Opinion
No. A-11-056
01-17-2012
DAVID J. KLINGELHOEFER, AS SUCCESSOR TRUSTEE OF THE CONSTANCE K. KLINGELHOEFER REVOCABLE TRUST AND AS MANAGER OF THE CONSTANCE KLINGELHOEFER LLC, APPELLEE, v. KERRY L. MONIF ET AL., APPELLANTS.
David J. Lanphier, of Broom, Clarkson, Lanphier & Yamamoto, for appellant. Daniel E. Klaus, of Rembolt Ludtke, L.L.P., for appellee.
MEMORANDUM OPINION AND JUDGMENT ON APPEAL
NOTICE: THIS OPINION IS NOT DESIGNATED FOR PERMANENT PUBLICATION
AND MAY NOT BE CITED EXCEPT AS PROVIDED BY NEB. CT. R. APP. P. § 2-102(E).
Appeal from the District Court for Buffalo County: JOHN P. ICENOGLE, Judge. Affirmed.
David J. Lanphier, of Broom, Clarkson, Lanphier & Yamamoto, for appellant.
Daniel E. Klaus, of Rembolt Ludtke, L.L.P., for appellee.
IRWIN, MOORE, and CASSEL, Judges.
IRWIN, Judge.
I. INTRODUCTION
Kerry L. Monif et al. (Appellants) appeal orders of the district court for Buffalo County, Nebraska, in favor of David J. Klingelhoefer (Appellee), as successor trustee of the Constance K. Klingelhoefer Revocable Trust (Trust) and as manager of the Constance Klingelhoefer LLC (LLC), in this action for declaratory judgment and accounting concerning the proper disposition of the property of the late Constance Klingelhoefer. On appeal, Appellants have asserted numerous errors challenging the findings of the district court, including assertions that the court erred in finding that the terms of the Trust should control disposition over the terms of the LLC, finding that Appellee had not engaged in self-dealing or otherwise violated fiduciary duties, relying on an appraisal proffered by Appellee, and awarding attorney fees in favor of Appellee. We find no merit to the issues raised on appeal, and we affirm.
II. BACKGROUND
Constance was the mother of 11 children. Between December 30, 1996, and January 6, 1997, she executed a number of documents to effect an estate plan prepared for her by her attorney. Constance desired to reduce estate taxes and avoid the need for probate. To reduce estate taxes, she created the LLC and transferred real estate in Buffalo County into the LLC. She gave interests in the LLC to each of her 11 children and kept an interest for herself. To avoid the need for probate, Constance created the Trust (of which she was the initial trustee) and transferred into the Trust her personal property. After the creation of the Trust, all documents related to the LLC listed "Constance Klingelhoefer, Trustee" as the owner of her interest in the LLC. She also executed a will, directing that upon her death any remaining real or personal property in her possession be transferred to the Trust.
At the time Constance created the Trust and the LLC, three of her sons--Appellee, Joseph Klingelhoefer, and Sidney Klingelhoefer--were actively engaged in farming. In 1989, the three sons, acting as a collective farming operation, began renting farm property from Constance on a crop share basis. After the formation of the Trust and the LLC, the three continued to rent the farm property on a crop share basis. In 2001, a decision was made to provide a more reliable stream of income to Constance through a cash rent agreement. Constance established the initial cash rent for the property at $52,000 per year.
Appellee disassociated from the collective farming operation, which continued as a joint enterprise of Joseph and Sidney. In 2004, the brothers began farming separately, Appellee assumed management of the farm property for the Trust, and Sidney continued to lease the farm property from the Trust on a cash rent basis. The initial rent under the lease was $54,000 per year. Beginning the next crop year, the rent amount went up to $64,000, because of the addition of an irrigation pivot.
In "Article Fourth" of the Trust, Constance directed that at the time of her death, the trustee "offer to sell or vote to sell to [Appellee, Joseph, and Sidney] all or any portion of the real estate held by [the LLC]." She also directed that the purchase price "shall be the fair market value of the real estate as of the date of [her] death as appraised by an appraiser" and directed that the appraiser "shall be selected by a majority of all of my children."
The LLC's operating agreement provided that the LLC "shall be dissolved upon . . . the death . . . of a Member" unless all other members of the LLC agreed to continue. The operating agreement also provided that if the LLC was dissolved, its assets should be liquidated and distributed to the members.
