NO. 00-249
IN THE SUPREME COURT OF THE STATE OF MONTANA
2002 MT 277
IN THE MATTER OF THE ESTATE OF
MILDRED I. BERTHOT, Deceased.
ELLEN M. COLLINS and JOANN BARRETT,
-?
Petitioners and Appellants, !-til,! i /
, I >
NORWEST INVESTMENT MANAGEMENT
and TRUST,
Respondent and Respondent.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Mike Salvagni, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
John Frohnmayer, Bozeman, Montana
For Respondent:
Allan Baris, Cindy Younkin, Moore, 07Connell & Refling, Bozeman,
Montana
Submitted on Briefs: August 8,2002
Decided: December 5,2002
Filed:
Justice James C. Nelson delivered the Opinion of the Court.
71 Appellants Ellen M. Collins and Joann Barrett appeal an order of the District Court
for the Eighteenth Judicial District, Gallatin County, denying their petition to remove
Nonvest Investment Management and Tnrst (Nonvest) as trustee of their grandmother's
testamentary trust and to appoint a new trustee. We affirm in part, reverse in part and remand
for further proceedings consistent with this Opinion.
72 Appellants presented two issues on appeal which we have restated for clarity as
follows:
73 1. Whether the District Court had discretion to deny Appellants' request to remove
Nonvest, the institutional trustee of this testamentary trust, and appoint an individual trustee.
74 2. Whether the District Court erred in awarding Nonvest its attorney's fees and
expenses in defending this action in the trial court.
75 In addition, Nonvest presented the following two issues on cross-appeal:
76 3. Whether the District Court erred in failing to allow Nonvest to recover all of its
attorney's fees and expenses incurred in preparing the Twenty-Ninth Accounting.
77 4. Whether Nonvest is entitled to reimbursement from the trust for its attorney's fees
and other expenses of this appeal.
Factual and Procedural Background
78 Appellants are the beneficiaries of a testamentary trust established by the will of their
grandmother, Mildred I. Berthot. Berthot executed her will on April 6, 1953. Under the
terms of the will, all of her estate, with the exception of her jewelry, household goods and
personal belongings, was bequeathed to Security Bank and Trust Company of Bozeman as
trustee. Security Bank and Trust was founded by Berthot's late husband.
79 The trust went into effect when Berthot's will was admitted to probate and
subsequently settled on May 14, 1962. The initial income beneficiary of the trust was
Bernice B. Klingensmith, Berthot's daughter and Appellants' mother. When Klingensmith
died in 1994, Appellants became the income beneficiaries entitling them to receive the net
income from the trust during their lifetime. Upon the death of whichever Appellant dies last,
the trust will terminate and the principal will be distributed equally among Appellants' six
children.
710 By order dated September 26, 1966, the District Court confirmed Nonvest as
successor trustee to Security Bank and Trust Company. When Nonvest became the trustee
in 1966, the trust held assets valued at $166,757 of which $1 18,834 consisted of stock in
several corporations; $28,66 1 was a real estate contract from the sale of farm land; $17,072
was a mortgage for the sale of city lots; $400 was in an escrow account; and $1,790 was in
cash. Thus, of the original portfolio, 71% was in stock and 29% was in income producing
assets. In 1966, the trust had income of $4,720 annually. As of the end of 1998, the value
of the trust assets was $1,393,058 with income of $28,487 annually.
1 In administering the trust, Nonvest has made monthly payments of income to
Appellants and has provided Appellants annually with both fiscal year itemized statements
and calendar year itemized statements. These statements itemize receipts and disbursements
of the trust and describe the current assets and asset values of the trust.
712 After Klingensmith's death, Appellants sent Nonvest two letters in which they asked
several questions concerning Norwest's management of the trust, requested information
concerning past performance of the trust, and requested details of a particular bond fund in
which part of the trust assets were invested. Nonvest duly responded to both letters, but
heard nothing more from Appellants until Nonvest filed its "Petition for Settlement of its
Twenty-Ninth Account of Successor Trustee" on June 4, 1998. This Twenty-Ninth
Accounting covered the two-year period from October 1, 1995, to September 30, 1997, and
claimed trustee fees for that period of $16,403.68 and attorney's fees of $1,800.
