DAVID A. HODGES, JR. & a.
ALAN JOHNSON & a.
Argued: March 30, 2017
Circuit Court-Dover Probate Division
Bernstein Shur, P.A., of Manchester (Roy W. Tilsley, Jr. and
Edward J. Sackman on the brief, and Mr. Tilsley orally), for
& Hatfield, LLP, of Portsmouth (Russell F. Hilliard on
the joint brief and orally), for defendants Alan Johnson and
Wadleigh, Starr & Peters, PLLC, of Manchester (Jeffrey H.
Karlin on the joint brief), for defendant Joseph McDonald.
A. Perlow and Todd D. Mayo, of Hampton, for the New Hampshire
Trust Council, as amicus curiae.
defendants, Alan Johnson, Joseph McDonald, and William
Saturley, appeal an order of the 7th Circuit Court-Dover
Probate Division (Cassavechia, J.), which, following
a bench trial, set aside "decantings" from two 2004
irrevocable trusts of which the plaintiffs, David A. Hodges,
Jr. (David Jr.), Barry R. Sanborn, and Patricia Sanborn
Hodges, had been beneficiaries, and which removed defendants
Johnson and Saturley as co-trustees of those trusts.
"Decanting is the term generally used to describe the
distribution of trust property to another trust pursuant to
the trustee's discretionary authority to make
distributions to, or for the benefit of, one or more
beneficiaries." William R. Culp, Jr. & Briani
Bennett Mellen, Trust Decanting: An Overview and
Introduction to Creative Planning Opportunities, 45 Real
Prop. Tr. & Est. L.J. 1, 2 (Spring 2010); see
RSA 564-B:4-418(a) (Supp. 2016) (explaining that "[t]he
power to decant is the power to appoint some or all of the
trust property of a trust . . . to another trust"). The
decantings at issue eliminated the future beneficial
interests of the plaintiffs. The trial court ruled that the
decantings are void ab initio because McDonald, as
the decanting trustee, and Johnson and Saturley, to the
extent they assisted as co-trustees in facilitating the
decantings, failed to "give any consideration to the
[plaintiffs'] beneficial interests." The trial court
also determined that it "best serves the interests of
all beneficiaries to order removal of . . . Saturley and
Johnson as co-trustees." We affirm.
trial court found, or the record reflects, the following
facts. The settlor of the 2004 trusts was David A. Hodges,
Sr. (hereinafter referred to as either David Sr. or the
settlor). David Jr. is one of the settlor's three
biological children. The settlor's other biological
children are Nancy Hodges-Friese and Janice Hodges. Barry and
Patricia are the settlor's two step-children. The settlor
died in August 2015.
1969, David Sr. founded Hodges Development Company (HDC), now
a relatively large and reportedly successful real estate
holding and development company. According to the defendants,
HDC is "the parent entity of the Hodges
was David Sr.'s attorney. Saturley, who is also an
attorney, has represented both David Sr. and HDC. Johnson has
worked for HDC since 1984 and is now its President. He holds
minority shares in two HDC entities, Hodges Pembroke, LLC and
Hodges Portsmouth, LLC, and is a beneficiary of a revocable
trust established by David Sr. Under the terms of that
revocable trust, Johnson is to receive $500, 000 for his past
service to HDC and an additional $500, 000 over time for his
continued service to HDC.
David Sr.'s children and step-children have worked for
HDC and/or its subsidiaries. Barry worked for HDC for
approximately 36 years, rising to the position of Senior Vice
President, before his employment was terminated in October
2012. When Barry's employment was terminated, he was
working for HDC part-time, although he was paid a full-time
salary. His underemployment was a source of friction between
him and David Sr.
Jr. also worked for the family business. In April 2012,
however, he was informed that he would not be appointed
President of HDC, but that Johnson would assume that position
instead. The trial court found that "[t]his resulted in
a confrontation" between David Sr. and David Jr.,
"the ferocity of which is disputed." David Jr.
informed Barry of this development, and Barry confronted
David Sr. about it. The trial court found that, although
"the measure of discord is disputed, what is clear is
that David, Sr. moved out of the family home, Barry had a
heart attack, and a divorce action between [David Sr. and his
then-wife, Joanne M. Hodges, ] . . . ensued." When David
Jr. returned to HDC headquarters, he discovered that armed
guards had been hired allegedly to protect David Sr. and
Johnson from Barry. David Jr. was fired from HDC in August
testified that she has never held any corporate office or
position at HDC. She also testified that, as of May 2015, she
had not spoken with David Sr. in three or four years.
The 2004 Trusts in General
2004, the settlor created two irrevocable trusts, the
"David A. Hodges, Sr. Irrevocable GST Exempt Trust"
(the 2004 GST Exempt Trust) and the "David A. Hodges,
Sr. Irrevocable GST Non-Exempt Trust" (the 2004 GST
Non-Exempt Trust). (Capitalization omitted.) The 2004 trusts
were products of decanting, but that decanting is not in
dispute. The 2004 GST Exempt Trust contains assets that are
exempt from the federal generation-skipping transfer tax; the
2004 GST Non-Exempt Trust contains assets that are not exempt
from the federal generation-skipping transfer tax. When the
two trusts were first created, Johnson was the sole trustee.
