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.

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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

Trustee Attorney Fees are Properly Paid from the Trust under Minn. Stat. Sec. 501C.0709, 1004; Breach of Fiduciary Duty Claims Require Proof of All Elements; Removal of Trustee Under 501C.0706 Reviewed

The Court of Appeals issued the long awaited Lund appeal which addressed several issues but this review only touches on 3 issues. The first issue is the right of a trustee to have its attorney fees paid from the trust. The district court found that Minn. Stat. § 501C.1004 supersedes common law and denied the trustee attorney fees but the court of appeals reversed. The common law provides that “a trustee is entitled to reasonable attorneys’ fees, to be paid out of the trust estate, incurred in good faith in defending his administration of the trust.” In re Freeman’s Trust, 75 N.W.2d 906, 907 (Minn. 1956). The court of appeals found that Minn. Stat. § 501C.0709 authorizing a trustee to pay attorney fees from the trust leaves the common law on this point undisturbed. The ability to pay attorney fees to “any party” under Minn. Stat. § 501C.1004 did not alter the common law or section 0709. So trustees can still pay attorney fees from the trust incurred in good faith, and “any party” may also have fees paid from the trust under Minn. Stat. § 501C.1004. The next issue is proving a breach of fiduciary duty. In this case the party asserting the breach of fiduciary duty failed to prove the last element in a breach case, damages. The person asserting a breach must prove duty, breach, causation and damages. But the party bringing the claim failed to prove damages in their brief. Apparently they tried to argue damages in the response brief but that is not allowed. Because one of the elements of breach of duty was not proven the claim fails. The third issue is removal of trustees.  Minn. Stat. § 501C.0706 allows removal of trustees for a substantial change in circumstances. That was apparently found for one trustee but the court also seemed to say that such trustee’s removal was by the consent of all qualified beneficiaries, served the beneficiaries best interests and was not inconsistent with the material purpose of the trust. Since all beneficiaries requested the removal, a substantial change of circumstances ruling was not needed. Another trustee was not removed because there was no substantial change in circumstances.

Posted in 501C.0706, 501C.0709, 501C.1004, Attorney fees, Breach of Fiduciary Duty, Uncategorized

Excluded spouse under slayer statute can still have standing in probate, 524.1-201(33), 2-803(a), (f).

In re: Estate of Sandra Sandland, Deceased, A17-2016; Filed December 10, 2018. In this case the husband killed his wife. Under the Minnesota slayer statute Minn. Stat. § 524.5-803 the husband is no longer an heir of the estate. When a joint tenant owner kills the other owner the joint tenancy is severed and becomes a tenant in common interest. Johnson v. Gray, 533 N.W.2d 57 (Minn. App. 1995). A tenant in common owner can’t exclude a co-tenant in common owner. Petraborg v. Zontelli, 15 N.W.2d 174 (Minn. 1944). The husband was in prison and created a power of attorney to have a person act on his behalf. The POA wanted access to the house but the special administrator of the estate denied access arguing lack of standing for the POA. At issue is whether the POA has the right to enforce property interests for the surviving spouse when that surviving spouse was removed as an heir due to the slayer statute Minn. Stat. § 524.5-803. In this case the court of appeals found that although the husband was removed as an heir, he still had an interest in the estate because he was a co-tenant in common owner of the real estate and could sue the estate to protect his own personal rights of his property. The court also looked to Minn. Stat. § 524.1-201(33) to find that the husband remained an interested person in the estate because he is still a “spouse” under the statute and was included among “any others having a property right.” The POA is allowed to inspect the property and obtain the husband’s property.

Posted in 524.1-201(33), 524.3-803(a), Interested person, probate, Standing

Appointment of guardian and conservator is reversed for insufficient findings of fact.

In re the Guardianship and Conservatorship of Reinhold Struhs, A18-0452. Filed December 3, 2018, (Minn. App. 2018). In a rare case, the court of appeals reversed the appointment of a guardian and conservator because the findings were insufficient to support the appointment. The petitioner was a long-time friend of the respondent. The respondent was seen in town with urinary stains on his pants and seemed confused. He was dribbling all over his clothes. His driver’s license was taken in 2017. His living conditions were dilapidated and unlivable. It was claimed his furnace needed work. It was claimed that he ate mainly bread and sweets but he changed that after being confronted about his diet and he bought better foods. He was renting his farm at below market rents. No medical records were introduced. The problem is that evidence was not introduced to show that the respondent was acting with diminished capacity. For example, they alleged the respondent was confused about trips he had taken but did not offer proof showing the actual days of the trips. They did not introduce evidence that the furnace actually needed repair. They did not produce evidence that finances were in fact being wasted. There was no testimony regarding alternatives. It seems the testimony was thought to be self-evident without additional facts or evidence. The court of appeals found that the evidence did not meet the statutory burden.

Posted in Conservatorship, Guardianship