113 On July 29, 1998, Appellants filed an objection to the accounting requesting that the
District Court postpone its ruling to allow Appellants time to gather information to support
a petition. Based on this objection, the court postponed a hearing on the Twenty-Ninth
Accounting.
114 On May 20, 1999, Appellants filed their "Verified Petition to Remove Trustee and
Appoint New Trustee," in which they sought the replacement of Nonvest and the
appointment of Edwin G. Davis, a family friend, as trustee. Appellants alleged in their
petition that they are dissatisfied because Nonvest allowed the trust to become heavily
invested in equities which do not produce maximum income for the beneficiaries and,
instead, generate excessive fees for Norwest. Besides Appellants (the income beneficiaries),
the petition was verified by five of the six residual beneficiaries. The sixth residual
beneficiary stated that she chose to "remain neutral."
715 A hearing in this matter was held on July 2, 1999, at which time the parties appeared
and presented witnesses and exhibits. On February 1, 2000, the District Court issued its
Findings of Fact, Conclusions of Law and Order wherein it concluded that Appellants failed
to establish that Nonvest should be removed as trustee and that the individual proposed by
Appellants as a substitute trustee was not qualified. The court also approved Norwest's
Twenty-Ninth Accounting, including the trustee fees, but denied awarding Nonvest its
attorney's fees in preparing the Twenty-Ninth Accounting and in defending this action.
716 Appellants filed their notice of appeal in the District Court on February 29, 2000,
arguing that the District Court erred in not removing Nonvest as trustee and in approving the
Twenty-Ninth Accounting. Nonvest filed its notice of cross-appeal on March 13, 2000,
arguing that the District Court erred in failing to award Nonvest its attorney's fees and
expenses in this litigation. While Norwest contended in its notice of cross-appeal that
Appellant's notice of appeal was untimely because a judgment in this matter had not yet been
entered, Nonvest filed its notice in the event that it was ultimately determined that
Appellants' notice was timely.
717 Meanwhile, on March 7,2000, Nonvest filed a motion in the District Court requesting
that the court amend its order regarding reimbursement for attorney's fees and expenses in
defending this action arguing that Nonvest is entitled by law to reimbursement from the trust.
In its motion, Nonvest also sought clarification of the court's order regarding reimbursement
1 for attorney's fees and costs in preparing the Twenty-Ninth Accounting. Appellants objected
to Nonvest's motion arguing that once the appeal had been filed, the District Court lost
jurisdiction to consider Nonvest's motion.
718 On April 2 1,2000, the District Court issued a Memorandum and Order concluding
that it did have jurisdiction to consider Nonvest's motion because the motion was timely
under Rule 52(b), M.R.Civ.P., and as such, pursuant to Rule 5, M.R.App.P., the notice of
appeal would be treated as being filed after the District Court's order. In addition, the
District Court denied Nonvest's request to modify its previous order regarding attorney's fees
and costs for preparing the Twenty-Ninth Accounting. The court did, however, determine
that although Nonvest was not entitled to collect attorney's fees from Appellants, it was
entitled to be reimbursed by the trust for its attorney's fees and costs in defending this action.
Consequently, the court amended its previous order to that affect and stated that the amount
of those attorney's fees and costs would be determined at a subsequent hearing.
719 On June 5, 2000, Nonvest filed a motion with this Court requesting that we remand
the case to the District Court for a determination of the amount of attorney's fees and costs
Nonvest incurred in defending this action. Hence, by order of this Court dated June 27,
2000, the case was remanded and, on September 18,2000, the District Court entered an order
approving an award of attorney's fees to Nonvest from the trust in the amount of $10,463.
