Evertson v. Evertson Fiduciary Mgmt. Corp. (In re Bruce F. Evertson Dynasty Trust)

Citation: 446 P.3d 705Docket: S-19-0003

Court: Wyoming Supreme Court; August 12, 2019; Wyoming; State Supreme Court

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Evertson Fiduciary Management Corporation (EFM), acting as Trustee of the Bruce F. Evertson Dynasty Trust, filed a "Petition for Instructions" with the district court to confirm its authority under Wyoming law and the Trust Agreement to decant trust property into two separate trusts. EFM sought court approval for its decanting proposal, which involved distributing a portion of the trust's primary asset—a 2,300-acre ranch in Nebraska—into new trusts for the benefit of the Trust's beneficiaries. This proposal included transferring the "Watts" property, representing 17.2% of the ranch and the only section with cash flow potential, to a limited liability company for Edward and his descendants, while the remainder would be allocated to a new trust for Darla, Julie, and Julie's descendants, despite the latter portion operating at a loss.

Edward Evertson, a beneficiary, objected to the motion, but the district court granted EFM's request, ruling that decanting is permissible under applicable law and the Trust Agreement. The court also addressed disputed factual issues regarding the decanting's alignment with the Settlor's intent and the Trust's purpose. On appeal, the focus was whether the district court erred by resolving these factual disputes during a motion for judgment on the pleadings, which should have been limited to the question of EFM's general authority to decant. The appellate court affirmed part of the district court's decision but reversed the portion that extended beyond the discrete legal question.

EFM contended that Bruce's unexpected death led to inadequate funding of the Trust for its intended purposes. Despite having an oil and gas lease with Evertson Well Service, which expired in December 2016 and was not renewed, the Trust generated limited income from cattle ranching and farmland leasing, insufficient to cover operational costs. EFM expressed a desire to uphold the Settlor's intention of not using the Ranch for commercial hunting and stated that current operating expenses were as efficient as possible. To maintain funding, the Trust borrowed from a company owned by Darla Evertson, Julie Wamsley, and her descendants, but faced challenges in repaying future debts, leading to reluctance from the company to continue lending. EFM, while currently not charging for trustee services, indicated it would do so if decanting was denied.

The proposed decanting aimed to achieve three objectives: (1) ensure the Trust property benefits the Settlor's intended beneficiaries while providing favorable tax treatment; (2) address the Trust's financial challenges stemming from its underfunding; and (3) facilitate amicable enjoyment of trust assets among beneficiaries with conflicts. EFM cited a specific provision in the Trust Agreement granting the Trustee discretion to distribute trust income and principal and argued that decanting was permitted under Wyoming law, aligned with the Settlor's intent.

Darla and Julie supported the petition, asserting their capability to secure funds for trust asset operations. In contrast, Edward opposed the petition, arguing it conflicted with Bruce's intent and the Trust Agreement, was not authorized by Wyoming law, breached EFM's duty of impartiality, and relied on a flawed appraisal. He requested a full accounting of the Trust's assets for evaluating the decanting proposal. EFM later filed a "Motion for Judgment Granting its Petition for Instructions," likening it to a motion for judgment on the pleadings and asserting its decanting authority under Wyoming statute.

EFM asserted that, according to the Trust Agreement, it has broad discretion regarding the distribution of income and principal, including the authority to decant the trust. It cited Paragraph 2.1.2, which allows the Trustee complete discretion to distribute trust assets "for any purpose" during Darla's lifetime, and Paragraph 8.5.9, which states the Trustee's discretion is absolute and can only be challenged in court if the Trustee acts irrationally, in bad faith, or violates specific provisions. The Settlor intended for the Trustee to effectively interpret and implement the trust's intentions amid changing circumstances. EFM also referenced Paragraph 8.5.13, which empowers the Trustee to distribute income or principal to select beneficiaries without the need for explicit mention in the trust terms, alongside Paragraphs 2.1.4 and 9.5, which prioritize Darla's needs over those of the Settlor’s descendants and allow asset distribution without beneficiary consent.

Darla and Julie supported the decanting into two separate trusts, asserting it was reasonable and compliant with the Trust Agreement. In contrast, Edward opposed the motion, acknowledging Wyoming law supports decanting but questioning the appropriateness of the proposal. He argued that genuine factual disputes exist regarding its alignment with Bruce's intent and the Trust's purpose.

