Court Opinion

ID: 4686225
Source: CourtListenerOpinion
Date Created: 2021-05-12 17:08:14.071843+00
Date Added: 2024-06-11T08:04:32.531632
License: Public Domain

IN THE COURT OF APPEALS OF IOWA

                                    No. 20-0393
                                Filed May 12, 2021

IN THE MATTER OF THE TRUST UNDER THE WILL OF
WILLIAM B. KRON SR.,

STEVEN ALAN KRON,
     Appellant/Cross-Appellee,

ESTATE OF DOUGLAS KRON,
     Appellee/Cross-Appellant.
________________________________________________________________

       Appeal from the Iowa District Court for Johnson County, Kevin McKeever,

Judge.

       The trustee of a testamentary trust appeals the district court’s construction

of a will, and a beneficiary cross-appeals from the denial of a motion to remove the

trustee. AFFIRMED ON APPEAL; AFFIRMED ON CROSS-APPEAL.

       Daniel P. Kresowik of Brick Gentry P.C., West Des Moines, for appellant.

       Joseph T. Moreland of Hayek, Brown, Moreland & Smith, L.L.P., Iowa City,

for appellee.

       Jay H. Honohan of Honohan, Epley, Braddock & Brenneman, Iowa City,

guardian ad litem.

       Heard by Vaitheswaran, P.J., and Greer and Schumacher, JJ.
                                            2

VAITHESWARAN, Presiding Judge.

        The trustee of a testamentary trust appeals the district court’s construction

of a will. A beneficiary cross-appeals from the denial of a motion to remove the

trustee.

I.      Background Facts and Proceedings

        William B. Kron Sr. and his wife, Evelyna B. Kron, each owned an undivided

one-half interest in a 130-acre farm and a 3.8-acre homestead. The couple had

three sons, Steven, Doug, and Bill Jr., and a daughter who died without children

before the events triggering this action.

        William Sr. executed a will in which he created a trust to receive his portion

of the real estate. He designated Steven as the trustee and gave him the first

option to purchase the real estate. Steven was also designated executor of the

will.

        William Sr. died in 2007. Two years later, Steven filed an application to

establish a residuary trust under the will. The district court granted the application

and named Steven trustee. In time, Evelyna took issue with Steven’s actions as

trustee and applied to have him removed. Steven agreed to the removal, an entity

was substituted as trustee, that entity was allowed to resign, and Steven was

reappointed trustee.

        Meanwhile, Evelyna died. In the intervening years, Doug and Bill Jr. also

passed away.
                                           3

       Fast forward to 2017. Steven, individually and as trustee of William Sr.’s

trust; Debra Kron,1 executor of Bill Jr.’s estate; and Alex and Nicholas Kron,2

individually and as executors of Evelyna’s and Doug’s estates; executed a

mediation agreement that authorized Steven to purchase the real estate in the trust

for a specified sum. The agreement contained the following paragraph:

       Upon the sale of the real estate, the payment of the mortgage, and
       the payment to Doug’s Estate, the remaining proceeds from the real
       estate sale will be distributed equally between the Trust and
       Evelyna’s Estate. The Trust will, as soon as practicable, then
       terminate, and any assets of the Trust will be equally divided
       between Steven, Doug’s Estate, and Bill Jr.’s Estate. Evelyna’s
       Estate will also be closed as soon as practicable, after the distribution
       of the proceeds from the sale of the real estate. All parties of this
       agreement will take the position for any challenges raised in the
       future, that Bill Sr.’s Trust defines “family members” as being the
       three (3) sons, Steven, Doug, and Bill Jr., and as such, upon the
       termination of the Trust, the assets of the Trust should be equally
       divided between Steven, Doug, and Bill Jr.

(Emphasis added.)

       Steven purchased the real estate through a company he owned with his

wife. He then filed a petition for construction of the will. In his petition, he conceded

       said beneficiaries have agreed that, as originally requested by
       Evelyna B. Kron, the Will be interpreted such that the three sons of
       William B. Kron, Sr. and Evelyna B. Kron, namely William B. Kron,
       Jr., Steven Alan Kron and Douglas Lynn Kron are the “Family
       Members” and that income or principal of the Trust would be
       distributed equally to the three sons. All of said sons survived
       Evelyna B. Kron.