720 Thereafter, Appellants filed a supplemental notice of appeal and a motion to file a
supplemental brief since their original brief on appeal was filed prior to the District Court's
order approving attorney's fees. On October 18,2000, this Court granted Appellants' motion.
Appellants filed their supplemental brief on November 8,2000, in which they argued that the
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District Court erred in awarding attorney's fees to Nonvest. Nonvest duly filed its brief on
appeal, including therein its arguments on cross-appeal, and Appellants replied. Nonvest
declined to file a reply brief on its cross-appeal issue and this case was finally submitted for
review to this Court.
I Standard of Review I
721 We review a district court's findings of fact to determine whether they are clearly
erroneous. In re Eggebrecht, 2000 MT 189,y 18,300 Mont. 409,y 18,4 P.3d 1207,Y 18
(citing In re Estate of Bolinger, 1998 MT 303,129,292 Mont. 97,729,971 P.2d 767,7 29).
We review a district court's conclusions of law to determine whether that court's
interpretation of the law is correct. Eggebrecht, 7 18.
Issue 1.
722 Whether the District Court had discretion to deny Appellants' request to remove
Norwest, the institutional trustee of this testamentary trust, and appoint an individual trustee.
723 Appellants contend that the District Court erred in failing to remove Nonvest as
trustee of the Berthot Trust because Nonvest failed to heed the purpose of the trust to provide
income for the beneficiaries; failed to heed its own guidelines on maintaining income
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also contend that the court improperly applied the law by focusing on Nonvest's entitlement
to hold its position instead of focusing on the best interests of the beneficiaries.
124 Nonvest argues, on the other hand, that it has acted within the powers granted to it as
trustee under both the will and applicable Montana law, and that Nonvest has achieved
excellent results for both the income beneficiaries and the remainder beneficiaries. Nonvest
maintains that there is no evidence in the record of any misconduct by Nonvest or anything
else to justify overruling the District Court's exercise of discretion.
125 Section 72-33-618(2), MCA, provides the following grounds for removal of a trustee
by the court:
(a) if the trustee has committed a breach of the trust;
(b) if the trustee is insolvent or otherwise unfit to administer the trust;
(c) if hostility or lack of cooperation among cotrustees impairs the
administration of the trust;
(d) if the trustee fails or declines to act; or
(e) for other good cause.
In addition, 5 72-33-618(3), MCA, provides:
If it appears to the court that trust property or the interests of a
beneficiary may suffer loss or injury pending a decision on a petition for
removal of a trustee and any appellate review, the court may, on its own
motion or on petition of a cotrustee or beneficiary, compel the trustee whose
removal is sought to surrender trust property to a cotrustee or to a receiver or
temporary trustee. The court may also suspend the powers of the trustee to the
extent the court considers necessary.
126 Appellants contend that four of the statutory grounds for removal of a trustee exist in
this case. First, they argue that subsection (a) of 5 72-33-618(2), MCA, exists here because
Nonvest has breached the trust by failing to follow the purposes of the trust, which they
claim is to provide income to the beneficiaries. Appellants argue that they are receiving poor
service from Nonvest because Nonvest is managing the trust to maximize its fees. Although
the trust assets have grown to nearly $1.4 million, Appellants each receive only $13,000 in
income from the trust each year, while Nonvest receives more than $8,000 in fees each year.
727 Second, Appellants argue that subsection (c) of fj 72-33-61 8(2), MCA, exists here
because hostility and lack of cooperation between the trustee and the beneficiaries impairs
the trust. Appellants rely on May v. May (1 897), 167 U.S. 3 10, 17 S.Ct. 824,42 L.Ed. 179,
for the proposition that the rule set forth in May governing removal of a trustee because of
hostility or lack of cooperation among co-trustees applies equally to those conditions between
trustee and beneficiary and, thus, that rule is applicable to this case.
