Hennepin County District Court File No. 27-TR-CV-10-63
SYLLABUS 1. The district court erred by granting summary judgment to the trustee on the beneficiary's claim that she is entitled to additional distributions of principal from the trust.
2. Because the trust agreement allows the beneficiary to convert "unproductive property" to "productive property," the beneficiary may convert property that does not produce income to property that does produce income, even if property that does not produce income tends to appreciate in value so as to enlarge the amount of trust principal.
The opinion of the court was delivered by: Johnson, Chief Judge
Considered and decided by Johnson, Chief Judge; Worke, Judge; and Schellhas, Judge.
This appeal concerns the terms of a trust that was created to provide for the grantor's wife after his death. Since the grantor's death, his widow has received all income produced by the trust and limited distributions of trust principal. The trustee has denied her requests for additional distributions of principal. In addition, the trustee has denied her requests to convert non-income-producing property to income-producing property.
In this action to determine the propriety of the trustee's actions, the district court granted summary judgment to the trustee. We conclude that the district court erred by granting summary judgment to the trustee on the issues of the widow's entitlement to additional distributions of principal and her right to convert non-income-producing property to income-producing property. We also conclude that the district court erred in its rulings on the parties' requests for attorney fees and costs. Therefore, we reverse and remand for further proceedings.
Grosvenor B. (G.B.) Van Dusen and Virginia Van Dusen were married in 1978. Each had four adult children from previous marriages; they had no children together. G.B. died in 1999.
In 1981, G.B. created the Grosvenor B. Van Dusen Revocable Trust by entering into a trust agreement with Norwest Bank, the predecessor of Wells Fargo Bank, N.A., of which respondent Lowry Hill is a division. He amended the trust agreement in 1986, 1987, 1991, and 1992. The 1992 trust agreement supersedes all prior agreements. G.B. named himself and the bank as trustees. Upon G.B.'s death, a successor co-trustee was appointed but died shortly thereafter. A second successor co-trustee was appointed and served until he resigned in 2001, at which time Lowry Hill became the sole trustee.
The trust agreement provides that, during G.B.'s lifetime, the trustees were required to pay him income as requested. The trust agreement further provides that, after G.B.'s death, if Virginia survives him, the trust assets shall be allocated to three different trusts: the Generation Skipping Trust, the Marital Trust, and the Family Trust. The Generation Skipping Trust was to receive "an amount equal to Grantor's unused generation skipping transfer tax exemption at the date of his death." The Marital Trust was to receive the remainder of the trust estate. The Family Trust was to receive "any portion of the Marital Share disclaimed by [Virginia]" and any remaining assets of the Marital Trust after Virginia's death. The Family Trust is to be administered after Virginia's death, and will be divided into four equal parts, three parts for the benefit of three of G.B.'s children from his prior marriage and one part for the two children of a pre-deceased son. G.B.'s three children and the two grandchildren are respondents in this appeal and have designated themselves as "remainder beneficiaries" of the Marital Trust. Because there has been no objection to their self-designation, we will refer to them as such for purposes of this opinion.
When G.B. died in 1999, the Marital Trust was funded with approximately $3,500,000 in principal. Article V of the trust agreement provides for income and principal distributions from the Marital Trust to Virginia as follows:
A. The Trustees, from the date of the Grantor's death, shall pay the income to [Virginia] in convenient installments, but at least quarter annually, during her life.
B. The Trustees may distribute to [Virginia] or apply for her benefit as much of the principal as the Trustees deem advisable to provide for her health, education, support, maintenance and care. In making this determination, the trustee shall have no obligation to consider other assets or income available to [Virginia]. The Grantor intends that the Trustees use principal liberally for [Virginia] to enable her to maintain insofar as possible the standard of living to which she was accustomed during the Grantor's lifetime.
The trust agreement also gives Virginia the right to convert unproductive property to productive property:
C. If any unproductive property is held by the Trustees in the Marital Trust, [Virginia], at any time, by written instrument to the Trustees, may compel conversion of such unproductive property to productive property, it being the Grantor's intention that [Virginia] shall have the full beneficial enjoyment of the Marital Trust.