Doug’s estate filed a response asserting that the mediation agreement confirmed

the trust’s “defin[ition] [of] ‘family members’ as being the three (3) sons, Steven,

1Debra is Bill Jr.’s surviving spouse.
2Alex and Nicholas are Doug’s children. Alex, Nicholas, and their brother, Will,
were the beneficiaries of Doug’s estate.
                                           4

Doug, and Bill Jr.,” and “[t]he mediation agreement was cited in Steven’s petition

for construction of will.” Doug’s estate pointed out, “Steven is now taking a contrary

position to the mediation agreement which he signed individually and as Trustee,

in that he says now there may be other family members affected by this

agreement.”

       The district court appointed a guardian ad litem “to represent the interests

of any incapacitated, unborn, or unascertained persons, or any persons whose

identity or address may be unknown, but who may have an interest in this Trust.”

The guardian ad litem filed a report opining that William Sr.’s intent was confirmed

in the mediation agreement “and the rights of minors and unborn beneficiaries are

protected under the laws of inheritance as William B. Kron intended.” The guardian

ad litem provided the following recommendation: “The Court should terminate the

trust and order the Trustee to distribute the Trust assets one third to Steven and

one third each to the Estates of William Jr. and Douglas.”

       Following an evidentiary hearing, the district court approved the mediation

agreement, ordered the trust closed, and ordered distributions “made to the

respective beneficiaries and estates per stirpes.” The court also ordered Steven

to repay funds taken from the trust for his own use.

       Steven filed a motion to amend or enlarge the findings and conclusions to

clarify use of the term “per stirpes.” See Iowa R. Civ. P. 1.904(2). The guardian

ad litem countered with a motion to have Steven removed as trustee. The district

court ruled as follows: “Beneficiaries[:] The Court did not intend any ambiguity in

its usage of the term ‘per stirpes.’ As a point of clarification, the Court’s intent was

for the distribution to occur in a manner consistent with the mediation agreement.”
                                            5

The court denied the guardian ad litem’s removal motion. Steven appealed, and

Doug’s estate cross-appealed.

II.      Trust Beneficiaries

         Steven contends the mediation agreement on which the district court relied

is “ambiguous,” rendering the court’s determination of the beneficiaries

“necessarily ambiguous.” He asserts the trust assets should have been distributed

“one-third to Bill’s issue, per stirpes, one-third to [himself, individually], and one-

third to Doug’s issue, per stirpes.”

         “The polestar of our analysis is the rule that the testator’s . . . intent must

prevail.” In re Tr. of Killian, 459 N.W.2d 497, 499 (Iowa 1990). “That intent is to

be determined from the language of the instrument, the scheme of distribution, and

the facts and circumstances surrounding the document’s execution.” Id. “Courts

should resort to technical rules of construction only if ambiguous language in the

will or trust creates uncertainty about the maker’s intent.” Id.; see also In re

Steinberg Fam. Living Tr., 894 N.W.2d 463, 468 (Iowa 2017).

         There is no ambiguity here.       William Sr.’s will stated he “ha[d] three

children,” identified the children by name, and said “[a]ny references in [the] will to

‘my sons’ or ‘my children’ are to said persons.” The mediation agreement executed

by Steven and the executors of the other two sons’ estates stated in no uncertain

terms:

         All parties of this agreement will take the position for any challenges
         raised in the future, that Bill Sr.’s Trust defines “family members” as
         being the three (3) sons, Steven, Doug, and Bill Jr., and as such,
         upon the termination of the Trust, the assets of the Trust should be
         equally divided between Steven, Doug, and Bill Jr.
                                          6

       True, the paragraph also stated “any assets of the Trust will be equally

divided between Steven, Doug’s Estate, and Bill Jr.’s Estate.” But the sentence

was simply a recognition of the reality that Doug and Bill Jr. were no longer alive

at the time of the agreement’s execution.

       As for Steven’s assertion that all the grandchildren did not weigh in on the

mediation agreement, precluding enforcement of its terms, their input was

unnecessary because the three sons of William Sr. were the only beneficiaries

under the testamentary-trust provision.       In any event, the record reflects the

grandchildren were notified and had the opportunity to respond but most chose not

to do so.