Saturley was later appointed to be Johnson's co-trustee.
beneficiaries of both trusts are Joanne and the settlor's
five children and step-children and their "descendants,
" as defined by the trust instruments. The primary
assets held in the trusts consist of all of the non-voting
stock of HDC. The non-voting stock represents more than 98%
of all HDC stock. The voting stock was held by David Sr. The
2004 trusts were created when market conditions made the
transfer of non-voting stock of the family's closely-held
business attractive to the settlor. The paramount purpose of
the 2004 trusts was to provide for the continuation of HDC
after the settlor's death by eliminating the need to
liquidate HDC assets in order to pay estate taxes.
represented to the trial court that, in addition to the
non-voting stock of HDC and cash dividends paid on those
shares, the 2004 trusts currently hold stock in Hodges
limited liability companies (Hodges Portsmouth, LLC and
Hodges Pembroke, LLC) and the income generated by those
limited liability companies.
trusts are irrevocable and both trust instruments contain a
provision in which the settlor specifically acknowledged that
he had "no right or power, whether alone or in
conjunction with others, in whatever capacity, to alter,
amend, modify or revoke" the trust instrument "or
to designate the persons who shall possess or enjoy the trust
property or its income."
trust instrument provides that, during the settlor's
lifetime, the trust beneficiaries (Joanne, the plaintiffs,
and the settlor's other children) had a right to withdraw
from the trust whenever property was contributed to it. That
right was exercisable within 60 days following a
trust instrument also provides for discretionary
distributions, during the settlor's lifetime, to the
beneficiaries and to "distributee trusts, " which
are subject to the beneficiaries' rights of withdrawal.
The provision in each trust document regarding such
discretionary distributions allows the trustee(s) to
"distribute all or any portion of the net income and
principal of the trust to any one or more of the group
consisting of [Joanne], [the settlor's] descendants, and
distributee trusts, in such amounts and at such times as the
Trustee, in the Trustee's discretion, may
determine." The trust documents define a distributee
trust as "any trust being administered" under the
trust instruments "for the benefit of any one or more,
but not necessarily all, of the group consisting of [Joanne]
and [the settlor's] descendants, or any trust established
by [the settlor] under another trust instrument for the
benefit of any one or more, but not necessarily all, of the
members of such group."
trust instruments specify that, upon the death of the settlor
and of Joanne, provided that all five children are then
living, the trust corpus is to be divided into five separate
trusts for each of the settlor's children and
step-children and their respective descendants. With respect
to the separate trusts for the settlor's children and
step-children, each trust instrument allows the trustee(s) to
"distribute all or any portion of the net income and
principal of the trust to any one or more of the group
consisting of the child and his or her descendants in such
amounts and at such times as the Trustee, in the
Trustee's discretion, may determine."
trust instruments set forth a list of considerations that the
trustee(s) "should consider" when "deciding
whether to make distributions of the net income or principal
of any trust, " although each trust instrument also
states that the enumerated considerations are "not
intended to limit or direct the exercise of [the
trustees'] discretion in any way." One such
consideration states: "Whenever there is more than one
beneficiary of a trust, distributions of income and principal
may be made by the Trustee without obligation to equalize
such distributions among the beneficiaries." Another
states that Joanne "during her life should be deemed the
primary beneficiary of the trust and her welfare, enjoyment,
and comfort should be regarded as paramount to the
conservation of the trust for the benefit of concurrent or
trust instrument also provides that "[t]o the extent
that the Trustee is not required to make distributions of the
net income of a trust, the Trustee is authorized, in the
Trustee's discretion, . . . to accumulate income without
allocation and at any time thereafter to add such income so
accumulated to the principal of the trust."
trust instruments also contain a "No Contest
Provision" whereby "[i]f any beneficiary . . .,
directly or indirectly, institutes, conducts or in any manner
whatsoever takes part in or aids in any proceedings to
impair, invalidate, oppose, or set aside [the] trust, . . .
then any and all provisions made for the benefit of such
beneficiary . . . shall thereupon be revoked."
Provisions in the 2004 Trusts Related to the Settlor's
Closely-Held Business Interests
trust document contains provisions related to the
settlor's closely-held business interests. The trust
instruments define those business interests to include the
stock of HDC, the stock of its three wholly-owned
subsidiaries (Hodges Properties, Inc., Hodges Construction
Corporation, and Hodges Realty, Inc.), and an interest in
Hodges Family Farm, LLC. The trust instruments establish a
"Committee of Business Advisors, " who, by majority
vote, have the exclusive authority, upon the settlor's
death or incapacity or upon such earlier date as he may
designate, to make all business decisions for his
closely-held business interests (as defined by the trust
documents). According to the trust documents, the initial
members of the committee were Johnson, Barry, David Jr.,
Nancy, and a fifth member to be appointed by David Sr. The
trust instruments empowered the settlor, while living and
competent, to amend the provisions related to "the
appointment, resignation, removal, and number" of the
members of the Committee of Business Advisors, as well as
"their powers, duties and liability."
his lifetime, the settlor revised the membership of the
Committee of Business Advisors on several occasions. As
revised by the settlor in 2012, the members of that committee
are: Johnson, McDonald, Saturley, Nancy, and Diane Benoit.
Janice was nominated as a "Special Equity Voting
Member" solely to exercise voting powers pertaining to
"any voting equity interest" in a business ...