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In re Bruce F. Evertson Dynasty Trust

Supreme Court of Wyoming

August 12, 2019

IN THE MATTER OF THE BRUCE F. EVERTSON DYNASTY TRUST: EDWARD F. EVERTSON, Appellant (Respondent),
v.
EVERTSON FIDUCIARY MANAGEMENT CORPORATION, Appellee (Petitioner).

          Appeal from the District Court of Laramie County The Honorable Thomas T.C. Campbell, Judge

          Representing Appellant:

          Carol Warnick and Christina F. Gomez of Holland & Hart LLP, Denver, Colorado; Jeffrey S. Pope of Holland & Hart, LLP, Cheyenne, Wyoming; Thomas D. Neville of Ogborn Mihm LLP, Denver, Colorado. Argument by Ms. Gomez.

          Representing Appellee:

          Natalie K. Winegar, Thomas N. Long, Gregory C. Dyekman, Aaron J. Lyttle of Long Reimer Winegar LLP, Cheyenne, Wyoming; W.W. Reeves and Anna Reeves Olson of Park Street Law Office, Casper, Wyoming. Argument by Mr. Dyekman.

          Before DAVIS, C.J., and FOX, KAUTZ, BOOMGAARDEN, and GRAY, JJ.

          KAUTZ, JUSTICE.

         [¶1] Evertson Fiduciary Management Corporation (EFM), as Trustee of the Bruce F. Evertson Dynasty Trust (Trust), filed a "Petition for Instructions" with the district court asking the court to confirm its general authority to decant trust property under Wyoming law and the Trust Agreement, as well as the court's approval of its proposal to decant the Trust's property into two separate trusts.[1] It then filed a "Motion for Judgment Granting its Petition for Instructions," which it claimed to be akin to a motion for judgment on the pleadings under Rule 12(c) of the Wyoming Rules of Civil Procedure (W.R.C.P.). Over the objection of Edward Evertson, one of the Trust's beneficiaries, the district court granted EFM's motion. It concluded decanting is generally permissible under Wyoming law and the Trust Agreement but also resolved disputed questions of material fact concerning the propriety of EFM's proposed decanting, including that it was consistent with the Settlor's intent and the Trust's purpose.

         [¶2] On appeal, the parties agree the only issue before the district court on EFM's motion for judgment on the pleadings was the discrete legal question of whether EFM has the general authority to decant trust property under Wyoming law and the Trust Agreement. Because the district court's order went beyond that discrete legal question, we affirm in part and reverse in part.

         ISSUE

         [¶3] Whether the district court, on a motion for judgment on the pleadings, erred in resolving disputed questions of material fact concerning the propriety of EFM's proposed decanting.

         FACTS

         [¶4] On December 21, 2012, Bruce F. Evertson (Bruce) created the Bruce F. Evertson Dynasty Trust (Trust) for the benefit of his wife, Darla D. Evertson (Darla), his children, Julie A. Wamsley (Julie) and Edward A. Evertson (Edward), and Julie's and Edward's descendants.[2] The Trust Agreement names EFM, a Wyoming corporation, as Trustee. The primary asset of the Trust consists of approximately 2, 300 acres of recreational and ranch property (the Ranch) located in Garden County, Nebraska.[3] On February 4, 2014, approximately a year after creating the Trust, Bruce was killed in an automobile accident. He was survived by Darla, Edward, and Julie.[4]

         A. EFM's Petition for Instructions

         [¶5] On September 20, 2017, EFM filed a "Petition for Instructions" with the district court, requesting "an instruction . . . confirming that [EFM], in its capacity as trustee of the Trust, may make distributions of Trust property in further trust for the benefit of the Trust's beneficiaries, also known as 'decanting.'" It also sought the court's approval of its proposal to decant the Trust property into two separate trusts (the Decanter Trusts) as follows: (1) a parcel of the Ranch, known as the "Watts" property, would be placed into a yet-to-be-formed limited liability company and the interests of the company would be distributed to Edward as trustee of a new trust created for the benefit of Edward and his descendants, and (2) the remainder of the Ranch would be distributed to EFM as trustee of a new trust created for the benefit of Darla, Julie, and Julie's descendants. According to the Petition, the Watts property represented 17.2% of the Ranch and was the only section of the Ranch with cash flow potential. The portion of the Ranch being placed in Darla and Julie's Decanter Trust operated at a loss, but Darla and Julie had agreed to use their personal assets to ensure its continued operation.

