Statute of Limitations Minn. Stat. §541.05, Subd. 1 does not begin to run until damages accrue; when damages accrue just got fuzzier.

Hansen v. U.S. Bank as Special Administrator and Personal Representative of the Estate of Robert J. Hansen, A17-1608, Filed September 25, 2019, __ N.W.2d __, (Minn. 2019); reversing the Court of Appeals (and District Court) decision filed July 2, 2018. Seller (and his brother) was to sell property to the City in 2009. The City was to provide Seller a 5 year forecast (compiled by a CPA or other independent financial consultant) projecting revenue that will be able to pay the City’s debt service to purchase the property. Seller died November, 2009 and the Court appointed U.S. Bank as special administrator of the estate. The purchase agreement was amended in April, 2010. No projections were presented to the seller and the closing on the sale took place in April, 2010. The special administration was closed and the estate opened. The City financing went under and by August, 2012, payments on the note to seller stopped. The heirs sued the bank in January, 2017 alleging breach of fiduciary duty. At issue is when the statute of limitations started to run. The Court of Appeals (and the dissent in the Supreme Court) found, applying the Antone v. Mirviss, 720 N.W.2d 331 (Minn. 2006) case, that “some damage” accrued when the sale closed in 2010 because they lost their right to the projections or to re-negotiate the contract. At that point the requirement of the City to give projections ended and the sale was complete. The contract became fixed. The suit against the bank was initiated more than 6 years after the close on the sale so the statute of limitations under Minn. Stat. §541.05, Subd. 1 had run on the case. But the Supreme Court found that the loss of legal right was mere speculation when the sale closed. Some damage accrues when a legal right is lost or when there is a compensable injury. They thought the legal right at issue was to sell the property, not to sell the property at a good price. The good price was a compensable matter that falls under the compensable damage argument. The Supreme Court found that damages only started to accrue when the payments stopped in 2012. Since the Supreme Court found the legal right to be mere speculation they looked to the compensable damage analysis and found that damages accrued when payments stopped on the note, not when the sale was completed.

Posted in 541.05, Subd, 1, Beneficiary, Breach of Fiduciary Duty, Damages, Statute of Limitations, Supreme Court, toll, tolled

The Court establishes a balancing test to determine if an estate should be held open for a contingent claim.

In re the Supervised Estate of: Brian Scott Short, Deceased,  __ N.W.2d __ (Minn.App. 2019); filed August 26, 2019 A18-1682. “When determining whether to distribute assets or hold open an estate with a contingent claim, courts must apply a balancing test to weigh the interests of efficient administration of an estate against protection of the contingent claim, considering the following factors: (1) the nature of the claim being asserted before another tribunal; (2) the hardship on the estate of the deferred distribution of principal or income; and (3) the adverse effect of refusing any asset withholding and thereby potentially impairing satisfaction of a meritorious claim.” See Powers Blvd. Assocs. Ltd. V. Estate of Reel, 839 P.2d 516, 518 (Colo.App. 1992) citing In re Mellon, 314 A.2d 500 (Pa. 1974). In this case the federal suit that was the basis for the contingent claim was dismissed but appealed. The probate court decided to hold the probate open subject to the outcome of the federal case. The personal representative objected to and appealed the probate court’s decision to make the estate supervised (thereby barring distributions from the estate, 524.3-504/505) and for failing to uphold denial of the claim or distribution of assets. The court used non-Minnesota law interpreting the similar UPC provisions to the MN UPC. See In re Estate of Kotowski, 704 N.W.2d 522 (Minn. App. 2005, Johnson v. Murray, 648 N.W.2d 664 (Minn. 2002), review denied (Minn. Dec. 21, 2005).

Posted in 524.3-502, 524.3-504, 524.3-505, balancing test, creditor claims, supervised probate, Uncategorized | Tagged ,

Physician Statement Admitted as Harmless Error but may be Inadmissible Going Forward.

