Forgey v. Forgey (In re Estate of Forgey)
| Decision Date | 09 February 2018 |
| Docket Number | No. S-16-1027,S-16-1027 |
| Citation | 298 Neb. 865,906 N.W.2d 618 |
| Parties | IN RE ESTATE OF Glenn G. FORGEY, deceased. Dean R. Forgey et al., appellants and cross-appellees, v. Lyle A. Forgey, individually and as Trustee, appellee, cross-appellant, and cross-appellee, and Bessie I. Forgey-McCoy et al., appellees and cross-appellants. |
| Court | Nebraska Supreme Court |
David A. Domina, of Domina Law Group, P.C., L.L.O., Omaha, for appellants.
Michael L. Johnson, of Leininger, Smith, Johnson, Baack, Placzek & Allen, Grand Island, for appellee Lyle A. Forgey.
Kyle S. Irvin for appellees Bessie I. Forgey-McCoy et al.
This appeal arises from a trustee's failure to distribute the corpus of the trust following the grantor's death in 1993. Marvel Forgey and her three children, all beneficiaries of the Glenn G. Forgey Revocable Trust (the trust), appeal the order of the county court for Keya Paha County resulting from their suit against Lyle A. Forgey, who was another beneficiary and was the trustee. Marvel and her children sought to remove Lyle as trustee, secure administration of the trust, value the trust assets, divide those assets into separate trusts for the beneficiaries, and determine liabilities for alleged breaches of fiduciary duties by Lyle. Bessie I. Forgey-McCoy and her two children, all three also beneficiaries, joined as interested parties. Primarily accepting Lyle's version of the facts, the county court valued and distributed the trust assets, assessed damages against Lyle for estate tax interest and penalties, and declined to award attorney fees or costs to any party. Marvel and her children appealed; Lyle cross-appealed, and Bessie and her children filed a separate cross-appeal. While we largely agree with the county court's findings in this case, we conclude that the county court committed error by not awarding damages for Lyle's untimely reports and accountings of his failure to collect rents on behalf of the trust. We further determine that the county court abused its discretion in declining to award attorney fees to Marvel, Bessie, and their respective children. Accordingly, we affirm in part, and in part reverse and remand with directions.
Glenn G. Forgey died in 1993. He was survived by three children: Lyle and Bessie, mentioned above, and Wayne Forgey, who is now deceased. Wayne was survived by his wife, Marvel, and by their three children.
During his lifetime, Glenn transferred property into the trust. Lyle has been the sole trustee at all relevant times. The trust gave the trustee broad discretion to make decisions for the trust in good faith. It required the trustee to provide an annual report to the beneficiaries upon Glenn's death. The trust further directed the trustee, upon the grantor's death, to use the principal or net income of the trust to pay the grantor's legal debts, death expenses, estate administration costs, and inheritance and estate taxes. The trust, as amended, further provided:
Upon the death of the Grantor and distribution of the Grantor's estate from probate, the Trustees shall divide the residue of the assets of this trust ... into equal shares , so as to provide one share for each then living child of the Grantor and one share for the then living issue, collectively, of each deceased child of the Grantor. In so dividing the assets of [this trust], ... in funding [Lyle's ] equal share of the trust assets the Trustees shall allocate to his share all common stock which [this trust ] may then own in [a bank in Ainsworth, Nebraska].
(Emphasis supplied.)
No administrative proceedings were commenced for the trust until 2013, when Marvel initiated this litigation, along with her children (hereinafter collectively Marvel).
Bessie and her two children (hereinafter collectively Bessie) joined the action as interested parties. Marvel sued to remove Lyle as trustee, secure administration, value assets, divide and distribute them to separate trusts, determine liabilities for defalcations by Lyle, and recover attorney fees and costs.
Bessie filed her own counterpetition, requesting similar relief.
Lyle also counterpetitioned, asking the county court to approve his actions as trustee; determine or confirm the allocation of trust assets, income, expenses, and compensation; and award him attorney fees and costs.
The sections immediately below summarize evidence relevant to the parties' claims on appeal, and we recount additional relevant facts in the analysis portion of this opinion.
Pretrial litigation revealed that the corpus of the trust included agricultural real estate, bank stock, cash, and a promissory note.
The county court, observing that the trust provided that trust assets were to be distributed upon Glenn's death, applied the principle that equity considers that done which ought to have been done and treated the division of the trust as though it had occurred upon Glenn's death.
