Court of Appeals Examines Trustee Appointment in Family Dispute

On June 5, 2024, the Iowa Court of Appeals affirmed the district court’s order appointing one of three brothers as the successor trustee of their mother’s trust. The case was one in a series arising from a family dispute involving the brothers. In this case, the court of appeals rejected the argument of one brother that the trustee brother had a conflict of interest and was thus unqualified to serve as trustee.  

Facts

Judy had three sons – Stan, Steve, and Scott. In 1996, she and her husband, Ronald, created revocable trusts for estate planning purposes. Judy’s trust listed herself as the initial trustee, Ronald as successor trustee, Stan as secondary trustee, and Steve as tertiary trustee. Ronald died in 2016, and Judy became trustee of his trust. Scott was listed as the secondary trustee of Ronald’s trust. In June 2017, Judy altered the trustee provisions of her trust. Stan and Steve were listed as successor co-trustees. If one could not serve, the other would serve alone. If neither served, then a bank would become trustee. In January 2020, when the parties agreed that Judy could not act as the successor trustee of Ronald’s trust, the court named Steve as the trustee of Ronald’s trust, even though Scott was Ronald’s first choice. The found that Scott had a conflict of interest because he had filed multiple lawsuits against Ronald’s trust, Judy, and Stan.  

In October 2020, the district court determined that Judy as not competent. Stan and Steve became the co-trustees of Judy’s trust under the provisions of the trust. Their first action was to try to sell 70 acres of farmland since Judy and her trust were too “cash poor” to pay for the litigation expenses associated with the lawsuits. They held the land for auction. Scott was the highest bidder. A contract was signed, but Scott refused to close.

In March 2022, Steve and Stan filed a petition for limited trust supervision, and asked the court to recognize them as co-trustees of Judy’s trust. Scott objected to the appointment because he wanted a bank to serve as trustee. In January 2023, the district court appointed Steve as trustee, finding that Stan’s conduct was central to Scott’s other litigation with the family, and it was “not appropriate” for Stan to be trustee. Scott appealed Steve’s appointment as trustee of Judy’s trust, arguing that Steve should be conflicted out “for the same reasons” as Stan.

Opinion

The court upheld the district court’s appointment of Steve as trustee of Judy’s trust. The court acknowledged a district court is given broad discretion when it appoints a trustee, and its decision can only be overturned if the district court abused that discretion. The court then dove into the record to determine if Steve’s appointment as trustee was allowable, noting the district court was familiar with the family and the other litigation.

Scott argued Steve was conflicted out because Ronald’s trust and Judy’s conservatorship were suing Scott to enforce the farmland auction.  The district court opinion clearly explained why one trustee (Stan) had a conflict while the other trustee (Steve) did not. Stan had a conflict because “many of the [other] lawsuits filed by Scott [were] related to the conduct of Stan.” Steve, on the other hand, was involved in the auction enforcement action in his role as trustee and conservator, not personally.

The court examined Steve’s actions as trustee, noting that the sale of farm ground was necessary because of Scott’s other litigation against Judy. The auction method was decided due to the recommendations of financial advisors and attorneys. Further, in footnote 5, the court rejected any argument that friction between brothers is interfering with the administration of the trust, especially when any friction originated with Scott.

Scott also argued Steve should be removed as trustee of Judy’s trust because of alleged mismanagement related to Ronald’s trust and Judy’s conservatorship. The district court rejected this argument, finding that it could not assume a breach of fiduciary duty. Steve “should first be given the opportunity to defend his actions” and will not be removed as trustee until that occurs.

Upon reviewing the record, the Court of Appeals found there was no abuse of discretion; Steve was able to continue as the trustee of Judy’s trust.