728 In May, the testator devised and bequeathed all of his estate to his wife and his six
children. In a codicil dated one year after the will, testator appointed his son William as co-
trustee along with testator's wife. In the year and a half after testator's death, testator's wife,
along with the other five children, attempted to have William removed as co-trustee and
another individual appointed in his place, because William was "untrustworthy, dishonest,
dictatorial, and disagreeable in manner, and incompetent as a business man." May, 167 U.S.
at 3 17-18, 17 S.Ct. at 827. The United States Supreme Court determined in May that a clause
in the codicil gave testator's other heirs power to remove William as co-trustee by unanimous
vote without having to resort to a court of equity. May, 167 U.S. at 320, 17 S.Ct. at 827-28.
Thus, Appellants in this case argue that they have the power to remove Nonvest as trustee
because of hostility between Appellants and Nonvest.
729 Third, Appellants argue that subsection (d) of 5 72-33-618(2), MCA, exists here
because the evidence is undisputed that Nonvest, knowing of the beneficiaries' desire for
more income, refused to act and was hostile, rude and defensive.
730 Fourth, Appellants argue that good cause under subsection (e) of 72-33-618(2),
MCA, exists here because Nonvest has violated its duty of loyalty by maximizing its fees at
the expense of the beneficiaries. At the end of 1998, the trust contained 87% equities rather
than the 70% Nonvest claimed as its investment objective. Since Nonvest bases its fee on
the total market value of the portfolio, the growth in equities, while reducing or holding
steady the income of the beneficiaries, yields a higher income for Nonvest. Appellants
contend this creates a conflict of interest for Nonvest and good cause for removing Nonvest
as trustee.
731 Nonvest argues, on the other hand, that Appellants' assertions about the trust are
mistaken in several key respects. First, Nonvest contends that the will does not permit the
trustee to liquidate principal assets and distribute them to income beneficiaries except in very
limited circumstances that do not exist in this case.
732 Second, Nonvest contends that the will does not establish a goal of maximum income
to the income beneficiaries. Instead, it establishes a split interest trust providing for the
payment of net income to the income beneficiaries and the preservation and appreciation of
the principal assets for ultimate distribution to the remainder beneficiaries.
733 Third, Nonvest contends that the will does not provide the beneficiaries the right to
control or consult on the investment strategy for the trust. Rather, Nonvest contends that the
will gives the trustee full discretion to make investment decisions.
734 Finally, Nonvest contends that May is distinguishable from the facts in this case
because the trust document in May gave the beneficiaries the power to remove the trustee by
a unanimous vote. Nonvest argues that that is not the case here.
735 As Nonvest points out in its brief on appeal, it is a basic principle of trust law that a
trust is to be managed to carry out the testator's intent. In re Estate of Lindgren (1994), 268
Mont. 96, 100,885 P.2d 1280, 1282. Therefore, the threshold inquiry in any trust case is to
examine the terms of the trust document. In re George Trust (1992), 253 Mont. 341, 344,
The intention of the testator should control the disposition and the intent shall
"be found from all parts of the will . . . construed in relation to each other . . .
to form one consistent whole."
George, 253 Mont. at 344, 834 P.2d at 1380 (citations omitted).
736 Paragraphs (a)(l) through (a)(12) of the will establish the trustee's power to deal with
trust assets. For example, paragraph (a)(4) provides that the trustee has the authority
[t]o sell, convey, lease, pledge, mortgage, transfer, exchange, or grant options
upon any part or parts of the property of the trust estate, for such amounts, and
upon such terms, and in such manner, as to the trustee shall seem for the best
interests o the trust estate, without an order of court therefor, and with or
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without notice; . . . [Emphasis added.]
However, nothing in paragraphs (a)(l) through (a)(12) give the trustee the power to distribute
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trust assets other than net income to the income beneficiaries.