Constance died on March 19, 2006. At the time of death, the Trust held 50½ percent of the interest in the LLC and her 11 children collectively held 49½ percent of the interest in the LLC. After her death, at least 8 of the 11 children voted in favor of retaining Bob Arnold Appraisal & Consulting, Inc. (Arnold Appraisal), to conduct an appraisal of the real estate owned by the LLC, pursuant to Article Fourth of the Trust. Arnold Appraisal appraised the fair market value of the real estate as $1,276,833.
Appellee initially brought the present action seeking a declaratory judgment which would allow sale of the real estate pursuant to Article Fourth of the Trust and the Arnold Appraisal's appraisal. Appellants, other of Constance's children, sought a finding that provisions of the LLC should govern disposition of the real property and requested an accounting. The parties moved for summary judgment on the question of whether the Trust document or the LLC document should govern disposition of the real property.
On September 29, 2009, the district court entered an order on the motions for summary judgment. The court found that there was uncontroverted evidence that Constance intended to hold her interest in the LLC in the Trust, that all operating agreements for the LLC after establishment of the Trust reflected her ownership interest as "Trustee," and that the only way to effectuate her goal of avoiding probate was for her to hold her ownership interest in the LLC in the Trust. The court also found that even if she had somehow not effectively transferred her ownership interest in the LLC to the Trust, her will would have done so at the time of her death. The court concluded that the only construction of the LLC and Trust documents that would effectuate Constance's intent and estate plan would be for the terms of the Trust to control disposition, rather than the terms of the LLC. The court also found that Arnold Appraisal had been properly selected to appraise the value of the real property and that the Trust provided that this would be the price at which the real property would be offered for sale to Appellee, Joseph, and Sidney. The court thus concluded that the real property should be sold to Appellee, Joseph, and Sidney at the appraised price determined by Arnold Appraisal.
The case proceeded to trial on Appellants' request for an accounting. On December 29, 2010, the district court entered an order resolving the remaining issues. The court found that Appellee, as successor trustee of the Trust, had not engaged in self-dealing or breached fiduciary duties. First, the court found that the rental amount charged for Sidney to continue renting the farm property from the Trust was reasonable. The court also found no undue influence or breach of fiduciary duty regarding a loan executed on behalf of Constance and used to place an irrigation pivot on the farm property; the rental amount for the farm property was raised to account for the irrigation pivot and the pivot increased the value of the farm property. Finally, the court found that attorney fees incurred by Appellee in pursuing the declaratory judgment and defending the accounting claims of Appellants were properly incurred and chargeable to the LLC and Trust. This appeal followed.
III. ASSIGNMENTS OF ERROR
Appellants have assigned numerous errors on appeal, which we consolidate for discussion to three. First, Appellants assert that the district court erred in finding that the Trust should govern disposition of the real property, rather than the LLC documents. Second, Appellants assert that the court erred in finding no undue influence, self-dealing, or breach of fiduciary duty on the part of Appellee. Finally, Appellants assert that the court erred in finding that attorney fees were justified.
IV. ANALYSIS
1. TRUST VERSUS LLC
Appellants first assert that the district court erred in concluding that the Trust, not the LLC documents, should govern the disposition of the real property. Appellants assert that the court erred in finding the Trust controlling, in "relying on the integrity of the trust," and in relying on the Arnold Appraisal's appraisal of the real property. We find no merit to any of these assertions.
Appellants argue that Constance failed to properly transfer her interest in the LLC to the Trust, that her death was the death of a "member" of the LLC, and that the LLC documents indicate that the death of a member shall result in dissolution of the LLC and distribution of its assets to all of the members. We agree with the district court that Constance properly transferred her interest in the LLC to the Trust.
In construing instruments conveying property, equity concerns itself with the substance and not the form of the transaction, and the particular form or words of a conveyance are unimportant if the intention of the parties can be ascertained. Chebatoris v. Moyer, 276 Neb. 733, 757 N.W.2d 212 (2008). Trust documents themselves can be sufficient to accomplish the intent to transfer personal property into a trust, and no separate document is necessary to accomplish such transfer. See id.
In the present case, there was evidence adduced establishing that Constance's intent in preparing her estate plan, including both the LLC and the Trust, was to limit estate taxes and to avoid the need for probate of her estate after her passing. Consistent with her intent to transfer her ownership interest in the LLC into the Trust, the LLC operating documents executed after Constance established the Trust designated her membership as "Constance Klingelhoefer, Trustee." Further, to ensure that all of her property had been successfully transferred to the Trust, Constance executed a will which provided that upon her death, any real or personal property she had failed to transfer to the Trust during her lifetime would be so transferred. Constance's intent was clear, and the substance of her actions concerning the LLC and the Trust demonstrate that she transferred her ownership interest in the LLC to the Trust. We find no merit to Appellants' assertions to the contrary.
