction to be an invalid
objection."

The district court concluded Lawrence's objection to the Trustees' action of
entering into a contract for deed with Dennis violated subsection "b" of the no-contest
clause and Lawrence lacked probable cause to challenge that action.

On appeal, Lawrence reiterates his argument below that he did not violate the no-
contest clause because he simply sought interpretation of the Trust's provisions. See
Restatement (Second) of Property§ 9.1, comment c (1981) (noting that restraints upon
contests to will or its provisions generally apply to attacks that seek to invalidate will or
a portion thereof, and stating that "[a] suit to construe the language of a will is not a
contest of the will," and "[a]n action commenced solely for the purpose of obtaining
information concerning a donative transfer does not violate a no-contest provision");
Restatement (Second) of Property§ 9.1, comment d (1981) (defining an "'attack'" as "an
attempt to procure a judicial decision holding invalid some provision of the will or other
donative transfer," and explaining that "[a] proceeding brought by a beneficiary for the
purpose of securing a construction of an ambiguous limitation, valid under all possible
constructions or valid under the construction advocated by the beneficiary, is not an
'attack' as that term is used in this section").

23



But we need not dwell on whether the district court correctly held that Lawrence's
actions violated the provisions of the no-contest clause at issue here or whether his
actions are more properly characterized as an effort to seek an interpretation of the Trust,
as Lawrence contends. Even if we assume for purposes of argument that the district court
correctly concluded Lawrence's actions violated the no-contest clause, as discussed
below, we would find Lawrence had probable cause to challenge the Trustee's actions in
violation of the no-contest clause.

Lawrence had probable cause to challenge the Trustees' sale of the farm.

In Campbell, our Court of Appeals adopted the definition of probable cause from
Restatement (Second) of Property: Donative Transfers § 9.1, comment j (1981):
"[P]robable cause [is defined as] 'the existence, at the time of the initiation of the
proceeding, of evidence which would lead a reasonable person, properly informed and
advised, to conclude that there is a substantial likelihood that the contest or attack will be
successful.'" Campbell, 19 Kan. App. 2d at 801. The Restatement further explains:

"The evidence needed to establish probable cause should be less where there is strong
public policy supporting the legal ground of the contest or attack. . . . A factor which
bears on the existence of probable cause is that the beneficiary relied upon the advice of
disinterested counsel sought in good faith after a full disclosure of the facts." Restatement
(Second) of Property: Donative Transfers § 9.1, comment j (1981).

Whether probable cause exists is a question of fact. Wells, 26 Kan. App. 2d at 285.
Ordinarily, we review a district court's factual findings under a substantial competent
evidence standard. Hodges v. Johnson, 288 Kan. 56, 65, 199 P.3d 1251 (2009). But the
Trustees urge us to consider the district court's determination that Lawrence lacked
probable cause to challenge the sale of the farm as a negative finding. As the Trustees
point out, in reviewing a negative factual finding, an appellate court considers whether
24



the district court arbitrarily disregarded undisputed evidence or relied on some extrinsic
consideration such as bias, passion, or prejudice to reach its determination. See Hall v.
Dillon Companies, Inc., 286 Kan. 777, 781, 189 P.3d 508 (2008).

But we need not resolve which standard of review applies here because under
either standard, applying the probable cause definition set out above, we conclude the
district court erred in concluding Lawrence lacked probable cause to challenge the sale of
the farm.

In large part, Lawrence based his challenge to the sale of the farm on the Trustees'
decision to finance the sale over a 6-year period. As we already have concluded, while
the Trustees possessed broad authority to sell Trust real estate, they were not authorized
to enter into a contract for the sale of the farmland that extended beyond the 3-year period
specifically provided under the Trust. In light of that conclusion, we necessarily hold that
Lawrence had probable cause to challenge the sale of the farm. Accordingly, we reverse
the district court's probable cause determination and its enforcement of the no-contest
clause against Lawrence. Because the enforcement of the no-contest clause led to
Lawrence's disinheritance, we remand for further proceedings, if any, necessary to
effectuate our decision.