737 Paragraphs (b)(l) through (b)(8) of the will describe certain ancillary powers of the
trustee and provide for the trustee's compensation. More specifically, paragraph (b)(2)
provides that the trustee has the right to fair and just compensation from the trust estate, and
paragraphs (b)(3) and (b)(4) give the trustee the authority to employ agents and attorneys and
allow the trustee to be reimbursed for all such reasonable expenses incurred. To that end the
District Court concluded that Norwest's fees are consistent with the fees generally charged
by professional corporate fiduciaries.
738 Paragraphs (c)(l) through (c)(13) describe the purposes of the will and give directions
to the trustee for the distribution of income to the various beneficiaries. The only provision
in the will allowing for the invasion of trust principal to be paid to a beneficiary is contained
in paragraph (c)(3), which states in pertinent part:
During the minority or other disability of any beneficiary of the trust,
to whom payments of income or payments of principal in the discretion of the
trustee are to be made, the trustee may make such payments . . . . For the
purpose of this paragraph, a beneficiary shall be deemed to be under disability
if under a legal disability declared or adjudicated by a court of competent
jurisdiction, or if incapacitated to such an extent as in the opinion of the trustee
shall make it impossible or impracticable for such beneficiary to give prompt
and intelligent consideration to business matters. The trustee may accept and
act upon such evidence of disability, incapacity, or incompetency of any
beneficiary as the trustee may deem appropriate and reliable.
All of the beneficiaries in this case are above the age of majority and Appellants do not claim
to be disabled, incapacitated or incompetent.
739 The most telling provision of the will, as far as this action is concerned, is paragraph
(c)(6) which gives the trustee the sole discretion to decide whether to place the assets into
income producing property:
And the trustee shall have full power and authority to invest and reinvest the
principal in any kind of property whether such property is actually producing
income or not.
Moreover, throughout the will, the testator consistently instructs the trustee to act in "the best
interests of the trust estate" rather than in the best interests of the income beneficiaries.
These provisions belie Appellants' contention that the primary purpose of the trust is to
provide maximum income to the income beneficiaries.
740 Furthermore, as Nonvest points out, the trust terminates on the death of both
Appellants even if their mother, Klingensmith, were still alive. Consequently, this provision
also contradicts Appellants' argument that the purpose of the trust is to provide maximum
income to the income beneficiaries for if both Appellants died prior to the death of
Klingensmith, not only would Appellants not receive income from the trust, but
Klingensmith would also stop receiving income from the trust regardless of her economic
position at the time of Appellants' deaths.
741 In short, we agree with Nonvest that under the terms of the will and under the
provisions of 5 72-33-618(2), MCA, there is no justification for removing Nonvest as trustee.
We also agree with Nonvest that Appellants' dissatisfaction with the performance of the trust
under Norwest's trusteeship is not justified in light of the trust's performance. The District
Court correctly found that over the course of Norwest's tenure as trustee through the end of
1998, the principal assets of the trust have increased 835% and the income has increased
604%.
742 Accordingly, we hold that the District Court's findings of fact and conclusions of law
are both supported by substantial evidence and are legally correct.
743 That said, the dissents have raised several contentions that deserve a response. First,
Justice Cotter argues in her dissent that since the beneficiaries were "virtually unanimous"
in their request to modify the trust, 5 72-33-406, MCA, justifies removal of Norwest as
I trustee. However, 5 72-33-406, MCA, does not allow modification or termination of a trust
unless there is unanimous agreement among the beneficiaries, not virtually unanimous
agreement as Justice Cotter contends.
Modification or termination of irrevocable trust by all
beneficiaries. (1) Except as provided in subsection (2), if all beneficiaries of
an irrevocable trust consent, they may compel modification or termination of
the trust upon petition to the court.
Section 72-33-406(1), MCA (emphasis added). The word "all" is defined as "the whole of;
every member of." Webster's New American Dictionary 14 (1995) (emphasis added).
