Hatleberg v. Norwest Bank Wisconsin

• Decision Date: 24 February 2004
• Docket Number: No. 03-0040.,03-0040.
• Parties: Susan HATLEBERG, Plaintiff-Respondent, v. NORWEST BANK WISCONSIN, n/k/a Wells Fargo Bank, Defendants-Appellants.
• Court: Wisconsin Court of Appeals

271 Wis.2d 225

2004 WI App 48

678 N.W.2d 302

Susan HATLEBERG, Plaintiff-Respondent, v. NORWEST BANK WISCONSIN, n/k/a Wells Fargo Bank, Defendants-Appellants.¹

No. 03-0040.

Court of Appeals of Wisconsin.

Submitted on briefs November 3, 2003.

Decided February 24, 2004.

On behalf of the defendants-appellants, the cause was submitted on the briefs of Dennis M. Sullivan and Herrick, Hart, Duchemin, Spaeth, Sullivan & Schumacher, S.C. of Eau Claire. On behalf of the plaintiff-respondent, the cause was submitted on the brief of Paul J. Gossens, S.C. of Wauwatosa.

Before Cane, C.J., Hoover, P.J., and Schudson, J.

HOOVER, P.J.

¶ 1.Wells Fargo Bank appeals a judgment for damages for breaching its fiduciary duty while managing an irrevocable trust set up by Phyllis Erickson.² Because of an error in the trust document, Erickson's contributions were included in her estate at her death, requiring the estate to pay nearly $174,000 in additional taxes. Wells Fargo alleges several errors, primarily that it had no duty to notify Erickson of the error in the trust document. We disagree with all of Wells Fargo's contentions and affirm the judgment.

Background

¶ 2. Dale Sevig was the senior trust officer for Wells Fargo,³ which has previously been known by other names. Sevig contacted Erickson's husband, Ted, in September 1984 "to hopefully help you with your estate and investment planning." Sevig represented that he had knowledge on avoiding estate taxes and recommended a plan to Ted that would help reduce those taxes. Before Ted could finalize anything, he died in March 1985. Sevig then wrote to Erickson to express his condolences and to suggest he could help Erickson finish the estate planning Ted had started. ¶ 3. Sevig recommended an irrevocable trust that would take advantage of an annual gift exclusion of $10,000 per recipient⁴ to reduce Erickson's eventual estate tax. He recommended an attorney from an office in the bank's building to draft the trust document, but Erickson insisted on having her neighbor, Richard Duplessie, draft the document. Sevig knew Duplessie was a lawyer, but also that he was not an expert on trusts.

¶ 4. Duplessie drafted the trust document, apparently modeling it after one in a form book in his office. While the trust was intended to be one way for Erickson to reduce her estate tax burden,⁵ it needed to provide the recipients with a present interest in Erickson's gift for the money to qualify for the tax exemption. See 26 U.S.C. § 2503(b)(1) (2002).⁶ This is normally accomplished through Crummey provisions included in the trust, although Erickson's trust contained no such language. See Crummey v. Commissioner of Internal Revenue, 397 F.2d 82 (9th Cir. 1968)

.⁷

¶ 5. Erickson began contributing to the trust in 1985 and, by the time of her death in 1998, she had deposited a total of $440,000. In 1988, however, Wells Fargo became concerned by the trust's lack of Crummey provisions. Sevig sent a letter to Duplessie, containing potential Crummey language and asking Duplessie to modify the trust if possible. Sevig never contacted Erickson or her beneficiaries about the potential problem. Duplessie believed the trust had already been completely funded—that Erickson was not making additional deposits—and therefore no changes could be made. The trust was never amended.

¶ 6. Sevig continued managing Erickson's finances and continued advising her to contribute to the trust, reiterating her gifts to her grandchildren would also be beneficial for estate tax purposes. At one point after 1988, he advised Hatleberg that there was nothing to worry about as far as her mother's trust was concerned. When Erickson died in September 1998, however, Sevig contacted the probate attorney advising that the lack of Crummey provisions in the trust caused him concern about Erickson's estate. Because there were no Crummey provisions, Erickson's estate had to recapture the $440,000 in gifts. As a result, the estate paid an additional $173,644 in taxes.

¶ 7. Hatleberg sued Duplessie, his law firm, Sevig, and Wells Fargo. Hatleberg settled with Duplessie. Following a bench trial, the court found against Wells Fargo. Wells Fargo moved for reconsideration to have liability apportioned. The court determined that Duplessie's law firm was 0% liable, the estate's accounting firm was 0% liable,⁸ Wells Fargo was 60% liable, and Duplessie was 40% liable.