         [¶6] EFM alleged Bruce's "untimely and unexpected death caused the Trust to be inadequately funded for its intended purposes." It also claimed the Trust had "reasonably maximized" its "income earning potential." The Trust had an oil and gas lease with Evertson Well Service, Inc., but it expired on December 31, 2016, and Evertson Well Service had declined to renew it. The Trust received a modest income from cattle ranching and the leasing of farm land, but such income was insufficient to cover its operating expenses. Moreover, EFM "desire[d] to continue observing the Settlor's general intentions that the Ranch not be used for commercial hunting to generate income."[5]

         [¶7] EFM also averred the Trust's operating expenses "are currently as reasonably efficient as they can be without causing detriment to the operation of the Ranch . . . ." According to the Petition, "[t]o enable continued funding of its operations to date, the Trust has borrowed funds from a company that is ultimately beneficially owned by Darla Evertson, Julie Wamsley, and Julie Wamsley's descendants." While the Trust could repay "some of the indebtedness currently outstanding," it would not be able to fully repay "future indebtedness" and, as a result, the company was not willing to continue to lend to the Trust. EFM further alleged that although it had elected not to be compensated for its services as Trustee, it would begin charging for its services if the proposed decanting was not permitted.

         [¶8] EFM identified three purposes for the proposed decanting: "(1) allowing Trust property to continue to be enjoyed by the Settlor's intended beneficiaries with favorable transfer tax and asset protection treatment for as long as possible;[6] (2) solving the current uneconomic and impossible circumstances of the Trust due to it having been unintentionally underfunded by the Settlor[;] and (3) allowing the Settlor's intended beneficiaries to enjoy trust assets in an amicable manner by separating beneficiaries who do not get along with each other." (Footnote added.)

         [¶9] In support of its authority to decant, EFM pointed to Paragraph 2.1.2 of the Trust Agreement:

During the Settlor's Wife's life, the Trustee shall distribute to one or more of the Settlor's Wife and the Settlor's descendants as much of the net income and principal of the trust as the Trustee may at any time and from time to time determine, in such amounts or proportions as the Trustee may from time to time select, for any purpose.

         EFM also claimed the proposed decanting was "authorized under Wyoming law," "in the best interests of the beneficiaries" and "consistent with the intent of the Settlor."

         [¶10] Darla and Julie agreed with the Petition's allegations and confirmed their willingness and ability to "secure funds necessary to pay for the ownership and operation of the trust assets that will be in their decanter trust." Edward, however, objected to the Petition, claiming the proposed decanting (1) contradicted Bruce's intent and the Trust Agreement, (2) was not permitted under Wyoming law, (3) constituted a breach of EFM's duty of impartiality, and (4) was based on a flawed appraisal.[7] He sought a full accounting of the Trust's assets to evaluate the proposed decanting.

         B. EFM's Motion for Judgment Granting Its Petition for Instructions

         [¶11] EFM subsequently filed a "Motion for Judgment Granting its Petition for Instructions," which it claimed to be analogous to a motion for judgment on the pleadings under W.R.C.P. 12(c). It argued it had the authority to decant under Wyo. Stat. Ann. § 4-10-816(a)(xxviii) (LexisNexis 2019), which states:

[A] trustee may . . . [d]istribute all or any portion of trust income or principal in further trust for the benefit of the trust beneficiaries pursuant to authority granted in the trust instrument to make discretionary or mandatory distributions of trust income or principal to the trust beneficiaries, whether or not the discretionary or mandatory distributions are pursuant to an ascertainable standard[.]

         [¶12] EFM also claimed, under the plain terms of the Trust Agreement, its discretion concerning the distributions of income and principal is broad and includes the ability to decant. It again relied on Paragraph 2.1.2 of the Trust Agreement, which gives the Trustee the discretion to distribute, during Darla's lifetime, the Trust's income and principal "for any purpose," as well as Paragraph 8.5.9 which provides:

The Trustee's discretion concerning distributions of income or principal shall be absolute and uncontrolled and subject to correction by a court only if the Trustee should act utterly without reason, in bad faith, or in violation of specific provisions of this Agreement. It is the Settlor's strong belief that the Trustee will be in the best position to interpret and carry out the intentions expressed herein under changing circumstances.