       Steven next suggests a reference in the will to one of the grandsons lends

ambiguity on the question of the true beneficiaries. But that grandson was not

included in the class of beneficiaries; he was named as next in line to purchase

the farm if Steven chose not to exercise his purchase option. The grandson’s

inclusion in the will did not generate any ambiguity as to the identity of the

beneficiaries.

       We are left with Steven’s contention that the trust proceeds had to be

distributed “per stirpes.” In his view, “even if the term ‘family members’ were

defined as Steve, Bill Jr., and Doug, the Trust beneficiaries would still be Steve,

Bill Jr.’s children, and Doug’s children.” Steven cites two statutory provisions in

support of his assertion—Iowa Code sections 633A.1103 and 663.273.

       Section 633A.1103, titled “per stirpes rule of descent,” states, “Unless the

trust instrument provides otherwise, all gifts to multigeneration classes shall be by

stirpes.” “‘Per stirpes’ is defined as ‘[p]roportionally divided between beneficiaries
                                          7

according to their deceased ancestor’s share.’” Larson v. Sec. Nat’l Bank of Sioux

City, No. 10-0704, 2010 WL 4484001, at *2 (Iowa Ct. App. Nov. 10, 2010)

(alteration in original) (quoting Per Stirpes, Black’s Law Dictionary (7th ed. 1999).

The phrase uses a generational approach, “where those of more remote kinship

to decedent take by right of representation.” Gilbert v. Wenzel, 78 N.W.2d 793,

794 (Iowa 1956). “If a named beneficiary precedes you in death, then the benefits

would pass on to that person’s children in equal parts. Spouses are generally not

part of a per stirpes distribution.” What’s the Difference between Per Capita and

Per Stirpes Beneficiary Designations?, https://www.mastrylaw.com/whats-the-

difference-between-per-capita-and-per-stirpes-beneficiary-designations/          (last

visited April 20, 2021); see also L.S. Tellier, Annotation, Taking Per Stirpes or Per

Capita Under Will, 13 A.L.R.2d 1023 (1950). “[T]he phrase . . . directs how a

bequest should be distributed among a designated class, but it does not designate

such a class.” Larson, 2010 WL 4484001, at *2.

       Here, the designated class in William Sr.’s will was not multigenerational;

the class was William Sr.’s three sons. That fact renders section 633A.1103

inapplicable.

       Iowa Code section 633.273(1) states, “If a devisee dies before the testator,

leaving issue who survive the testator, the devisee’s issue who survive the testator

shall inherit the property devised to the devisee per stirpes, unless from the terms

of the will, the intent is clear and explicit to the contrary.” Steven conceded in his

petition to construe the will that all three sons survived their father. Accordingly,

section 633.273(1) is inapplicable. As Doug’s estate notes:
                                          8

               Because Steve, Doug, and Bill Jr. all survived their father,
       their interest, a remainder interest, became indefeasibly vested at
       the time of William Sr.’s death. The fact that Doug and Bill Jr.
       subsequently died before the Farm was sold is of no relevance.
       Because their interests are vested, they are devisable. Accordingly,
       Steve, Doug’s Estate, and Bill Jr.’s Estate are entitled to each receive
       one third of the proceeds from the sale of the Farm and the Executors
       for Doug’s and Bill Jr.’s Estate should distribute such proceeds
       according to the wills of Doug and Bill Jr., respectively.

       In sum, William Sr.’s will and the mediation agreement unambiguously

named Steven, Doug, and Bill Jr. as the beneficiaries of the trust. As Doug’s estate

points out, “reviewing the plain language of the Will and the overall distribution

scheme, the natural and only reasonable interpretation is that William Sr. intended

to give his wife a life estate under the Trust and then give his three sons equal

share of the same.” The guardian ad litem similarly stated, “William Sr.’s intent

was clear and is demonstrated by the language of his will.” At oral argument, he

reiterated that the will “was very specific and it only applied to his three sons.” On

our de novo review, we agree with these assertions. We affirm the district court’s

resolution of Steven’s petition to construe William Sr.’s will.