The Trust Agreement specifies that the Dynasty Trust is to last for a maximum of 1,000 years or until the Trustee determines a sale of the Ranch is absolutely necessary for the care of the Settlor's descendants. The Settlor intended to wait at least 250 years before considering any sale or change in use of the Ranch, which is to benefit the Settlor’s wife and descendants. Edward contended that the proposed decanting contradicts Bruce's intent to maintain the Ranch as a whole for at least 250 years, arguing it alters the Trust's purpose by dividing the Ranch prematurely based on alleged financial issues, thereby limiting beneficiaries' access to the entire property.

Edward contended that the proposed decanting of the Trust violated Paragraph 2.2 of the Trust Agreement, which mandates that the Trustee maintain a combined fund and account for each descendant's per stirpital share upon termination of the Primary Term. Edward argued he and his sister Julie would each receive 50% of the Trust if the Primary Term ended today, but under the proposed decanting, he would only receive 17.2%. He raised concerns about potential breaches of EFM's fiduciary duties, particularly regarding impartiality in trust management, and disputed EFM’s claim that decanting was necessary due to the uneconomical nature of holding the Ranch, noting he needed an accounting to assess the situation. Edward also challenged the accuracy of the appraisal of the Watts property.

In response, EFM asserted that the issues Edward raised were immaterial to the core legal question of whether it had the authority to distribute Trust assets to two new trusts benefiting different beneficiaries. EFM maintained that the Trust Agreement granted it discretion to make distributions and that Wyoming law supported its actions. 

The district court granted EFM's Petition for Instructions, finding the Trust underfunded due to Bruce's death and affirming that decanting was permissible under Wyoming law. The court noted there was no requirement in the Trust for maintaining a single fund and recognized the Settlor’s intent to benefit his wife and descendants, suggesting that decanting aligns with this intent. The court concluded that decanting would not disrupt the Trust's purpose and found no evidence of bad faith or breach of fiduciary duty by the Trustee, ultimately stating that the administration of the Trust was consistent with statutory and Settlor's intent.

The resolution of the appeal is based on the parties' stipulations regarding Wyoming law, which permits a trustee to seek court instructions for trust administration (Wyo. Stat. Ann. 4-10-201(c)). A judicial proceeding can address any trust administration matter, including requests for instructions, particularly when there is uncertainty about the trustee’s powers or trust provisions (Restatement (Third) of Trust, 71). The parties agree that EFM's "Motion for Judgment Granting its Petition for Instructions" effectively functioned as a motion for judgment on the pleadings under W.R.C.P. 12(c), which is valid when all material facts are admitted, leaving only legal questions to be resolved (Newport Int'l Univ. Inc. v. Wyo. Dep't of Educ. 2008 WY 72). The review of a district court's order in this context is de novo, considering facts in the light most favorable to the opposing party, and a motion is granted only if the facts necessitate a legal judgment.

The sole issue before the district court was whether EFM, as Trustee, had the authority to decant trust property under Wyoming law and the Trust Agreement, to which the court affirmed positively. Wyo. Stat. Ann. 4-10-816(a)(xxviii) allows a trustee to distribute trust income or principal as permitted by the trust instrument, and Wyo. Stat. Ann. 4-10-816(a)(xxx) permits a trustee to separate a trust for multiple beneficiaries unless the trust specifies otherwise. The Trust Agreement grants EFM broad authority to decant trust property, allowing distributions during Darla's lifetime for any purpose and providing discretion in distributing to beneficiaries (Paragraphs 2.1.2, 8.5.13, and 9.5).

The parties disagree on whether the district court exceeded its scope by addressing disputed factual issues related to the decanting's appropriateness, which Edward contends should only be resolved through discovery and a trial. Edward argues for limiting the district court's decision to the narrow legal question or, alternatively, reversing and remanding for further proceedings on the factual disputes.

EFM contends that the district court's factual findings were neither material nor necessary, asserting its request was solely for confirmation of its authority to decant assets without court or beneficiary approval, and that any claims regarding potential breaches of fiduciary duties were hypothetical. However, EFM's Petition for Instructions explicitly sought both confirmation of its decanting authority and approval for the proposed decanting actions. The Petition outlined the distribution of Trust property for the benefit of the beneficiaries, indicating that EFM requested the court to resolve related controversies and confirm its ability to distribute assets.