The county court further determined that "it was clearly Glenn's intent that his trust be divided equally and that Lyle's one-third share be funded using the bank stock and that the remaining assets would be divided between Wayne's trust and Bessie's trust."
In dividing the trust this way, the county court relied on the testimony and report provided by Lyle's expert, Tyler Bartruff, an attorney working in the field of forensic accounting and federal estate taxes.
Bartruff based his report on the hypothetical assumption that the trust was split into three equal shares as of Glenn's date of death in 1993. The report also assumed that the federal estate tax return was timely filed and that the tax was timely paid on a deferred basis under I.R.C. § 6166 (2012). The report allocated the bank stock to Lyle's share and added additional liability to Lyle's share to make the three shares proportionate. Bartruff's report then proceeded with a cashflow summary for each beneficiary's share from the split in 1993 until December 31, 2015, using data provided in other exhibits.
At the time of trial, the trust owned 13,276 shares (bank stock), or 66.2 percent, of the holding company for a bank in Ainsworth, Nebraska. Lyle owned the remaining shares in his individual capacity.
Two witnesses testified about the bank stock's value: Janet Labenz and Fred Lockwood, each a certified public accountant (CPA) with experience in bank valuation.
Labenz' testimony and her written report gave a clear and concise explanation of her reasoning, which resulted in her applying a lack of marketability discount and valuing the trust's bank stock at $7,209,000 as of September 13, 2013.
Lockwood did not apply a lack of marketability discount and valued the trust's bank stock as of September 30, 2013, at $9,804,000. Counsel were unable to elicit a straightforward explanation to support Lockwood's conclusion; and because Lockwood was not a certified valuation analyst, as was Labenz, he was unable to submit a written report.
The county court expressly accepted Labenz' $7,209,000 valuation of the bank stock.
Upon Glenn's death, the trust owned three substantial parcels of agricultural real estate located in Brown and Keya Paha Counties in Nebraska and in Tripp County in South Dakota.
On January 15, 2016, the Brown County real estate was distributed and sold by stipulation of the parties. The sale price of $9,148,172.70 was equally distributed to the separate trusts for Wayne and Bessie.
At trial, Marvel's counsel presented the reports of Larry Radant, who appraised the three parcels as of 2015. Radant determined values of $1,065,000 for the Keya Paha County real estate, $5,630,000 for the Tripp County real estate, and $9,700,000 for the Brown County real estate.
In addition, Marvel's counsel also presented values for the Keya Paha County and Tripp County real estate prepared by a different appraiser.
The county court relied on the real estate values established by Radant, valuing the trust's real estate at $16,395,000 total. This valuation included Radant's appraisal of the Brown County real estate, which had been previously sold below Radant's appraised value.
The county court awarded the parties cash based on Bartruff's report, which calculated each party's share of the trust had Lyle divided the trust into three equal shares upon Glenn's death, timely filed the estate tax return, and paid the associated taxes on a deferred basis. That report allocated the trust's cash as follows: $1,960,910 to Lyle and $382,169 to Wayne and Bessie ($191,084.50 to Wayne and $191,084.50 to Bessie). The county court apparently considered past distributions to Bessie totaling $167,550 and added these distributions to Bartruff's total of $382,169. Accordingly, the county court awarded $1,960,910 to Lyle's trust and divided $549,719 between Wayne's trust and Bessie's trust, resulting in $274,860 to Wayne's trust and $274,860 to Bessie's trust. The county court then subtracted $167,550 from Bessie's share, allocating $107,310 to Bessie's trust.
The parties do not dispute that as of the time of trial, Bradley Williams owed the trust $61,423. As described in more detail below, the county court allocated the note representing that debt to Lyle in its final distribution, deducted its cash value from Lyle's trust, and divided its cash value equally between Wayne's and Bessie's trusts.
Marvel and Bessie presented evidence attempting to show various breaches of fiduciary duty by Lyle and resulting damages.
The parties do not dispute that Lyle was late in filing the trust's federal estate tax return and in paying the resulting tax liability. There was evidence that although Lyle's CPA, Bruce Hocking, timely prepared the federal estate tax return for Lyle's signature, Lyle neglected to sign and mail it on time. Due to Lyle's tardiness, the Internal Revenue Service (IRS) assessed penalties and...
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