Opinion ID: 6535638
Heading Depth: 2
Heading Rank: 2

Heading: Did the district court err when it retained Lisa Kimsey as co-trustee?

Text: [¶29] Rolly contends the district court erred when it retained Lisa as co-trustee, because she breached her duties of impartiality and loyalty by discriminat[ing] against all beneficiaries except herself and Robert Redland, and seeking termination of the Redland Family Trust. 14 Wyo. Stat. Ann. §§ 4-10-802 , -803. Rolly further alleges that Lisa's hostility toward the other beneficiaries hampers proper administration of the trust. Finally, he contends the district court improperly relied on the appointment of the tie-breaker trustee to absolve Lisa from her repeated significant breaches of duty. [¶30] We review a district court's decision whether to remove a trustee for an abuse of discretion. Forbes v. Forbes , 2015 WY 13 , ¶ 33, 341 P.3d 1041 , 1053 (Wyo. 2015) (citation omitted). A court does not abuse its discretion unless it acts in a manner which exceeds the bounds of reason under the circumstances. Acorn v. Moncecchi , 2016 WY 124 , ¶ 71, 386 P.3d 739 , 760 (Wyo. 2016) (citation omitted). [T]he ultimate issue is whether or not the court could reasonably conclude as it did. Id. (citation omitted). [¶31] A settlor has a great deal of discretion in designating a trustee and can appoint a trustee who is an interested party, such as a beneficiary, despite inherent conflicts. Forbes , ¶ 30, 341 P.3d at 1052 (citations omitted). Generally, the court will not remove a trustee absent a demonstrated abuse of power. Id. (citations omitted). So  long as the trustee executes a trust in good faith and sound discretion, the court has no right to interfere and remove the trustee. Id. (citation omitted). [¶32] The UTC allows removal of a trustee for breaching a fiduciary duty owed to a beneficiary, Wyo. Stat. Ann. § 4-10-1001 (a), (b)(vii), and in the following circumstances: (i) The trustee has committed a serious breach of trust; (ii) Lack of cooperation among cotrustees substantially impairs the administration of the trust; (iii) Because of unfitness, unwillingness or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries; or (iv) There has been a substantial change of circumstances, or removal is requested by all of the qualified beneficiaries, and the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available. Wyo. Stat. Ann. § 4-10-706 (b). 15 However, courts are more reluctant to remove a settlor-appointed trustee than one who is court-appointed. Forbes , ¶ 30, 341 P.3d at 1052 (citation omitted). We require an enhanced showing of gross and willful misconduct to justify removing a settlor-appointed trustee. Shriners Hosps. for Children , ¶ 97, 373 P.3d at 416 (quoting Forbes , ¶ 29, 341 P.3d at 1052 ). [¶33] In denying Rolly's removal claim, the district court reasoned: 12. Lisa Kimsey was appointed as Trustee by Robert Redland one of the original settlors. This Court cannot find that her actions or inactions amounted to a violation of her fiduciary duties owed to the Trust. Although Ms. Kimsey and Mr. Rolly Redland do not many times agree as to how the administration of this Trust should occur, with Mr. Frank as the third Trustee, a thorough and sometimes exhaustive discussion of the issues has occurred with final votes being taken. The Trust is not dysfunctional in that the Trustees have voted on many controversial issues with a decision being articulated and followed. .... 14. There has been hostility between the desires Lisa Kimsey has and the desires for the Trust that Rolly Redland has. While there were only two Trustees they were at an impasse. Since the third Trustee has been appointed by the Court that impasse has been eliminated. It is true the Trustees have the sole obligation to manage the Trust assets. The Trustees could kick everyone off the holdings and require bids from the beneficial owners or third parties, or require the Trust beneficiaries or third parties to negotiate for utilization of the Trust property. They however have chosen to allow usage by the beneficiaries. That is but one of the options available to them. It has been difficult for the Trustees to accommodate other beneficial owners' usage along with their own. They have essentially resorted to what has worked in the past. They have found that to be workable, albeit not to everyone's satisfaction. The fact that the Trustees consult from time to time with the beneficiaries is their decision. It's not right it's not wrong. The fact that they sometimes don't consult with the beneficiaries is their decision. It's not right, it's not wrong. They have an obligation to manage the Trust as they can agree. Great weight is given to the selection of Lisa Kimsey as Trustee since her selection was made by Robert Redland, one of the original settlors. Likewise, Rolly Redland was appointed to replace Irene Redland. Weight is to be given his appointment as Trustee whether it was done by the settlor Robert Redland or the beneficiaries.  