Scott County District Court File No. 9808467
Considered and decided by Hudson, Presiding Judge, Toussaint, Chief Judge,
and Minge, Judge.
I. Receipt of $125,000 future gift from a trust was a condition precedent to the donee's repayment of a promissory note.
II. Judgment notwithstanding the verdict or a new trial is not warranted when the jury could have reasonably found that a surviving spouse lacked testamentary capacity and was unduly influenced in exercising a special power of appointment granted under her husband's trust.
III. A trustee bank did not breach its fiduciary duty by informing a current beneficiary of her right to exercise a special power of appointment pursuant to the trust instrument, when the bank officer referred her to independent counsel and did not materially affect her decision to exercise that power in derogation of any legal duty to a successor beneficiary.
The opinion of the court was delivered by: Hudson, Judge
Affirmed in part and reversed in part
Appellant bank, acting as corporate trustee, sued to enforce obligations to the trust under a note executed in favor of decedent settlor allegedly owed by his former son-in-law. Respondent's former son-in-law counterclaimed seeking declaratory relief and damages. The jury found, by special verdict, that: (a) the receipt of a future gift of $125,000 under the settlor's trust formed a condition precedent to the repayment of the note; (b) the surviving spouse of the settlor, in her attempt to exercise a special power of appointment to remove all assets from the trust, lacked capacity and was unduly influenced in her attempt to disinherit the former son-in-law; and (c) the corporate trustee bank breached its fiduciary duty by advising the spouse to disinherit the former son-in-law. Because the evidence sustains the jury's verdict as to the existence of the condition precedent, undue influence, and lack of capacity, we affirm on those issues. We reverse, however, on the issue of breach of fiduciary duty because we conclude that the bank, which merely advised the spouse on the possibility of exercising the special power of appointment and referred her to independent counsel, did not materially affect her decision to exercise that power in derogation of any legal duty to the former son-in-law as a successor beneficiary.
Appellant Norwest Bank*fn1 brought this action as trustee of a trust created by Stephen Lisle in order to enforce respondent Reed Beckler's (Beckler) obligations under a promissory note allegedly due and owing to the trust. The promissory note, signed by Beckler on Juneá1, 1993, evidenced a loan of $150,000 made by Lisle to Beckler to purchase the land on which Beckler's mobile home sales and finance business operated. At that time Beckler was married to Lisle's daughter, Cynthia Lisle Beckler. Beckler had a close relationship with his father-in-law, who had previously loaned him money to use in connection with his business.
The parties negotiated a rate of 10.5% interest on the loan, but no date was specified for repayment of the principal of the note. Beckler testified that it was his understanding, from a meeting with Lisle, that the note was to be repaid from a specific gift of $125,000 that Beckler was to receive, along with Cynthia Beckler, on Lisle's death, pursuant to the terms of a trust created by Lisle. According to Beckler, when he received word of the future gift, he took the note, which had previously listed only Lisle's name as payee, and added the word "Trust" in blue ink.
Stephen Lisle had executed this revocable trust in June 1993, naming Norwest Bank as corporate trustee. He had also executed a will in February 1993. His wife, Catherine Lisle, had executed a similar trust. The Restatement of Stephen M. Lisle Revocable Trust Agreement, Article 4b.(2) provided a special power of appointment:
[M]y trustee shall pay to or apply directly for the benefit of the group consisting of my children or their issue, such amounts or portions of the FAMILY TRUST as my wife, from time to time, may direct in writing. Her written request for such purpose shall be filed with my trustee, and may be effective immediately or upon the occurrence of a date or event in the future, such as upon her death. The special power of appointment conferred upon my wife under this subparagraph (2) shall not be exercisable in favor of, or for the benefit of herself, her estate, her creditors, or the creditors of her estate, or for the purpose of discharging her legal obligations. Any amount distributed to a beneficiary pursuant to the provisions of this subparagraph (2) shall not be charged against the share of the trust ultimately distributed to such beneficiary, as hereinafter provided, unless my wife shall so direct in the instrument exercising the special power of appointment.
Around the time he executed the trust, Lisle discussed the promissory note with Keir Johnson, the Norwest trust officer assigned to the Lisle accounts. At Lisle's direction, Johnson was not currently responsible for collecting interest on the note, but if Lisle became incompetent or deceased, Johnson was to treat it as a trust asset and collect the interest and principal when due.
In May 1994, Lisle had a stroke and died shortly thereafter. Upon his death, the trust changed from revocable to irrevocable. During June 1995, Johnson attempted to negotiate with Beckler regarding the terms of the note, seeking security for the note in the form of a mortgage on Beckler's property. Beckler refused to grant a mortgage and stopped paying interest on the note in March 1996, about the time that he and his wife instituted dissolution proceedings.
As the dissolution proceedings became more heated, Catherine Lisle contacted Johnson and expressed her wish to disinherit Beckler. In addition, Cynthia Beckler informed Johnson that Catherine Lisle wanted to eliminate the gifts to Beckler from the trust instruments. Johnson initially told Catherine Lisle that she could change the provisions of her trust, but that because Lisle had died, his trust could not be changed. At the time of the Beckler dissolution trial, however, Johnson became aware of a method by which this objective could be accomplished: by exercising her special power of appointment under the Stephen Lisle trust, Catherine Lisle could direct the trustee to pay out the trust funds among the descendants in any way that she chose, so that, as a result, no money would remain in the trust for payment of the gift to Beckler.
Johnson explained this provision to Catherine Lisle. At her request, he then called her attorney, Paul Steil, and conveyed Lisle's wishes to him. Steil drafted the necessary document for exercising the special power of appointment. He then went to Lisle's home along with Johnson for her to sign it. Steil reviewed the document, explaining its effect to her. Catherine Lisle signed the special power of appointment pursuant to Article 4b.(2) in the trust agreement on May 21, 1997. Steil testified that she was "very pleased that she was able to make this change," which negated the gift of $125,000 to Cynthia and Reed Beckler. Steil also suggested that she might want to revoke a power of attorney that she had given Beckler. She agreed ...