Ramsey County District Court File Nos. P5-90-169895 and P5-90-169900
Considered and decided by Klaphake, Presiding Judge; Willis, Judge; and
When a trust grants a trustee discretion in the exercise of a power, determining whether the trustee abused its discretion requires consideration of (1) the extent of the discretion conferred on the trustee; (2) the purposes of the trust; (3) the nature of the power; (4) external standards by which the reasonableness of the trustee's conduct can be judged; (5) the motives of the trustee in exercising or refraining from exercising the power; and (6) whether the trustee has an interest that conflicts with that of the beneficiaries.
The opinion of the court was delivered by: Willis, Judge
In this dispute, arising from the trustees' motion for an order approving an accounting for two trusts, appellant challenges the district court's grant of summary judgment to the trustees. Appellant argues that there are genuine issues of material fact that preclude summary judgment and that the district court erred (1) in its interpretation of the term "sole discretion" as it is used in the trusts; (2) by concluding that the exculpatory clause in one of the trusts is valid and enforceable; and (3) by relying on extrinsic evidence of the settlor's intent, including inadmissible hearsay evidence. Because we find no error by the district court, we affirm.
Appellant Perry Divine is the sole current beneficiary of a testamentary trust created by his now-deceased father, Ruben Divine, and respondent U.S. Bank is one of the trustees. In 1983, Ruben Divine created two trusts, Trust A and Trust B, and named as trustees First Trust Company; respondent Neil Boderman, a long-time friend; and Patricia Divine, Ruben Divine's wife and appellant's mother. In 1991, American Bank and Trust Company, which later became Firstar Bank and ultimately respondent U.S. Bank, became corporate trustee.
Appellant's parents were co-owners of the Enivid Corporation, whose sole asset is a commercial building in Saint Paul, and each parent owned half of Enivid's 50 shares of stock. Ruben Divine died in 1986, and his 25 shares of Enivid stock became assets of the trusts, with 18 shares being held by Trust A and seven shares by Trust B. The trusts also hold interests in various limited partnerships, all of which are highly illiquid and none of which has ever generated significant income.
Trust A provides that appellant's mother, who died in May 2001, was entitled to all of the net income generated by Trust A. During her lifetime, the trustees also were required to distribute to appellant's mother such sum or sums out of the principal of the trust as the Trustees, in their sole discretion, shall deem advisable for maintenance, care and support, taking into consideration in making such payments the then size of the trust, the station of life to which she has been accustomed, and her probable future requirements.
Appellant's mother could also "require the Trustees to distribute" to her up to $10,000 per year from the principal of Trust A. Finally, pursuant to the provisions of Trust A, its corpus was to be transferred to Trust B when appellant's mother died.
Trust B provides that the trustees "pay... the net income from the trust to [appellant's mother] during her lifetime or [appellant], or both of them." Trust B further provides that
the Trustees may pay such amounts of principal from the trust as [U.S. Bank], in its sole discretion, shall deem necessary for the support and maintenance of [appellant's mother] and for the support and maintenance of [appellant], taking into consideration the station of life to which they have been accustomed, the then size of the trust estate, their probable future requirements and their other assets.... [T]hese discretionary provisions [shall] be construed liberally and applied in [appellant's mother's] interest and for her benefit, and..., in the event of any doubt or conflict of interest, the rights and interests of all others hereunder [shall] be dealt with by [U.S. Bank] as subordinate and secondary to her rights and interests[.]... [U.S. Bank] may rely upon and need not verify the statements of [appellant's mother] as to her other assets and its judgment as to the amount and advisability of such discretionary payments shall be final and conclusive upon all persons interested in [Ruben Divine's] estate, and upon making any such payments, [U.S. Bank] shall be released and discharged from all further liability or accountability therefor.
Prior to 1991, appellant's mother received $5,000 per month from Trust A, an amount slightly greater than the trust's net income, and all of the net income from Trust B. U.S. Bank, Boderman, and appellant's mother met "several" times in 1991 to discuss the trust assets and to determine whether they would ever provide significant income to the trusts. The trustees decided to continue monthly distributions of $5,000 from Trust A to appellant's mother, in addition to the annual $10,000 distribution that she could demand. From 1990 through 1996, appellant's mother also received distributions from Trust B in excess of $80,000. Because of U.S. Bank's concerns about rapid depletion of the assets of Trust A, the trustees decided in 1997 to distribute to appellant's mother a total of $5,000 per month from the two trusts' income and principal.
At the time of the 1991 meetings, the trustees decided to make distributions from Trust B to appellant's mother and not to appellant because of "concerns about [appellant's] stability, and his ability to manage money." The record shows that appellant began treatment for depression in 1991 and that he had not supported himself since then. Except for a four-month period in 1998 during which Boderman employed him, appellant had been unemployed continuously since 1991. The record also shows that appellant's mother used funds she received from both trusts to support appellant and his family. Indeed, appellant testified that his mother paid all of his living expenses from 1991 or 1992 until her death.
In April 2000, appellant met with a representative of U.S. Bank and requested a distribution of $50,000 from the trusts to finance an "air taxi business." U.S. Bank discussed appellant's request with his mother, and she instructed U.S. Bank to discontinue her monthly distributions and to distribute the money to appellant. Over the course of ten months beginning in May 2000, appellant received $50,000 from the trusts, but he failed to start the air-taxi business.
During the summer of 2000, appellant's mother met with a U.S. Bank representative and discussed distribution of Enivid shares from Trust A to her. Appellant's mother had been diagnosed with cancer, and, as part of her estate planning, she had created her own testamentary trust to hold her 25 Enivid shares. The trust was for the benefit of appellant's children, and appellant's mother named as co-trustees her attorney and her former daughter-in-law, Dianna Lynn Divine, who is appellant's former spouse. Appellant's mother expressed concern that "leaving [appellant] and Dianna (as trustee) as 50/50 partners in Enivid created a risk of conflict. . . which could have an adverse impact on her grandchildren."
In December 2000, U.S. Bank approved the distribution of two shares of Enivid from Trust A to appellant's mother. U.S. Bank valued Enivid at $6,000 per share, based on "a prior appraisal and the real estate tax statement for the company's building and the value of its mortgage." U.S. Bank made the distribution based on (1) the right of appellant's mother to demand distribution from the principal of Trust A; (2) the bank's "deference to [her] judgment as to the best way to ensure the support of [appellant] and [appellant's] children following her death"; (3) the bank's "understanding of [Ruben Divine's] directive in his will that the trustees apply the trust distribution provisions for" the benefit of appellant's mother; and (4) the bank's "independent judgment that [appellant] had not shown that he would be capable of appropriately controlling the family corporation."
In August 2001, U.S. Bank and Boderman moved the district court for an order approving an accounting for Trust A and Trust B for the period from March 1, 1996, through February 28, 2001. Appellant objected, contending that the trustees failed to prudently invest the trusts' assets, improperly made distributions to his ...