475 P.3d 708
Kan. Ct. App.2020Background
- Testatrix Sonya Miller's will placed oil royalty interests into a testamentary discretionary trust for all five children and named son Brad Miller trustee with language granting "uncontrolled" or "exclusive" discretion over income and principal.
- The trust assets consisted essentially of oil royalties; Brad was both trustee and a beneficiary and also received other real property outright under the will.
- As trustee (1996–2015) Brad deposited royalty income into his personal account, used it to service debts and farm expenses on land he and his wife Amy owned, never established a trust account, and eventually conveyed mineral interests to himself, emptying the trust.
- The other beneficiaries sued for breach of fiduciary duties, conversion, and failure to account; the district court accepted Brad's reliance on the trust's "uncontrolled discretion" language and on outside advice and ruled for Brad and Amy.
- On appeal the Kansas Court of Appeals reversed: although the trust is discretionary, statutory and common-law fiduciary duties (loyalty, impartiality, prudence) cannot be nullified by broad discretion language; the district court erred by treating "uncontrolled discretion" as a license to ignore beneficiaries' interests.
- The case is remanded for determination of remedies, consideration of equitable defenses (including statute of limitations), and other proceedings consistent with the opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "uncontrolled" discretion in the trust relieves trustee of fiduciary duties | Beneficiaries: no—duties of loyalty, impartiality, prudence remain and limit discretion | Brad: trust language gives absolute discretion to use income/principal as he sees fit | Reversed: discretion is bounded; trust cannot displace duty to act in good faith and for beneficiaries' interests (K.S.A. 58a-105, 58a-814) |
| Whether conveying royalties and diverting income to himself breached duties/self-dealt | Beneficiaries: transfers and diversion were self-dealing, conversion, breach of loyalty and impartiality | Brad: transfers authorized by trust terms and his status as beneficiary; relied on counsel/bankers | Reversed: such wholesale self-dealing cannot be justified by the discretionary language absent express authorization; remand for remedies |
| Whether Brad violated accounting requirements by failing to provide annual accountings | Beneficiaries: trustee had to prepare/send annual reports | Brad: trust required only that accounts be available on request; court found no request was made | Court affirmed factual finding that no request was shown; failure to prepare/send accounts supports breach evidence and is relevant on remand |
| Whether reliance on advice of counsel absolves trustee | Beneficiaries: advice of counsel is not a complete defense to breach | Brad: he sought and relied on attorneys, accountants, and bankers | Held: advice of counsel is probative of prudence but not a complete defense; trustee must prudently select and rely on counsel |
Key Cases Cited
- Hemphill v. Shore, 295 Kan. 1110 (trust interpretation: plain language controls settlor intent)
- Nauheim v. City of Topeka, 309 Kan. 145 (standard of review for statutory interpretation)
- Jennings v. Murdock, 220 Kan. 182 (courts intervene only for abuse of discretion or bad faith by trustee)
- Simpson v. Kansas Dept. of SRS, 21 Kan. App. 2d 680 (definition and effect of discretionary trust language)
- McGinley v. Bank of America, N.A., 279 Kan. 426 (reasonable reliance on trust terms can limit liability but is not absolute)
- In re Ralph E. Breeding Trust, 21 Kan. App. 2d 351 (trust terms cannot eliminate fundamental fiduciary duties)
- McAdam v. Fireman's Fund Ins. Co., 203 Kan. 123 (advice of counsel does not automatically excuse fiduciary negligence)
- In re B.D.-Y, 286 Kan. 686 (appellate court will not reweigh facts or substitute its factual findings)