A physician statement in a guardianship-conservator proceeding was admissible evidence over hearsay objection (as harmless error) but may not be admissible under 803(6). Minn. R. Evid. 803(4). In re the Emergency Guardianship and Conservatorship of: Gary Burke, A18-1894 Filed July 22, 2019 (Minn.App. 2019). In this case, there was a series of facts that supported the appointment of an emergency guardian and conservator. The ward objected to the admission of the physician’s statement as hearsay under Minn. R. Evid. 801 which is generally not admissible under 802. But the rules of evidence allow some statements that are sufficiently trustworthy. Minn. R. Evid. 803/804. Rule 803(4) allows admission of statements for medical diagnosis or treatment. That was objected to because the ward argued that the records were not kept in the ordinary course of business and were prepared for litigation which would make the physician statement inadmissible under Minn. R. Evid. 803(6). But the court of appeals found that the evidence submitted was harmless error. The outcome of this ruling seems to be an outcome of a harmless error ruling rather than a ruling on hearsay. In other words, if the record had sufficient evidence to support a court order of guardianship then admission of the physician statement is admissible as harmless error. But if it is harmless error why should it be admitted if it is not needed? It seems the court of appeals thinks the physician statement is inadmissible under Minn. R. Evid. 803(6) if the statement is really needed for an order, i.e., it would not be harmless error if the evidence is that important. While this case allowed a physician statement under these facts, a court might not admit the statement in another case if you cite to this case that it is in fact an error to admit the physician statement, especially when the admission of evidence is more than harmless under your set of facts. This case also argued for less restrictive alternatives and reduced guardian powers which were denied based upon the record.

Posted in Conservatorship, Emergency guardianship or conservatorship, Evidence 801, Evidence 802, Evidence 803, Guardianship, Physician Statement, probate, Rules of Evidence, Vulnerable Adult

No liability for breach of duty that has no damages; attorney fees denied for acts by trustee that were a breach of duty; fees are proper for beneficiary when litigation benefits the trust.

In re the Trust of the Charles W.J. Curry Trust dated June 5, 1991 as amended, and In re the Trust of the Phyllis A. Curry Trust dated June 5, 1991 as amended, Filed June 24, 2019; A18-1653; A18-1656; (Minn.App. 2019) See case here. Son was Trustee of husband’s and wife’s trust. Father died first and wife died years later. Wife changed her trust and beneficiary who did not benefit from the change alleged undue influence and that was denied. But beneficiary also argued that trustee breached his fiduciary on three counts: 1) a 5/5 power was not exercised by a signed writing as required by the trust document, 2) the trustee paid himself a fee when it appears the document did not allow that, and 3) the trustee paid accrued income from dad’s trust to mom’s trust after mom had died. The Court ordered repayment of the accrued income distribution and the trustee fees and awarded the trustee attorney fees but denied the beneficiary attorney fees. While the 5/5 power was not exercised in writing, there was no damage. The beneficiary was allowed to exercise the power and that lack of writing did not damage anyone. As for the other breaches, the court ordered repayment, so there were no damages to the beneficiary. The beneficiary was arguing that if there is a breach of fiduciary duty then there must be damages but that is not the case. Beneficiary failed to prove damages beyond the relief already ordered by the court. The court awarded the trustee attorney fees. But the trustee did cause damage and should not have fought the items that were breaches resulting in damage. Thus the court ordered review of the trustee’s fees to determine what amount should be awarded. As for the beneficiary, the litigation did result in money returned to the trust so this benefit to the trust merited an award of attorney fees, the amount to be determined on remand.

Posted in Attorney fees, Beneficiary, Breach of Fiduciary Duty, case law, Case Law Update, Challenge a Will, Damages, trust, Trust Law

US Supreme Court Decides the Kaestner Trust Case in Favor of Taxpayer; States Can’t Tax Trusts Based Just on the Residence of the Beneficiary

North Carolina Department of Revenue v. Kimberly Rice Kaestner 1992 Family Trust was decided by the United States Supreme Court today, June 21, 2019 by ruling that if the beneficiary does not receive income from the Trust and the beneficiary cannot compel a distribution from the Trust and it is not certain the beneficiary will receive the income from the Trust, then the State may not tax the Trust income that is held in the Trust. The Due Process analysis asks for the minimal connections between the protection, opportunities and benefits given by the State and the person, property or transaction the State seeks to tax. “[T]he Due Process Clause requires a pragmatic inquiry into what exactly the beneficiary controls or possesses and how that interest relates to the object of the State’s tax…Similar analysis also appears in the context of taxes premised on the in-state residency of settlors and trustees.”

In this case, the Trust was created outside North Carolina and the Trustee was outside North Carolina. The Trust beneficiary lived in North Carolina but did not have the right to compel distributions from the Trust. The State of North Carolina tried to tax the Trust because a Trust Beneficiary lived in the State. The State’s connections were not sufficient to tax the Trust.

Interestingly the Court noted this is a similar analysis that applies to states that tax trusts based upon the residence of the settlor or beneficiary. Perhaps the Court is telegraphing the proper analysis to the Fielding case from Minnesota. The Fielding case was denied review the the United States Supreme Court so now the Minnesota Supreme Court Ruling in that case stands and the Minnesota long arm statute is unconstitutional.