Appellants also assert that the district court erred in relying on the Arnold Appraisal's appraisal of the real property. The Trust provided, in clear and unambiguous terms, that the fair market value of the real estate should be determined "as appraised by an appraiser" and provided, in clear and unambiguous terms, that the appraiser should "be selected by a majority of all of [Constance's] children." A majority of the children voted in favor of hiring Arnold Appraisal.
Appellants have provided no evidence to indicate that the Arnold Appraisal's appraisal was done in bad faith or was influenced by the parties. Although Appellants presented conflicting evidence that another appraiser suggested a higher value for the property, such conflicting evidence does not provide a basis for disregarding the directions of the Trust documents and Constance's intent.
Finally, Appellants also assert that the version of the Arnold Appraiser's appraisal received at the summary judgment hearing and relied upon by the district court in establishing the value of the real property was incomplete. Appellants provided a complete version at trial. Appellants have failed to demonstrate, however, that the omitted pages demonstrate any basis for establishing a different value for the real estate or for otherwise disregarding the appraisal. We find this argument to be without merit.
2. ACTIONS OF APPELLEE
Appellants next assert that the district court erred in finding that there was no bad faith or insider benefit to Appellee in his leasing of the farm property. This assertion lacks merit.
The parties presented conflicting evidence at trial concerning the fair rental value of the farm property. Appellants have not established that Appellee leased the property for less than fair market value or that he somehow personally benefited from the rental price. The evidence indicates that Constance had rented the farm property to Appellee and two of his brothers, acting as a collective farming operation, on a crop share basis starting in 1989. In 2001, discussions ensued about the need for Constance to have a consistent source of income by changing the rental arrangement to a cash rental agreement, and she established a cash rental value of $52,000 per year. Appellee then disassociated from the collective farming operation.
Appellee took over management of the rental of the farm property in approximately 2004 and entered into a 5-year lease of the farm property with one of his brothers. The initial rent was set at $54,000, based in part upon holdover tenancy law. A pivot was added to the farm property, and the cash rental value was increased to $64,000, based in part on the addition of the pivot.
Appellants presented evidence suggesting that the fair rental value of the farm property was in excess of $100,000 per year. Appellants' expert, however, acknowledged that normally an 8-percent management fee would be subtracted from the rental value and also acknowledged that he had not compared actual leases in the area in formulating his opinion concerning the fair rental value of the property. Appellee presented expert evidence establishing that a fair rental value would have been slightly in excess of $70,000. The lease agreement entered into by Appellee was for $64,000 per year, with no management fee. We find no merit to Appellants' assertion that this was somehow a breach of fiduciary duty or otherwise reflected some kind of self-dealing by Appellee; the amount of the lease was consistent with evidence adduced concerning the fair rental value, and there was no showing that Appellee somehow benefited from the rental value established for his brother.
3. ATTORNEY FEES
Finally, Appellants assert that the district court erred in finding that attorney fees were properly charged against the LLC and the Trust. We find no merit to this assertion.
Attorney fees and expenses may be recovered only where provided for by statute or when a recognized and accepted uniform course of procedure has been to allow recovery of an attorney fee. Rapp v. Rapp, 252 Neb. 341, 562 N.W.2d 359 (1997). Generally, if a fiduciary's defense of his acts is substantially successful, he is ordinarily entitled to recover the reasonable costs necessarily incurred in preparing his final account and in successfully defending it against objections. Id. The trial court has discretionary power and authority to order payment of costs and reasonable fees to attorneys for services rendered a good faith trustee out of the trust estate in litigation. Id.
In the present case, Appellee initially brought this action seeking a declaratory judgment which would allow sale of the real estate pursuant to Article Fourth of the Trust and the Arnold Appraisal. Appellants resisted, made allegations of breach of fiduciary duty, challenged the appraised value of the property, sought an accounting, and attempted to have Appellee removed. The ensuing litigation was to determine the merit of Appellants' assertions, and Appellants' assertions were found to be without merit. As such, the award of attorney fees was not an abuse of discretion. We find no merit to this assignment of error.
V. CONCLUSION
We find no merit to Appellants' assertions on appeal. We affirm.
AFFIRMED.