         [¶13] EFM also pointed to Paragraph 8.5.13 of the Trust Agreement which states "[t]he Trustee's discretionary power to distribute income or principal includes the power to distribute all of such income and/or principal to one or more members of a class to the exclusion of others, whether or not the terms of the trust specifically mention that possibility" and to Paragraphs 2.1.4 and 9.5 which allow it to consider Darla's needs "as more important than the needs of the Settlor's descendants or any other beneficiary" and to "divide and distribute the assets of the Trust Fund in kind, in money, or partly in each, without regard to the income tax basis of any asset and without the consent of any beneficiary. The decision of the Trustee in dividing any portion of the Trust Fund between or among multiple beneficiaries shall be binding on all persons."[8]

         [¶14] Darla and Julie agreed the Trust should be decanted into two separate trusts as proposed. According to them, the proposed decanting was "not 'utterly without reason, in bad faith, or in violation of specific provisions of' the Trust." (Emphasis in original.)

         [¶15] Edward opposed EFM's motion. Importantly, he did not dispute Wyoming law "generally authorizes trustees to decant." However, he disputed the appropriateness of the proposed decanting and argued material questions of fact existed as to whether it contradicted Bruce's intent, the purpose of the Trust, and the Trust Agreement's terms.

         [¶16] The Trust Agreement provides:

2.1. Primary Term. The Dynasty Trust shall continue until the earlier of the Maximum Duration for Trusts defined herein [1, 000 years], or the determination by the Trustee that the sale of the [Ranch] is absolutely necessary to provide for the care of the Settlor's descendants (the "Primary Term"). It is the Settlor's specific intent that the Trustee wait at least 250 years from the date of creation of this trust to consider the sale or change of use of the Ranch as set forth herein. It is the Settlor's specific intent that the Ranch shall be held by the Trustee for the benefit of the Settlor's Wife and descendants for as long as possible.
2.1.1 Until the termination of the Primary Term, the Trustee shall maintain the Ranch for the benefit of the Settlor's Wife and descendants and their guests, invitees, and licensees as the Trustee may determine.

         According to Edward, these provisions "clearly express[] [Bruce's] intent that the Ranch, as a whole, be held in the Trust for at least 250 years, that it be maintained for the benefit and use of [Bruce's] [w]ife and descendants, . . . that the Trustee wait at least 250 years before considering a change in the use of the Ranch," and the Ranch remain in the Trust unless its sale is "absolutely necessary to provide for the care of [Bruce's] descendants." Edward argued the proposed decanting was contrary to this intent because it divides the Ranch into two trusts prior to 250 years based on alleged uneconomic circumstances and prevents the beneficiaries from using the entire Ranch.

         [¶17] Edward also claimed the proposed decanting was contrary to Paragraph 2.2 of the Trust Agreement, which requires the Trustee, "[u]pon the termination of the Primary Term," to "continue to hold the trust in a combined fund, but shall maintain an account of each of the Settlor's descendants' per stirpital share ('Share') of the Trust." Paragraph 11.6 of the Trust Agreement further provides: "Property that is to be divided among an individual's surviving or then-living descendants 'per stirpes' or in 'per stirpital shares' shall be divided into as many equal shares as there are children of the individual who are then living or who have died leaving surviving or then-living descendants." According to Edward, if the Primary Term were to end today, he and Julie, as Bruce's only children, would each receive a 50% share of the Trust. Under the proposed decanting, however, he would only receive 17.2% of the Trust, according to EFM's calculations.

         [¶18] Edward further argued there were questions of material fact as to whether the proposed decanting constituted a breach of EFM's fiduciary duties, including the duty to act impartially in managing and distributing trust property. He also disputed EFM's claim the proposed decanting was necessary because it was uneconomical to continue to hold the Ranch in the Trust, but he could not assess the accuracy of this claim without an accounting. Moreover, he claimed the Trustee's value of the Watts property was overstated because it was based on a flawed appraisal.

         [¶19] In reply, EFM argued the facts Edward claimed to be in dispute were immaterial because its Petition raised only a single narrow legal issue: "[Whether it has the] authority to distribute the Trust assets to two new trusts, each of which would benefit different sets of the Trust's existing beneficiaries[.]" As to that question, Edward had not disputed that the Trust Agreement gives EFM the discretion to make distributions during Darla's lifetime to all, some, or none of the beneficiaries. Moreover, under § 4-10-816(a)(xxviii), this discretionary power gives rise to the power to make such distributions to new ...


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