III.   Removal of Steven as Trustee

       On cross-appeal, Doug’s estate challenges the district court’s failure to

remove Steven as trustee “for material breach of fiduciary duties.”

              Iowa courts have the authority to remove and replace trustees
       when there is sufficient reason to do so to protect the best interests
       of the trust and its beneficiaries. While courts have a wide latitude
       of discretion in such matters, they consistently decline to order
       removal of a trustee unless such action is clearly in the best interests
       of the trust and its beneficiaries. The power to remove a trustee
       should be used only when the objects of the trust are endangered.

Schildberg v. Schildberg, 461 N.W.2d 186, 191 (Iowa 1990) (internal citations

omitted). “A court is less likely to remove a trustee named by a settlor, as opposed
                                          9

to one appointed by the court.” Id.; see also Iowa Code §§ 633A.4107 (setting

forth factors for removal of trustee, including “a material breach of the trust”),

633A.4202 (setting forth duties of trustees and stating “[a]ny transaction involving

the trust which is affected by a material conflict between the trustee’s fiduciary and

personal interests is voidable by a beneficiary affected by the transaction” except

under enumerated circumstances).

       Doug’s estate describes the evidence of Steven’s “bad faith and self-

dealing” as “overwhelming,” citing his use of trust funds to pay expenses unrelated

to the beneficiaries. Doug’s estate also points to the fact that Steven “carr[ied] out

the portion of the [mediation] agreement to his benefit, including becoming the title

holder of the Farm, receiving payment from Evelyna’s estate, and receiving his

final trustee fees” all while he “maintain[ed] that the will is ambiguous and the

mediation agreement is unenforceable.”

       The district court characterized Steven’s acts as “lapses in judgment.” We

are less sanguine. Steven indisputably used trust funds for his own benefit. He

lent himself a large sum of money and paid for real-estate related expenses that,

by his own admission, “benefitted the Kron farm” purchased by his company.

While he pointed to the other beneficiaries’ right to enjoy the farm, we are not

persuaded that intangible right authorized his expenditure of trust funds for items

such as field tiling, an overhead door, and real-estate taxes.

       That said, the district court rectified Steven’s abuses by ordering him to

“reimburse the trust” for the remaining balance on his loans as well as “expenses

. . . of $63,897.91.” The court also noted that, if Steven were removed, the matter

would be “prolong[ed].” We agree removal of Steven as trustee would have
                                          10

delayed closure of the trust, in contravention of William Sr.’s expressed desire. We

conclude the district court did not abuse its broad discretion in allowing Steven to

remain trustee. Cf. Schildberg, 461 N.W.2d at 191 (noting removal must be in “the

best interests of the operation of the trust”). We affirm the denial of the motion to

remove the trustee.

IV.    Appellate Attorney Fees

       Doug’s estate seeks an order requiring Steven to pay $5000 toward its

appellate attorney fees. Iowa Code section 633A.4507 authorizes fees as follows:

“In a judicial proceeding involving the administration of a trust, the court, as justice

and equity may require, may award costs and expenses, including reasonable

attorney fees, to any party, to be paid by another party or from the trust that is the

subject of the controversy.” (Emphasis added.) In determining whether an award

of attorney fees is equitable under section 633A.4507, we consider the following

“general criteria”:

       (a) reasonableness of the parties’ claims, contentions, or defenses;
       (b) unnecessarily prolonging litigation; (c) relative ability to bear the
       financial burden; (d) result obtained by the litigation and prevailing
       party concepts; and (e) whether a party has acted in bad faith,
       vexatiously, wantonly, or for oppressive reasons in the bringing or
       conduct of the litigation.

In re Tr. No. T-1 of Trimble, 826 N.W.2d 474, 491 (Iowa 2013) (citation omitted).

       Doug’s estate is correct that Steven delayed distribution of trust assets and

“chang[ed] positions on testator intent.” And, as noted, Steven used trust assets

for his own benefit. At the same time, the district court resolved his misuse of trust

assets by ordering those assets returned to the trust. With Steven ordered to make

the trust whole, we conclude he should not be personally liable for the payment of
                                         11

appellate attorney fees incurred by Doug’s estate. See id. at 493 (declining to hold

trustee personally liable for payment of other parties’ attorney fees). Because

Doug’s estate prevailed on the beneficiary issue, we order the trust to pay $5000

to Doug’s estate to cover its appellate attorney-fee obligation.

