Almost invariably, settlors give their trustees broad powers regarding trust property. Often these broad powers include the power to convey and encumber trust property and the power to loan trust property. But, sometimes, the settlor also gives the trustee specific instructions with respect to specific trust property. In Hamel v. Hamel, the Kansas Supreme Court interpreted a trust instrument that gave the trustee broad general powers, but also specific directions regarding a specific piece of real property, and examined the interplay between the two provisions.
Arthur L. Hamel’s trust instrument gave the trustee broad authorization to control and administer trust property, including “the power to do all acts that might legally be done by an individual in absolute ownership and control of the property” and provided the trustee 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.” The trust also granted to the trustee “any power my Trustee needs to administer my Trust Estate, which is not hereinafter listed.” This same paragraph provided the trustee with “the power respecting property in [the] Trust Estate that an absolute owner of such property would have.”
But the trust also contained a specific provision relating to the sale of a farm held in 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 period, then it shall be divided in accordance with the above beneficiary’s fractional shares.
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. The Kansas Supreme Court determined that the trustees lacked authority to sell the farm to Dennis under the terms of this contract for deed.
Notwithstanding the broad powers granted to the trustees under the trust instrument, the specific provision regarding the farmland conveyed 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 among the beneficiaries. Arthur’s intent was frustrated when the trustees entered into an impermissible 6-year contract. Thus, the purchase of the property would not be final until more than 6 years – rather than 3 years – after Arthur’s death.