The Iowa Court of Appeals released an opinion in In re the Thompson Trust (No. 10-0458/1-078, May 25, 2011), which is interesting for a variety of reasons, and one of them even relates to the law. Both procedurally and as relates to fees and costs, the case is hauntingly similar to Jarndyce v Jarndyce.
One thing interesting about Thompson Trust is that the trust has been in existence for 99 years. Another interesting thing about the trust is that it reportedly has $60,000,000 in assets.
Apart from these somewhat voyeuristic details, the trustee had annually sought approval of the investments of the trust. The trust investments involve a large concentration of stock in one banking company. The trustee apparently had provided reports “for decades” to both current and contingent beneficiaries. In 2007, Arabella Decker’s status changed from contingent to current beneficiary. In 2008, she objected to the trustee’s annual report.
The case is a surprising procedural tangle. The beneficiary, seemingly, took a shotgun approach with her objection. The appellate opinion is a bit vague on all of the details, but she included an objection relating to the concentration of stock. The Probate Court found in favor of the trustee and sustained a motion for summary judgment. The trustee had “asserted the Objector’s claims were barred by the doctrines of res judicata, consent and affirmation, estoppel by acquiescence, and laches.”
Judge Vogel, writing for the Court of Appeals, agreed that there was not much to argue about on the trustee’s past-year performance. However, the Court agreed with the Objector that: “These legal doctrines could not apply as each year’s activities could present an actionable cause, such as a newly found breach of fiduciary duty, wholly independent from the prior year’s activities. Therefore no beneficiary is precluded from year to year, raising an objection to the annual report, absent a showing that the same claim had been raised and litigated, or an activity had been consented to or acquiescenced [sic] in or a claim fell by the wayside for failure to timely object.”
On the other hand, knowing in 2007 the trustee’s intentions for investment in 2008, the beneficiary was barred from objecting in 2008 to those investments. Of course, the beneficiary could, and the Court determined that she did, object in 2008 to the investments going forward. On this issue, the Court remanded for further hearing.
Still more fascinating is that the district court docket shows that, while the case has been on appeal, the Probate Court already approved a petition to convert the trust from an income trust to a “total return trust,” a trustee policy, and a plan to reduce the concentration of stock. There is no appeal of that order. According to the Court of Appeals decision, the trust is scheduled to terminate in 2018 — I wonder if we will see on the appellate docket again?
Iowa has in place the Uniform Prudent Investor Act. Iowa Code §§ 633A.4301 et seq. Aside from basic investor prudence, the law dictates: “A trustee shall diversify the investments of the trust unless the trustee reasonably determines that the purposes of the trust are better served without diversifying.” Clearly, having the Probate Court approve the proposed investment plan in a report distributed to contingent and current beneficiaries alike each year was itself a prudent act.
