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In re Heupel Family Revocable Trust

Supreme Court of South Dakota

June 20, 2018

IN THE MATTER OF THE HEUPEL FAMILY REVOCABLE TRUST dated March 23, 1999.

          CONSIDERED ON BRIEFS ON APRIL 16, 2018

          APPEAL FROM THE CIRCUIT COURT OF THE FOURTH JUDICIAL CIRCUIT MEADE COUNTY, SOUTH DAKOTA HONORABLE JEROME A. ECKRICH, III RETIRED JUDGE

          DAVID L. CLAGGETT of Claggett & Dill, Prof. LLC Spearfish, South Dakota Attorneys for appellants Chad Heupel and Heupel Family Revocable Trust.

          GREGORY A. EIESLAND of Johnson Eiesland Law Offices Rapid City, South Dakota Attorneys for appellee Renee L. Hansen.

          SEVERSON, RETIRED JUSTICE

         [¶1.] The beneficiary of a trust filed a motion for an order to show cause for why the trustee failed to follow an order of the circuit court. The beneficiary also petitioned the circuit court to order the return of funds to the trust, which funds were allegedly misappropriated by the trustee as a result of the trustee's breaches of his fiduciary duties. The beneficiary further sought to recover attorney fees from the trustee. After multiple hearings, the circuit court held the trustee in contempt, found that the trustee had breached his fiduciary duties to the beneficiary, and found that the trustee had misappropriated trust funds. The court ordered the trustee to personally reimburse the trust for the misappropriated funds. The court also ordered the trustee to personally pay the beneficiary attorney fees. The trustee appeals. We affirm.

         Background

         [¶2.] On September 22, 2012, Cordavee Heupel died. Her five adult children survived her: Colin Heupel, Chad Heupel, Renee Hansen, Casey Heupel, and RaeDeen Heupel. On the date of Cordavee's death, the terms of the Heupel Family Revocable Trust dated March 23, 1999, activated. The Family Trust created a springing trust-the Renee Hansen Share Trust. The Family Trust also created the RaeDeen Rose Heupel Share Trust. Colin and BankWest were the co-trustees of all three trusts. Colin resigned as a co-trustee and appointed Chad in his place.

         [¶3.] The Family Trust corpus included, among other things, 160 acres of land in Meade County, South Dakota. The siblings disputed the distribution of the land. BankWest petitioned the circuit court for judicial supervision of the Family Trust and for distribution of trust property. No party opposed judicial supervision. Chad and Casey were jointly represented by Bangs, McCullen, Butler, Foye & Simmons; BankWest was represented by Costello, Porter, Hill, Heisterkamp, Bushnill & Carpenter; Colin was represented by Gunderson, Palmer, Nelson, & Ashmore; Renee was represented by Johnson Eiesland Law Offices; and Estes Campbell Law Firm represented RaeDeen's guardian.

         [¶4.] BankWest's petition for distribution of trust property proposed that the Meade County property be sold at public auction. Chad and Casey, as beneficiaries, filed an objection to the sale of the property at a public auction. Colin also objected and submitted an offer to purchase the property. Renee filed a response, requesting that the circuit court utilize a sealed-bid process allowing bids between the family members. Colin filed an alternative response, seeking partition of the property. He also requested that a referee be appointed to determine whether the property could be partitioned. Chad and Casey joined Colin's alternative request and indicated support for Colin's offer to purchase the property.

         [¶5.] On September 10, 2013, the circuit court entered an order assuming supervision of the Family Trust. It approved BankWest's inventory of the Family Trust, approved the distribution of personal and other property, directed that certain personal property be sold at public auction, permitted the amendment of the special needs trust created for RaeDeen, and found the fair market value of the Meade County property to be $450, 000. The court also identified that all parties agreed that the Meade County property should be sold by private sale or to a trust beneficiary subject to court approval.

         [¶6.] In a separate order, the circuit court directed the appointment of a referee to determine if the Meade County property could be partitioned. The parties could not agree on the appointment of a referee, so the court appointed three referees. The referees submitted a report to the court indicating that the property could be partitioned. Renee objected to the referees' report and advocated for a public sale of the property. Colin petitioned for the court to approve the referees' recommendations. Chad and Casey joined Colin's petition.