15. Hostility between Trustees and beneficial owners is likewise not unusual since the reason for the Trust is to remove the beneficial owners' ability to use Trust assets without considering the settlors' intent. Hostility alone is insufficient to remove a Trustee. That hostility must interfere with the proper administration of the Trust. Hostility may naturally exist in trust relationships since trusts are usually created to withhold control of the trust principal from the beneficiaries. Hostility between the trustee and the beneficiaries of the trust alone is insufficient to require the removal of the trustee. To be sufficient to require removal, the hostility must interfere with the proper administration of the trust. Shriners Hosps. For Children v. First N. Bank of Wyoming , 2016 WY 51 , ¶ 95, 373 P.3d 392 , 416 (Wyo. 2016) citing Forbes v. Forbes , 2015 WY 13 , ¶ 96, 341 P.3d at 1065 (quoting In re Trust Created by Hill for benefit of Schroll , 499 N.W.2d 475 , 485 (Minn.Ct.App.1993) ). Removing a Trustee appointed by a settlor requires an enhanced showing to justify the same, such as gross and willful misconduct. Id. at ¶ 97. I find that Lisa Kimsey and Rolly Redland do not fall into that category. ... (Emphasis added.) Viewing the record in the light most favorable to Lisa, we conclude the district court did not abuse its discretion by retaining Lisa as a co-trustee.
[¶34] Rolly contends Lisa improperly advocated for Robert over the other beneficiaries. First, Rolly points to Lisa's failure to assist him (after many demands) in obtaining Robert's signature on assignment documents to convey trust property to the trust as ordered by the district court. Lisa testified that she did not ask Robert to sign the transfer documents as Rolly requested because Robert moved to stay the district court's order pending an appeal. Lisa admitted that she did not assist Rolly after the district court denied the stay but claimed her assistance was unnecessary because Rolly already took steps to transfer the property. The district court weighed the conflicting evidence on this issue and reasonably concluded that Lisa's inaction did not amount to a violation of her fiduciary duty. [¶35] Moreover, Rolly failed to demonstrate that Lisa's inaction seriously harmed the trust. Mismanagement of the estate arising from a misconception or misunderstanding of the trustee's duties may be a ground for removal, but not if no serious harm has been done and no dishonesty or want of capacity is indicated. Forbes , ¶ 32, 341 P.3d at 1052-53 (citation omitted) (emphasis added); see also Shriners Hosps. for Children , ¶ 94, 373 P.3d at 415-16 (quoting Forbes ). Rolly, as co-trustee, successfully transferred all of the state leases and BLM allotments by providing to the agencies a copy of the court order and copies of the amended trust, and he obtained a contempt order to transfer the Manderson Farm. Thus, even if Lisa should have actively participated in transferring trust property while Robert appealed the district court's order, the record supports the district court's determination that Lisa's inaction did not hamper transfer of the trust property or otherwise seriously harm the trust. [¶36] Rolly also claims Lisa's request to fund the marital trust and her insistence that the trust reimburse Robert for alleged trust expenses he personally paid reflected her lack of impartiality. We disagree. As a trustee, Lisa had a duty to act in the best interest of the beneficiaries, and an equal duty to defend the settlor's intentions. Shriners Hosps. for Children , ¶ 57, 373 P.3d at 409 (citation omitted); Wyo. Stat. Ann. § 4-10-801 ; -802. A fundamental duty of a trustee is to carry out the terms of the trust. Id. (citation omitted). The 1995 Amendment required the trustees to establish a marital trust to provide income for the survivor of Robert or Irene. The record shows that the trustees did not establish or fund the marital trust as required by the trust's terms. Lisa advocated for compliance with the trust's terms and for reimbursement of trust expenses Robert personally paid so that the trustees could determine if funds were available to make distributions of net  income to all of the beneficial owners. The district court correctly determined that these circumstances did not reflect partiality or rise to the level of gross and willful misconduct as required to justify Lisa's removal as a settlor-appointed co-trustee.