Posted in Beneficiary, Due Process, Fiduciary Income Tax, Grantor Trust, income tax, Kaestner, Minnesota Supreme Court, Residence, Resident Trust, Supreme Court, tax, trust, Trust Income Tax, Trust Law, United States Supreme Court

2019 Minnesota Non-Tax Case Law Update

The Minnesota Non-Tax 2019 case law update is here. This includes some updates on interesting law across the country.

Posted in Uncategorized

US Supreme Court Upholds Minnesota Revocation on Divorce Statute 524.2-804

United States Supreme Court Reverses Eighth Circuit, Holds Minnesota’s Revocation-on-Divorce Statute is Constitutional in Sveen v. Melin:  By: Karin Ciano, Mason & Helmers [edited with permission]

In December 1997, a Minnesota couple, Kaye Melin and Mark Sveen, got married.  Sveen bought a life insurance policy naming Melin as beneficiary, with his adult children from a former marriage as contingent beneficiaries.  Then the Minnesota legislature amended the probate code, providing that a divorce decree automatically revoked the beneficiary status of the former spouse, unless (among other exceptions) the parties’ divorce decree provided otherwise.  See Minn. Stat. § 524.2-804.

In 2007, Sveen and Melin divorced; their divorce decree said nothing about the insurance policy.  When Sveen died in 2011, Melin was still named as beneficiary.  An insurance interpleader action followed.  Melin and Sveen’s children each claimed the insurance proceeds.  Sveen’s children argued that Minnesota’s automatic-revocation-on-divorce statute applied to bar Melin’s claim; Melin argued that she and her ex-husband had orally agreed to maintain the beneficiary designation, and so the statute unconstitutionally impaired her rights in the policy.

In early 2016, the Honorable Paul A. Magnuson granted summary judgment for the Sveen children, holding that Minnesota Statute § 524.2-804 was constitutional because there was no substantial impairment of Melin’s contractual rights.  Melin appealed to the United States Court of Appeals for the Eighth Circuit.  The Eighth Circuit reversed, following circuit precedent in Whirlpool Corp. v. Ritter, 929 F.2d 1318, 1324 (8th Cir. 1991), on the theory that it was Mark Sveen’s contractual rights that had been impaired when the Minnesota legislature changed the law, and that the law could not apply retroactively.  The Sveen children appealed to the United States Supreme Court.

In June 2018, the Supreme Court reversed 8-1.  Justice Kagan, writing for the majority, framed Minnesota’s statute as a default rule used “to resolve estate litigation in a way that conforms to decedents’ presumed intent.”  Sveen v. Melin, 138 S. Ct. 1815, 1818 (2018).  The majority noted that as divorce rates increased, almost all states adopted revocation-on-divorce statutes, presuming “that the average Joe does not want his ex inheriting what he leaves behind.”  Id. at 1819.

Turning to the constitutional challenge, the majority acknowledged that the “threshold issue is whether the state law has operated as a substantial impairment of a contractual relationship”—that is, “the extent to which the law undermines the contractual bargain, interferes with a party’s reasonable expectations, and prevents the party from safeguarding or reinstating his rights.”  Id. at 1821-22.

As had the district court, the Supreme Court majority concluded that Melin’s constitutional challenge failed because (1) the statute was designed to reflect, not thwart, a policyholder’s presumed intent; (2) given divorce courts’ power to change beneficiary designations, a policyholder could not reasonably expect a beneficiary designation to survive divorce; and (3) if the policyholder didn’t like it, he could have it addressed in the divorce decree or by submitting a post-divorce change-of-beneficiary form.   In Justice Kagan’s words, “the statute this reduces to a paperwork requirement (and a fairly painless one, at that): File a form and the statutory default rule gives way to the original beneficiary designation.”  Justice Gorsuch, in his first solo dissent, would have held that the statute “substantially impairs contracts by displacing the term that is the ‘whole point’ of the contract”—the beneficiary designation.  Id. at 1829-30.

Takeaways:  the Supreme Court doesn’t consider a “minimal paperwork burden[]” such as filing a fresh beneficiary designation form to be a “substantial impairment” of contract.  If a divorcing couple can be bothered to mention the snowmobiles in their divorce decree, but not the life insurance, that’s on them.  And lawyers in Minnesota can go back to advising our divorced and divorcing clients to check their insurance paperwork and be sure it does what they want it to.

Posted in 524.2-804, Beneficiary Designation, Divorce, Supreme Court, United States Constitution, United States Supreme Court