Virginia presently receives income from five different trusts, including the Marital Trust established by G.B. She also receives G.B.'s pension benefits and social security benefits. Virginia contends that, before his death, G.B. expected that she would receive income of approximately $166,000 per year from the Marital Trust and more than $200,000 per year from all trusts. But Virginia consistently has received less than $100,000 in income from the Marital Trust and only once has received income of more than $200,000 per year from all trusts. Between 2000 and 2011, Virginia received an average of approximately $93,000 per year in income distributions from the Marital Trust. During the same period, Virginia received no principal distributions in some years and varying amounts of principal distributions in other years: $6,507 in 2002; $6,467 in 2005; $16,528 in 2006; $17,811 in 2007; $60,019 in 2008; $49,204 in 2009; $23,404 in 2010; and $73,771 in 2011.
Since G.B.'s death, Lowry Hill has served as trustee for all of the trusts to which Virginia is a beneficiary and has assisted Virginia in managing her personal finances. Virginia and Lowry Hill appeared to enjoy a good relationship until approximately 2009, when the relationship became strained for a variety of reasons. It was discovered in 2009 that Lowry Hill had mistakenly failed to make an approved principal distribution of approximately $49,000 in 2001. Lowry Hill did not make the distribution until May 2011, at the request of Virginia's attorney.
In addition, Virginia and Lowry Hill had conflicting views on her entitlement to principal distributions from the Marital Trust. During the same time period, Virginia expressed her desire for larger distributions of principal than she had requested in the previous decade. In March and May 2010, she requested principal distributions totaling approximately $62,850. She sought the funds to pay various living expenses and attorney fees, which she previously had paid from Marital Trust income and other income sources. In response, Lowry Hill asked for a meeting with Virginia to determine whether the requested distributions were due to changes in her financial situation. Virginia declined to meet with the trustee unless certain conditions were met. The trustee denied the entire $62,850 request based on information regarding Virginia's other sources of income and her expenses, "the fact that [Virginia] has had sufficient income to pay her living expenses in the past and has not previously sought discretionary distributions of principal from the Trust to pay these expenses," and "the absence of information indicating that there have been any material changes with respect to [Virginia's] financial circumstances and/or needs." In addition, in June and July 2011, while this case was pending in the district court, Virginia made five more requests for principal distributions, totaling more than $300,000. The trustee denied three of those requests; the appellate record does not reflect any action on the other two requests.
In May 2011, Virginia requested that Lowry Hill convert all non-income-producing property to income-producing property, pursuant to article V, paragraph B, of the trust agreement. Lowry Hill responded that Virginia did not have the right to require that all assets invested in non-income-bearing investments be converted to "100% income producing investments." Lowry Hill explained that some non-income-producing assets are "'productive property' because they have the 'productive' characteristic of growing principal in the Trust and the potential for yielding the benefits that come from such growth." Lowry Hill thus rejected Virginia's request. The district court did not receive evidence concerning the diminution in income due to the trust's investments in non- income-producing property. But the trust's financial records indicate that, as of April 2009, approximately $1,336,376 (47% of the trust's assets) was invested in equities, real estate investment trusts, and limited partnerships. Of that amount, approximately $445,722 (33% of those assets, or 16% of the trust's total assets) was invested in assets that were not expected to produce income.
In June 2010, Lowry Hill petitioned the district court for confirmation of its denials of the March and May 2010 principal requests and for instructions concerning the interpretation of the Marital Trust. Virginia objected to the trustee's petition and filed her own petition for court supervision of the Marital Trust and for removal of the trustee. The district court consolidated the two cases.
In October 2010, the district court heard cross-motions for summary judgment filed by Virginia and by Lowry Hill and the remainder beneficiaries. In December 2010, the district court granted Lowry Hill's motion in part, concluding that the trustee is permitted to consider Virginia's other sources of income when determining whether to make requested distributions of principal. The district court denied the ...