[¶37] Next, Rolly asserts that Lisa breached her duty of loyalty by asking the court to terminate the Redland Family Trust. Although Rolly admits there is no precedent mandating this conclusion, he contends that Lisa's request to terminate the trust is in conflict with the dominant purpose of the trust and contrary to Lisa's statutory duty to administer the trust solely in the interests of the beneficiaries. Wyo. Stat. Ann. § 4-10-802 (a). As noted above, any notion that Lisa had a singular obligation to act solely in the beneficiaries' best interest is flawed. Shriners Hosps. for Children , ¶ 57, 373 P.3d at 409 (citation omitted). Lisa further counters that the UTC provides express statutory authority for a trustee to seek to terminate a trust and, therefore, she did not breach a fiduciary duty by pursing that remedy. [¶38] Lisa sought to terminate the trust on numerous grounds addressed in Issue I, supra . The UTC authorizes courts to terminate trusts for various reasons, including the inability to administer the trust effectively. See , e.g. , Wyo. Stat. Ann. §§ 4-10-411 (a), 412, 413, 415. The UTC also authorizes a trustee to commence trust termination proceedings. Wyo. Stat. Ann. § 4-10-411 (b). In light of Lisa's and Rolly's allegations and testimony concerning hostility, dysfunction, and difficulty administering the trust, and in the absence of any authority to suggest Lisa's request as a co-trustee to terminate the trust amounts to a breach of loyalty, the district court's determination that Lisa did not violate her duty of loyalty stands.
[¶39] Finally, Rolly claims Lisa's hostility toward the other beneficiaries and failure to communicate with them has hampered trust administration and therefore warrants her removal. As the district court correctly noted, [h]ostility between the trustee and the beneficiaries of the trust alone is insufficient to require the removal of the trustee. To be sufficient to require removal, the hostility must interfere with the proper administration of the trust. Forbes , ¶ 96, 341 P.3d at 1065 (citation omitted). The district court found that even though Rolly and Lisa were at an impasse over some trust matters at times, Mr. Frank's appointment as the tie-breaker trustee alleviates deadlocked situations. The record supports this finding. [¶40] At trial, both Rolly and Lisa discussed the hostility between the two factions of beneficial owners. Despite such hostility, the evidence at trial demonstrated the parties were able to resolve their differences to the extent necessary to permit the beneficiaries to utilize the trust property both before and after the appointment of a tie-breaker trustee. Specifically, Mr. Frank, the third (tie-breaker) trustee, testified that, although there is tension over usage of trust property, the beneficiaries follow the decisions made by the majority of the trustees even if disagreement exists with respect to the decision. One of the beneficiaries, Kendrick, testified that trust administration has improved with the appointment of Mr. Frank: A. ... since Dan Frank, that third trustee has come on, he has a very real understanding of how to run this type of an operation, and they are making good strides now of rolling this sucker back in and making it work. Dan has come up with some excellent ideas with his background. .... Q. Do you have a belief that over time that this Trust can actually start to run smoother? A. It's already doing that, since Dan-Dan Frank, the third trustee came on board, it's-it's rolling good. It isn't without its bumps and it's not expected to. From where it was to where it is today, it's a huge, huge improvement. [¶41] Additionally, the district court has, over time, assisted with trust administration, further avoiding any need to remove a trustee: the removal of an executor or trustee is harsh and severe; it is serious; it is a  drastic action; it should not be done unless clearly necessary; if the court can adjust the disputed matters, the removal should not be made .... Shriners Hosps. for Children , ¶ 97, 373 P.3d at 416 (quoting Forbes , ¶ 29, 341 P.3d at 1052 ) (emphasis added). For example, the district court required the trustees to set procedures for trustee meetings and file transcripts of those meetings with the court. The district court ordered the trustees to retain an impartial CPA within 60 days and set additional deadlines to pay out any net income for 2013 through 2016 after learning the trustees failed to determine and distribute the trust's net income for those years. The district court also ordered the trustees to establish and fund the marital trust, determine whether Robert is entitled to reimbursement for alleged trust expenses he personally paid, and determine whether the trust has an obligation to pay prior uncashed divided checks. Evidence regarding the administrative efforts of the third (tie-breaker) trustee and, from time to time, the district court, supports the district court's conclusion that hostility did not require Lisa's removal. [¶42] In sum, the district court did not err in concluding that Lisa did not violate her fiduciary duties-her duties of impartiality or loyalty-and that her actions did not amount to gross and willful misconduct. The district court, having facilitated resolution of trust disputes in a manner to avoid the necessity of removal, Shriners Hosps. for Children , ¶ 97, 373 P.3d at 416 , and viewing the record before the district court in the light most favorable to Lisa, we conclude the district court did not abuse its discretion when it retained Lisa as a settlor-appointed co-trustee.