       AFFIRMED ON APPEAL; AFFIRMED ON CROSS-APPEAL.

       Greer, J., concurs; Schumacher, J. concurs in part and dissents in part.
                                         12

SCHUMACHER, Judge (concurring in part and dissenting in part.)

       I concur with the majority as to all issues affirmed on appeal with the

exception of the issue raised on cross-appeal concerning the removal of Steven

as trustee. The evidence of Steven’s use of trust funds to pay expenses unrelated

to the beneficiaries and self-dealing rises to a material breach. Iowa Code section

633A.4202(1) requires a trustee to “administer the trust solely in the interest of the

beneficiaries, and [to] act with due regard to their respective interests.” On cross-

appeal, the Estate of Douglas Lynn Kron summarized Steven’s fiduciary breaches

as follows:

               The evidence of Steve’s bad faith and self-dealing was
       overwhelming: Despite the global resolution reached in the
       Mediation Agreement in January 2017, the Trust remains open to
       this date. While maintaining that the Will is ambiguous and the
       Mediation Agreement unenforceable, Steve proceeded to carry out
       the portion of the Agreement to his benefit, including becoming the
       title holder of the Farm, receiving payment from Evelyna’s estate,
       and receiving his final trustee fees. While maintaining that the Trust
       must remain open, he continued to expend trust funds to pay
       $18,211.08 in personal attorney’s fees, to pay $35,854.50 to
       Customer Care Lawn Service LLC, a company whose registered
       agent was his son and whose registered address was his personal
       residence, and to expend Trust assets for the general improvement
       of the Farm, which he had agreed to purchase and subsequently did.
       Finally, while no distribution has ever been made since the Trust was
       established in 2009, Steve took out a total of $250,000.00 from the
       Trust in 2018, almost the entirety of the available Trust funds, to
       finance his purchase of the Farm, without giving prior notice to either
       the remaining beneficiaries or the court.
               The district court’s September 2019 decision agreed that
       Steve engaged in serious self-dealings, in the form of converting
       Trust assets into loans to himself and by incurring a multitude of
       expenses that only benefited himself. With such findings in the
       backdrop, the court inexplicably denied the request for Trustee
       removal, stating that Steve’s “lapses in judgment” were not
       sufficiently serious and that they “were not the result of any malice,
       recklessness or ill intent.”
               The court’s decision in asking the Trustee to repay the Trust
       cannot be squared with its simultaneous finding that the Trustee’s
                                         13

      “lapses in judgment” lack severity. Its imposition of “malice” as an
      additional requirement also finds no support in Iowa law.
              In short, while the district court ordinarily has wide discretion
      over the removal of trustees, it abused such power on this occasion.
      The consequences of the court’s decision are significant. Without
      granting the requested removal, the court essentially required Steve
      to collect misappropriated funds from himself as soon as practicable,
      and distribute such funds to the other beneficiaries which,
      unsurprisingly, did not occur.

      This dissent acknowledges the majority’s concerns regarding delays in the

closure of the trust due to the appointment of a new trustee. However, any delay

in the closure would not outweigh the need to ensure that the trust assets are

protected for all beneficiaries. As the Iowa Supreme Court has explained,

                Iowa courts have the authority to remove and replace trustees
      when there is sufficient reason to do so to protect the best interests
      of the trust and its beneficiaries. While courts have a wide latitude
      of discretion in such matters, they consistently decline to order
      removal of a trustee unless such action is clearly in the best interests
      of the trust and its beneficiaries. The power to remove a trustee
      should be used only when the objects of the trust are endangered. It
      is clear from all of these authorities that a trustee does not merely
      serve at the pleasure of the trust beneficiaries. The key to removal
      is still the best interests of the operation of the trust.

Schildberg v. Schildberg, 461 N.W.2d 186, 191 (Iowa 1990) (internal citations

omitted).

      Steven’s self-dealing demonstrates a complete lack of concern for

beneficiaries other than himself.     The best interests of the trust and other

beneficiaries cannot be safeguarded by leaving Steven in charge of the assets. As

such, a new trustee should be appointed.