ATTORNEY FEES AND COSTS UNDER K.S.A. 58a-1004

Finally, Lawrence claims he is entitled to an award of attorney fees and costs
under K.S.A. 58a-1004. That section provides: "In a judicial proceeding involving the
administration of a trust, the court, as justice and equity may require, may award costs
and expenses, including reasonable attorney fees, to any party, to be paid by another
party or from the trust that is the subject of the controversy." K.S.A. 58a-1004.

25



Here, after rejecting Lawrence's challenges to the Trust and enforcing the no-
contest clause, the district court assessed the costs of the action against Lawrence. In light
of our holdings today, we reverse the district court's award of costs and remand to the
district court to fully consider Lawrence's entitlement to attorney fees and/or costs under
K.S.A. 58a-1004. In determining the award, if any, the district court should give due
consideration to the factors set forth in Rule 1.5(a) (2012 Kan. Ct. R. Annot. 492) of the
Kansas Rules of Professional Conduct.

CROSS-APPEAL

In their cross-appeal, the Trustees claim the district court erred in determining the
effective date of Lawrence's disinheritance. This issue is rendered moot by our
conclusion that the district court erred in enforcing the no-contest clause against
Lawrence.

The Trustees also challenge the district court's conclusion that they acted in bad
faith or breached their duty to provide Lawrence with an accounting. But the district
court's bad faith finding pertained only to Lawrence's motion to remove the Trustees,
which the district court denied. And because Lawrence does not argue for reversal of the
district court's denial of his motion to remove the Trustees, this issue also is moot. See
State v. Holmes, 278 Kan. 603, 622, 102 P.3d 406 (2004) (issues not briefed are deemed
abandoned).

CONCLUSION

To summarize, we affirm the district court's ruling that Arthur did not intend the
Trust to terminate immediately upon his death. We reverse the district court's conclusion
that the Trustees had authority to enter into a contract for deed for the sale of the
farmland that exceeded the 3-year period specifically provided by the Trust, but we
26



decline to set aside the contract for deed. Further, we reverse the district court's
determination that Lawrence lacked probable cause to challenge the sale of the farm.
Consequently, we reverse the district court's enforcement of the no-contest clause against
Lawrence, and we remand for any further proceedings necessary to effectuate our rulings.

Further, we reverse the district court's assessment of costs against Lawrence, and
we direct the district court on remand to consider Lawrence's entitlement to attorney fees
and costs under K.S.A. 58a-1004. Finally, we find the issues raised by the Trustees'
cross-appeal to be moot.

Affirmed in part, reversed in part, and remanded for further proceedings consistent
with this opinion.

* * *

BILES, J., dissenting in part: I would affirm the district court's decision in its
entirety. The majority's threshold premise is that the contract for deed did not constitute a
"purchase" of the farmland, as that term is used in the Trust instrument, because the
installment payments extended more than 3 years after Arthur Hamel's death. The
majority bases its conclusion on this language from the Trust:

"Upon my death, my Trustees shall have the farmland appraised. Based upon that
appraisal, DENNIS HAMEL has the option to purchase any or all of the farmland for
three years immediately following my death at the appraised price. During such time
period, the trust shall continue to hold the farmland not yet purchased by DENNIS
HAMEL. All net income from the farmland shall be distributed annually to the
beneficiaries in accordance with the above listed beneficiary's fractional share of the
trust. If DENNIS HAMEL has not purchased the farmland within the allotted time
27



period, then it shall be divided in accordance with the above beneficiary's fractional
shares." (Emphasis added.)

The majority then gleans the following conclusion: "The language of the Trust
conveys Arthur's clear intent that the farmland would be disposed of within 3 years of his
death—either through Dennis' purchase of the farm or by a division of farm property
among the beneficiaries." This does not follow from the recited language or the
remaining provisions in the Trust. And there is nothing in the quoted language that says
anything about a final payout within 3 years. More importantly, this conclusion
misconstrues the nature of a contract for deed, which may inadvertently do mischief with
other real estate transfers under installment if the majority's conclusion is to be
considered a correct statement of the law.