         [¶7.] A trial commenced on April 1, 2015. That same day, however, the siblings settled the dispute over the Meade County property. They agreed that Colin and his wife would purchase the property from the Family Trust, and Renee would receive-in her Share Trust-her 1/5 interest of the value set by the court-appointed appraisers. The circuit court approved the parties' written stipulation on April 30, 2015.

         [¶8.] On September 15, 2015, BankWest filed a "Verified Petition for Approval of Final Accounting, Discharge of Co-Trustees, Termination of Court Supervision of Trust and Resignation of Co-Trustee BankWest as Trustee of the RaeDeen Heupel Special Needs Trust and Renee L. Hansen Share Trust." Chad and Casey "as beneficiaries of the Heupel Family Revocable Trust" objected to the fee claimed by BankWest. RaeDeen, now represented by Chad and Casey's counsel, also objected. They argued that BankWest had contractually agreed to accept a 1% fee rather than the 2.5% fee BankWest claimed. Colin filed a separate response, also objecting to BankWest's fee request. Chad, Casey, and RaeDeen joined Colin's response. Renee took a position adverse to her siblings.

         [¶9.] After a hearing on BankWest's petition, the court set the fee dispute for trial. It, however, indicated that it would dismiss BankWest as a co-trustee on Renee's Share Trust. The court specifically noted that BankWest remained a co-trustee on the RaeDeen Heupel Special Needs Trust and the Family Trust. On November 2, 2015, the circuit court entered an order dismissing BankWest "as a Trustee of the Renee L. Hansen Share Trust upon entrance of this Order." The order further provided: "Chad Heupel shall, as Co-Trustee of the Renee L. Hansen Share Trust shall [sic] nominate a new independent financial institution to act as a successor Co-Trustee of BankWest, Inc., which nominee shall be approved by the [c]ourt[.]" The order gave notice of an evidentiary hearing on the remaining relief requested, namely BankWest's trustee fees "for service as sole trustee in accordance with the terms of the Heupel Family Revocable Trust."

         [¶10.] Prior to the evidentiary hearing on BankWest's fees, the parties settled their dispute. BankWest agreed to be paid 1% of the total market value of all assets in the Family Trust rather than its requested 2.5%. BankWest also agreed to reimburse the Family Trust the fees paid out of the Family Trust, which were incurred by BankWest as a result of the BankWest fee dispute. On January 7, 2016, the circuit court entered an order accepting the terms of the parties' settlement. The order provided that as of the date of the order, the court accepted BankWest's resignation as a trustee of the RaeDeen Special Needs Trust and the Family Trust. The court ordered that "supervision of the Heupel Family Revocable Trust shall terminate effective immediately."

         [¶11.] On January 25, 2016, BankWest made final distributions of the remaining funds held in the Family Trust. All five beneficiaries received equal cash disbursements, with RaeDeen's and Renee's respective shares being placed in their respective trusts. In February 2016, Renee received a $1, 500 check from Family Heritage Trust Company as her monthly disbursement from her trust. Family Heritage had been selected by Chad to act as co-trustee of Renee's Share Trust. Renee did not cash the check because Chad did not obtain the circuit court's approval prior to appointing Family Heritage as co-trustee of her Share Trust.

         [¶12.] In March 2016, Renee filed a motion for an order to show cause why Chad "should not be held in contempt of court for his failure to comply with" the circuit court's order requiring that Chad obtain the circuit court's approval of the appointment of a co-trustee of her trust. Renee's motion further requested that the court order Chad to account for misappropriated funds from Renee's trust and that Chad be required to pay Renee's costs and attorney fees. The court entered an order to show cause. Prior to the hearing on the court's order, Renee's counsel sent a letter to Chad's counsel, requesting that Chad not distribute further funds from Renee's Share Trust except the monthly payments to Renee.

         [¶13.] On May 17, 2016, the court held a hearing on the order to show cause. The court indicated that it would not address Renee's claim that Chad misappropriated funds during the order to show cause hearing. In regard to Renee's claim that Chad disregarded the court's November 2015 order, Chad replied that he did not need to seek judicial approval for exercising his powers as a trustee of Renee's Share Trust because the court had terminated judicial supervision of the Family Trust. The court disagreed, concluding that its November 2015 order unambiguously required that Chad obtain court approval of the appointment of a corporate co-trustee.

         [¶14.] The court held that Chad violated the court's order when he failed to obtain court approval. The court declared that the appointment of the corporate trustee "is a nullity because the [c]ourt order was not followed." The court did not direct a specific transition from Family Heritage; ...


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