The district court, however, addressed disputed material facts regarding the appropriateness of the proposed decanting, concluding that the Trust was "underfunded" and that conditions surrounding the trust property had changed. The court found the decanting aligned with the Settlor's intent and the Trust's purpose, noting several factors: no requirement for the trust property to remain in a single trust, a valid method for preserving the Settlor's intentions, consistency with the trust's overarching purpose, preservation of the Ranch for the Settlor’s family, prevention of premature sale or termination of the Trust, and compliance with Wyoming statutes and the Settlor's intent.

Moreover, the court determined that EFM did not breach its fiduciary duty and acted within its powers. Despite EFM's broad discretion to distribute trust principal, Edward challenged EFM's rationale for the proposed decanting, particularly its claim regarding the economic viability of maintaining the Ranch, and sought an accounting to verify this claim. He disputed whether the decanting adhered to the Trust Agreement, which stipulated a 250-year waiting period before considering any sale or change of use of the Ranch, and required the Trustee to maintain a combined fund while tracking each descendant's share upon the Trust's termination. These disputes were deemed material by the court.

Wyo. Stat. Ann. 4-10-816(a)(xxx) permits a trustee to separate a trust into individual trusts only if the governing trust document does not mandate the property to be maintained in a single trust for the beneficiaries. The interpretation of the Trust Agreement is essential to discern the settlor's intent, as established in Shriners Hosps. for Children v. First N. Bank of Wyo. In that case, after the settlors' death, Shriners sought to terminate a trust primarily composed of ranch property, claiming it was no longer practical. The district court held a bench trial and denied Shriners' petition, determining that the trust had dual purposes: maintaining the ranch for agricultural use until 2100 and benefiting Shriners and another beneficiary, Kalif. Shriners' appeal contended that the court erred in recognizing ranch retention as a material trust purpose. While the trust agreement emphasized beneficiary benefits, other provisions indicated the settlors intended for the ranch's retention as a significant objective. 

In the current case, Bruce's intentions and the Trust's purposes were critical in evaluating the proposed decanting, which Edward contested. The district court improperly resolved these matters and the validity of the decanting reasons on a motion for judgment on the pleadings, failing to consider whether the Trust Agreement was ambiguous or how the proposed decanting aligned with Bruce’s intentions. Interpretation of an unambiguous trust instrument is a legal matter, and factual findings regarding the appropriateness of the decanting exceeded the legal question before the court and involved disputed material issues.

Ultimately, the court declined to remand for further proceedings, stating that EFM's Petition for Instructions, despite its broader language, aimed to clarify whether it had the authority to decant under Wyoming law and the Trust Agreement. Both parties acknowledged EFM's authority, allowing the court to limit its decision to this narrow legal question, concluding that no further proceedings were necessary at this time.

The district court's judgment is affirmed to the extent that it recognizes EFM, as Trustee of the Trust, has the authority to decant trust property under Wyoming law and the Trust Agreement. However, the judgment is reversed in other respects. The central legal question was whether EFM had the general authority to decant under Wyoming law and the Trust Agreement, which the district court confirmed. The court erred by resolving disputed material facts regarding the propriety of EFM's proposed decanting, as these findings exceeded the legal question at hand and involved disputed issues.

Justice Boomgarden concurs, emphasizing that the applicability of Wyoming Statute 4-10-816(a)(xxx) was not part of the original case. EFM's Petition sought to confirm its authority to decant but cited only 816(a)(xxviii) and did not reference 816(a)(xxx). Edward, in his response, claimed that 816(a)(xxx) applied, arguing that EFM's actions violated that statute, yet he did not invoke it in his Petition or on appeal. His focus remained on whether the court improperly resolved material factual issues without a trial. Despite neither party relying on 816(a)(xxx) in their arguments, the majority opinion suggests that it is more applicable, as it pertains to the distribution of trust property into separate trusts, which is what EFM proposes.