The majority agrees Dennis Hamel had 3 years to exercise the purchase option
stated in the Trust instrument. The majority also agrees the Trust expressly gives the
Trustees "'the power to do all acts that might legally be done by an individual in absolute
ownership and control of property.'" But if that is agreed to, it necessarily follows that the
Trustee had authority to enter into a contract for deed for the farmland. Nothing in the
trust instrument expresses—or even hints at—a prohibition against contracts for deed as
an inappropriate vehicle to effect the farmland's purchase.

Finally, the majority notes the Trust instrument expressly authorizes the Trustees
to lend money to any beneficiary provided the loan is adequately secured and bears a
reasonable interest rate. The district court determined the conditions for such a
transaction were met. And no challenge is put forward that the purchase price was below
market, the interest rate insufficient or unreasonable, or that security for the installment
sale was inadequate. Taken together, and based on these findings by the district court,
these Trust provisions authorized a contract for deed with Dennis.
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The district court went on to hold that terms of the contract of sale were discussed
with all trust beneficiaries, including Lawrence, and that the sale was entered into in good
faith. The district court concluded: "The sale of the farm ground under the terms
contained in the contract of sale was in all respects proper under the terms of the Trust."
These conclusions are supported by the record, and the applicable law and should be
affirmed.

But according to the majority, a transgression occurs in the term in the contract for
deed that extended installment payments beyond 3 years. The majority concludes: "Under
the terms of the contract for deed at issue here, the purchase of the farmland would not be
final, if at all, for more than 6 years after Arthur's death." But this requires a conclusion
that a contract for deed cannot be a "purchase" of real estate, as that term is used in the
Trust. I disagree.

Contracts for deed are common in the acquisition of real estate in this state. K.S.A.
79-3101 has long provided that contracts for deed are treated for purposes of the
applicable statutes as a mortgage of real property to secure the balance of the unpaid
purpose price. And such contracts are subject to state usury laws. K.S.A. 16-207(b); Beltz
v. Dings, 27 Kan. App. 2d 507, 512, 6 P.3d 424 (2000).

This court held in In re Estate of Hills, 222 Kan. 231, 241-42, 564 P.2d 462
(1977), that an installment real estate contract transfers the seller's interest in the real
estate to the buyer when the contract is made—not after all the installment payments are
made. The court also noted that when a deed is placed in escrow, which is a typical
feature of a contract for deed, it is "'in legal effect a delivery of it to the grantee, subject
only to the subsequent condition of final payment.'" 222 Kan. at 238 (quoting Gault v.
Hurd, 103 Kan. 51, 53, 172 Pac. 1011 [1918]); see also Torluemke v. Abernathey, 174
29



Kan. 668, 670-71, 258 P.2d 282 (1953) (beneficial incidents of ownership under contract
for deed passed at the moment of contract execution and initial actions pursuant to
contract); Graham v. Claypool, 26 Kan. App. 2d 94, 95-96, 978 P.2d 298 (1999) (stating
general rule that purchaser in a sale of real estate under an installment land contract, i.e.,
contract for deed, becomes the equitable owner of the realty and the seller, although
holder of legal title, retains a secured interest in the property to protect future payments);
Century Savings Ass'n v. C. Michael Franke & Co., 9 Kan. App. 2d 776, 778, 689 P.2d
915 (1984) (contract for deed operates as a transfer of real estate sufficient to trigger a
due-on-sale clause in promissory note).

The formality of a contract for deed, accompanied by the facts here that Dennis
acquired the right to possession, retention of income from the property, the duty to pay
taxes, and responsibility for the farmland's upkeep, is sufficient to show the Trustees
completed a "purchase"—as that term should be reasonably construed from the Trust
instrument—by reducing what was a farmland asset to a contract for ongoing installment
payments. There is nothing in the Trust instrument from that perspective that prevents the
transaction. I would affirm the district court on that basis, and with it, the remainder of
the district court's ruling founded upon that determination.