Opinion ID: 4368550
Heading Depth: 3
Heading Rank: 1

Heading: Patricia’s first proposed distribution

Text: After Edna’s and Olin’s deaths, Patricia became sole trustee of the KOR and ELR trusts in 2010, responsible for distributing the remaining trust assets into two new trusts for her and Gayle. In March 2011 Patricia proposed distributing the trust assets — cash, investments, real property, notes receivable, and equal shares of Rumac stock. Each individual trust would receive nearly $1.7 million in addition to the money already distributed. Gayle would receive an investment property at Stuckagain Heights, half-owned by the Rudes, with her share valued at $250,000. Patricia would receive the Bootlegger’s Cove property, to which she was given election rights in the KOR and ELR trusts, valued at $625,000. Patricia also would be assigned two creditor claims against her daughter Erin arising from loans Olin had made: the “Barber Note,” a deed of trust note with a balance of about $170,000, and the “Barber car loan,” a vehicle loan with a balance of $2,400. Gayle objected to this proposed distribution. She contested the real estate valuations and suggested appraising the properties. Patricia responded that Gayle could obtain appraisals at her own expense but that Patricia preferred using real estate broker opinions of value because of appraisers’ poor performance during the latest real estate bubble. Patricia refused to consider any appraisals not supported by historical sales figures from the previous two years. Patricia later rejected Gayle’s suggestion that they sell the Stuckagain Heights property and split the proceeds, noting that keeping the trusts active until sale would incur unnecessary expense and be contrary to the Rudes’ estate plan. -4- 7336 In June an appraiser Patricia hired said that an interested buyer would pay $95,000 for the remaining value of the Barber Note. Gayle obtained appraisals on the real property, valuing the Bootlegger’s Cove property at $675,000 and the Stuckagain Heights property at $170,000. Patricia reiterated that appraisals were unreliable and that relying on them instead of real estate brokers would be a breach of her fiduciary duty. She kept the Bootlegger’s Cove property at $625,000 and reduced the value of the Stuckagain Heights property to $225,000. In December Gayle provided notice that she wanted Patricia to liquidate the Stuckagain Heights property and distribute the remaining assets immediately. Gayle stated that she thought distributing the property without a liquidation cost adjustment and at a value above its appraised value would be a breach of Patricia’s fiduciary duties. Gayle did not want a distribution until the disagreement was settled. Patricia accepted Gayle’s terms “strictly for purposes of resolving this dispute” and to “bring this unhappy situation to an end and hopefully salvage some type of relationship with Gayle” and Gayle’s children. Patricia explained that she would liquidate the non-liquid ELR trust assets, add liquidation costs to the properties, and adopt Gayle’s appraisal values, changing the value of the Stuckagain Heights property from $225,000 to $170,000 and the Bootlegger’s Cove property from $625,000 to $675,000. 2. Patricia’s second proposed distribution and stock redemption In January 2012 Patricia sent Gayle a second proposed distribution. Patricia interpreted Gayle’s demand to liquidate the Stuckagain Heights property as a demand to liquidate all illiquid ELR trust assets, including the Rumac stock Gayle would receive. Patricia’s proposed distribution included: redeeming the Rumac stock in Gayle’s ELR trust for cash; adding to Gayle’s trust a $35,000 promissory note from Gayle’s daughter Maiken to Olin called the “Erickson Note”; combining the Barber Note -5- 7336 and Barber car loan values totaling $96,900; changing the Bootlegger’s Cove and Stuckagain Heights property values to their appraised values; adding the properties’ liquidation costs; and moving both properties into Patricia’s trust. The changes would leave Gayle’s trust with no relevant illiquid assets except for the Rumac stock from the KOR trust and the Erickson Note. Patricia’s equalization payment to Gayle would increase from over $82,000 to over $141,000. Patricia also claimed about $70,000 from the trusts as trustee fees. A few days later Patricia, as Rumac president, signed a “Memorandum of Action” announcing that she was redeeming half of the ELR trust’s Rumac stock for $275 per share, a price based on a 2007 stock redemption agreement between Rumac shareholders. The Memorandum did not acknowledge a 2011 stock redemption agreement valuing Rumac stock at $350 per share. Patricia then canceled the ELR trust’s stock certificate for the total shares and prepared a new certificate for the remaining half. Patricia deleted Gayle’s name and signature line from the certificate and signed only Patricia’s own. Four days after Patricia redeemed Gayle’s ELR trust stock, Gayle objected to Patricia redeeming any Rumac stock. The parties began protracted negotiations. 3. Patricia’s third proposed distribution Patricia rescinded the stock redemption in January 2014. Gayle and her children filed suit against Patricia that same day, but Patricia was not made aware of the suit until October. Meanwhile Patricia sent Gayle a third proposed distribution in February. The new proposed distribution reflected a rescission of the stock redemption so the sisters would have equal Rumac shares. It also included the Erickson and Barber Notes, retained liquidation costs for the real estate, and restyled previous distributions as “cash advances.” Patricia subtracted Gayle’s “cash advance” from the new equalization payment, reducing the equalization payment by almost $100,000. -6- 7336