¶ 8. An accountant testified that $300,993 would be needed to make the estate whole. This amount, when added to the estate, would be sufficient to (1) cover the additional taxes that would be assessed by counting the judgment in the total estate and (2) leave the estate with the $173,644 it paid in tax because the $440,000 was recaptured. Based on the apportionment of liability, judgment was ultimately entered against Wells Fargo in the amount of $180,559.80 plus costs and interest.

¶ 9. Wells Fargo appeals and argues: The trustee had no duty to review Erickson's trust document for accuracy; the damage award is speculative; the statute of limitations precludes recovery; public policy precludes recovery; and the trial court's determinations are based on insufficient evidence.

Discussion

1. Whether Wells Fargo had a duty to review the trust for accuracy

¶ 10. Whether a legal duty exists and, if so, its scope, are questions of law. Wisconsin Academy of Sciences, Arts & Letters v. First Wis. Nat'l Bank, 142 Wis. 2d 750, 754, 419 N.W.2d 301 (Ct. App. 1987). Generally, a trustee's duties are defined by the trust document. See Saros v. Carlson, 244 Wis. 84, 88, 11 N.W.2d 676 (1943). Wells Fargo contends it had no duty to examine the document for accuracy because the duty of review is not included in the trust document. We disagree. Assuming without deciding that Wells Fargo had no duty originally, it created the duty itself. "Wisconsin has long recognized that liability may be imposed on one who, having no duty to act, gratuitously undertakes to act and does so negligently." Nischke v. Farmers & Merchants Bank & Trust, 187 Wis. 2d 96, 113, 522 N.W.2d 542 (Ct. App. 1994). At a minimum, when Wells Fargo decided it should notify Duplessie of the missing provisions, it demonstrated an assumed duty of review.⁹ ¶ 11. Wells Fargo counters that in any event it could not have warned Erickson by reviewing the trust and opining on its validity because doing so would have amounted to the unauthorized practice of law. See, e.g., Green v. Huntington Nat'l Bank, 212 N.E.2d 585, 587-88 (Ohio 1965)

(a bank providing legal advice for estate planning has engaged in the unauthorized practice of law); Doe v. Condon, 532 S.E.2d 879, 882 (S.C. 2000) (a paralegal conducting an estate planning workshop where the paralegal would offer estate planning advice without a supervising attorney would be the unauthorized practice of law). Although Wells Fargo's legal premise is sound, it does not apply to circumstances of this case.

¶ 12. In Wisconsin, an individual engages in the unauthorized practice of law when he or she "for compensation or pecuniary reward gives professional legal advice not incidental to his or her usual or ordinary business . . . ." WIS. STAT. § 757.30(2) (emphasis added). In this particular case, Wells Fargo claimed to have expertise in trusts—that this was its "usual or ordinary business." It would likely know, therefore, as part of that business that Crummey provisions are required when a donor intends to reduce his or her estate tax and, indeed, Sevig's concerns reveal as much. This language requirement would thus be one of the "easily identifiable impediments or pitfalls" about which a donor should be informed. See Wisconsin Acad., 142 Wis. 2d at 757. As part of Wells Fargo's usual or ordinary business, advising of the need for Crummey provisions would not cross the line into the unauthorized practice of law;¹⁰ such advice does not require that the bank or trustee draft the trust, but rather only provide information to the donor in advance.

¶ 13. Still, Wells Fargo implicitly argues that the trial court's finding of fact regarding Erickson's primary intent—reducing her estate taxes—was clearly erroneous because the trust document specifically contains language delaying the beneficiaries' access to the corpus. If the finding were erroneous, Hatleberg's case would no longer be tenable. However, the evidence from both sides amply supports the trial court's finding of Erickson's primary intent. Therefore, we are less concerned with the actual trust document because the issue is not so much what the trust says as what Wells Fargo represented the trust would accomplish.

¶ 14. Wells Fargo further argues that its notification to Duplessie of the error should be sufficient for us to conclude that it fulfilled any duty it assumed. After all, it contends, Duplessie was Erickson's lawyer. However, Wells Fargo ignores the trial court's finding that at the time Wells Fargo notified Duplessie of the error, he no longer had any professional link to Erickson. Sevig testified that he considered Duplessie "out of the loop," and there is no indication Erickson had retained Duplessie for anything other than the initial drafting of the trust. Thus, notice to Duplessie was insufficient to notify Erickson of the problem.

¶ 15. While Wells Fargo may have originally had no duty to review the trust for accuracy, it assumed the duty and found an error in the trust. It notified the original drafter, but this was insufficient because Duplessie was no longer Erickson's agent in any capacity. Wells Fargo solicited Erickson's business and repeatedly informed her it could use the trust to reduce her future estate taxes. Once Wells Fargo realized the trust was insufficient for that purpose, it was negligent in advising Erickson to continue making deposits and assuring her the trust would reduce her estate taxes.

¶ 16. We do not intend this decision to be construed as placing trustees in the position of...