The majority's conclusions regarding Wyoming Statute 4-10-816(a)(xxx) as a decanting power and its relevance to the case overlook critical statutory interpretation questions. Specifically, it raises issues about the clarity of 816(a)(xxx) compared to 816(a)(xxviii), which pertains to a trustee's authority to distribute trust assets. The interpretation of whether both sections refer to decanting is questioned, as are the implications of 816(b) restrictions not applying to 816(a)(xxx). There is also uncertainty about EFM's ability to utilize 816(a)(xxx) to separate the Trust into two trusts for three beneficiaries. The author argues that these interpretations should be reserved for a future appeal when the issues are fully presented and briefed.

Edward's appraisal valued the Ranch at $8,010,000, and EFM contended that Edward's failure to deny allegations in the Petition constituted admissions, citing W.R.C.P. 8(b)(6). However, the statute specifies that such admissions apply only where a responsive pleading is required, which was not the case here, as a "petition" is not classified as a pleading under W.R.C.P. 7(a). Edward argues that petitions for instructions should only address specific legal ambiguities, referencing Rock Springs Land and Timber, Inc. v. Lore, and contends EFM's Petition lacked a basis since they did not claim ambiguity regarding their decanting authority. EFM maintains that the petition was necessary to clarify any doubts stemming from the Trust's creation before the enactment of the decanting statute. Despite Edward's assertions, the district court had jurisdiction over the matter, and while EFM relied on 816(a)(xxviii), the author suggests that 816(a)(xxx) is more relevant to the case.

Decanting refers to transferring trust property into either a single trust or multiple trusts, with EFM proposing to separate the property into two trusts. Wyoming law generally permits the decanting of trust property, as indicated by statute 4-10-816(a. xxviii). EFM acknowledged during oral arguments that the Petition could be interpreted as a request for approval of this decanting. The district court noted that the Trustee claimed there were no alternative methods to fund the Trust while adhering to its directives; however, this statement echoed EFM's allegations rather than being a factual finding. 

The court's characterization of "decanting" pertains specifically to the proposed action and confirmed that the Trustee is best positioned to uphold the Settlor's intentions. The court's ruling granted the Petition for Instructions without restrictions, affirming that decanting is allowed under Wyoming law and the Trust Agreement, and deemed the proposed decanting appropriate. The court also determined that the Trustee did not seek instructions in bad faith, though this does not imply the proposed decanting was free from bad faith concerns.

EFM's proposal effectively aims to terminate the original Trust, similar to the outcome in Shriners, which emphasizes the Settlor's intent in trust interpretation. EFM's counsel suggested that additional factual findings were merely contextual, but these findings could support a future collateral estoppel claim against Edward. The criteria for collateral estoppel include whether the issues are identical, if there was a judgment on the merits, party involvement, and whether there was a fair opportunity to litigate. Despite EFM's assurance that it would not claim preclusive effect from the district court's order, the opinion allows Edward to seek an injunction or relief later if EFM moves forward with the decanting. The court's decision concludes the case without necessitating a remand and does not address the merits of the decanting arguments. The relevant statute, Wyo. Stat. Ann. 4-10-816, is part of the Uniform Trustee Powers Act, detailing 32 enumerated powers.

Section 816(a)(xxviii) grants trustees the authority to distribute trust income or principal in further trust for the benefit of beneficiaries, allowing for both discretionary and mandatory distributions, regardless of whether they adhere to an ascertainable standard. Section 816(a)(xxx) allows trustees to separate a trust into individual trusts or shares for multiple beneficiaries unless the trust instrument specifies otherwise. However, Section 816(b) imposes limitations on the powers granted under Section 816(a)(xxviii), specifically prohibiting any actions that would jeopardize federal tax benefits related to estate, gift, or generation-skipping transfers. Additionally, if a trustee who is also a beneficiary makes a distribution in further trust, it must not alter their beneficial interest. Trustees are protected from liability for good faith exercise of their powers under this section. The Uniform Trustee Powers Act does not impose further limitations. In response to a claim regarding the applicability of Section 816(a)(xxx), the district court clarified that decanting is explicitly provided for under Section 816(a)(xxviii) and that Section 816(a)(xxx) allows for separation of trusts unless otherwise directed by the trust instrument. The court did not determine that Section 816(a)(xxx) serves as decanting authority nor did it imply it was the most relevant statutory authority for asset distribution in this case. The district court’s interpretation concluded that the trust did not require property to be held in a single trust, which was not a determination of decanting. The majority noted that the district court's legal analysis regarding the proposed decanting was flawed.