Iowa Court Denies Trustee’s Request for Farm Maintenance Reimbursement

On June 16, 2021, the Iowa Court of Appeals issued a ruling involving a trustee’s request for reimbursement from his mother’s estate and the family trust. Because there was no evidence of an understanding to repay the expenditures, the court affirmed the denial of reimbursement.

Background

A couple owned a 276-acre farm as tenants in common. After the husband passed away, his will devised his interest in the farmland to the family trust and named their son, Ronald, as trustee. The will directed Ronald to make payments from the trust to the surviving spouse during her life. Upon her death, the trust was to be terminated and divided among the surviving children. 

Ronald and his mother continued to farm together until 1998. After his mother retired, Ronald rented the farmland for his own operation. Starting in 2010, Ronald would pay rent by depositing enough funds into his mother’s account for her to pay for the $25,258 yearly mortgage and approximately $4,000 in real estate taxes. Ronald paid the insurance premiums.

By February 2015, a court found that the mother did not have the mental capacity to enter into contracts. In 2016, Ronald, in his capacity as trustee, hired an appraiser to determine the fair market value of the farm. He then sold a portion of the farm and used the proceeds to pay down the mortgage. His mother passed away several months later. Ronald petitioned to probate the estate and was appointed executor. Ronald’s brother soon brought a lawsuit claiming that Ronald breached his fiduciary duties as a trustee in selling the parcel of farmland at less than market value and by giving himself below market-rate leases. The district court agreed, removed Ronald as a trustee without compensation for his work, and also removed Ronald as the executor of the estate.

Ronald filed this claim in the probate proceeding requesting $199,942 in reimbursement for various costs incurred as executor and trustee. The estate and the trust objected. After a hearing, the district court, finding Ronald was not a credible witness, denied his request and held that there was no basis for his claims. Ronald appealed and, after recalculating his claim, requested $172,655.

Reimbursement for Farm Maintenance and Improvement

On appeal, Ronald provided 27 invoices for farm maintenance and capital improvement expenditures. He asserted that he paid for building materials and maintenance supplies on his mother’s behalf because she did not have adequate funds, but that he expected to be repaid.

An estate will not provide reimbursement unless the claim is “justly due.” In this instance, the court found that there was insufficient evidence to show there was an expectation of repayment. Ronald’s invoices begin in 1999, the year after his mother retired and relied on the farm rent for income. Ronald’s farming operation benefitted from many of the claims for maintenance and improvement of structures.

He also asserted that the deposits into his mother’s account show they were advance payments which would be reimbursed. However, the court rejected this argument, finding that the deposit amounts did not correspond to the claimed invoices. Additionally, Ronald presented conflicting evidence at trial. For example, he first claimed that a $25,000 deposit he made in 2017 was to help his mother pay the mortgage, but later admitted he never paid rent that year and agreed that the deposit should be considered rent. Based on this evidence, the court affirmed the denial of reimbursement of farm maintenance expenses.

Reimbursement for Taxes and Insurance

Ronald also appealed the denial of claims for real estate tax and farm insurance payments. Ronald once again asserted that he made these payments on behalf of his mother, but with the intention of being paid back. However, during the breach of duty litigation brought by Ronald’s brother, Ronald explicitly stated that the $4,000 yearly deposits were part of the farm rent payment. Because this payment was part of the rental price, the court affirmed that Ronald was not entitled to reimbursement.

Similarly, the court affirmed that Ronald was not entitled to reimbursement for any tax or insurance payments after his mother’s death. At trial, Ronald admitted that he did not pay for several of the invoices. In fact, other documents he submitted clearly showed that that estate had paid these costs, not Ronald.

Reimbursement for Costs of Appraisal

Next, the court considered whether Ronald was entitled to reimbursement for the cost of the farm real estate appraisal. Ronald also submitted an invoice for a second appraisal which was for a separate 10 acres of land. The court found that it was because of his self-dealing in conjunction with the 2016 sale that Ronald was removed as trustee without compensation. In addition, the appraisal for the 10 acres of land was for his own benefit. Therefore, the court affirmed the denial of reimbursement.