4 4 Second, while Justice Cotter is correct that the sixth residual beneficiary, Leslie
Barrett, chose to "remain neutral," Barrett's failure to disagree is not an indication that she
agrees with removal of Nonvest as trustee. The dictionary defines the word "neutral" as "not
favoring either side in a quarrel, contest, or war." Webster's New American Dictionary 349
(1995) (emphasis added).
745 Furthermore, in her letter expressing her desire to remain neutral, Barrett stated that
she was not knowledgeable in the area of trusts and that she felt "it should be left to the
actual Beneficiaries as well as someone with an acute business acumen and experience to
handle such issues." Justice Cotter claims that this statement ''leaves the clear indication that
[Barrett] would defer to the actual beneficiaries . . . as to the propriety of removing the
trustee in favor of a successor trustee." However, if that were the case, then why didn't
Barrett go ahead and "defer" to the income beneficiaries' wishes and agree to the removal of
Norwest as trustee? Contrary to Justice Cotter's interpretation of Barrett's statement, "the
clear indication" is that Barrett wants the trust left as is until someone with "an acute business
acumen and experience" advises otherwise.
146 Third, while Justice Cotter urges the application of 5 72-33-406(1), MCA, in this
situation, she fails to recognize that 5 72-33-406(2), MCA, prohibits modification or
termination of the trust--even if all of the beneficiaries agree-- "[ilfthe continuance of the
trust is necessary to carry out a material purpose of the trust. . . ." Similarly, 5 72-33-
407(2), MCA, provides:
If any beneficiary does not consent to the modification or termination
of the trust, upon petition to the court, the other beneficiaries, with the consent
of the trustor, may compel a modification or a partial termination of the trust
ifthe interests of the beneficiaries who do not consent are not substantially
impaired. [Emphasis added.]
747 As we noted previously in this majority Opinion, the purpose of the trust is not to
provide income for the income beneficiaries, but rather, to preserve trust assets for later
distribution to the residual beneficiaries. Removal of Nonvest as trustee and modification
of the trust to provide more income to the income beneficiaries and, consequently, less assets
for the eventual distribution to the residual beneficiaries, would substantially impair the
interests of the residual beneficiaries.
748 Fourth, Justice Cotter faults the majority for placing the interests of the trustee ahead
of the interests of the beneficiaries. On the contrary, we are simply following the basic
principle of trust law that a trust is to be managed to carry out the testator's intent, not the
intent of the trustee or even of the beneficiaries. See Lindgren, 268 Mont. at 100, 885 P.2d
at 1282; George, 253 Mont. at 344, 834 P.2d at 1380.
749 Fifth, in his dissent, Justice Trieweiler takes issue with the majority's determination
that the purpose of the trust is to preserve trust assets for later distribution to the residual
beneficiaries rather than to provide income for the income beneficiaries. He argues that it
would have been unnatural for Mildred to be more concerned about the amount of the
residual estate left to her yet unborn great grandchildren than the three descendants who were
specifically mentioned as income beneficiaries of her trust and that Mildred's primary reason
for establishing the trust was to benefit her three named descendants.
750 On the contrary, if that were the case, then why didn't Mildred make her grandchildren
the residual beneficiaries, rather than the income beneficiaries, and distribute the remainder
of her estate to them after her daughter passed away and after the grandchildren reached an
appropriate age? Why keep her grandchildren locked into receiving only the income from
the trust? While both the majority and the dissent can speculate all day as to Mildred's
reasons for setting up the trust in the way she did, the simple fact is that no one knows why.
We can only go by the wording of the trust document itself and in that document Mildred
consistently instructs the trustee to act in "the best interests of the trust estate" rather than in
the best interests of the income beneficiaries.
75 1 Sixth, Justice Trieweiler uses various mathematical comparisons in his dissent to
illustrate his point that Norwest's fees have steadily increased. While we do not dispute that
Norwest's fees have increased along with the value of the trust itself, it is important to point
out that the District Court concluded, and Appellants did not dispute, that Norwest's fees are
consistent with the fees generally charged by professional corporate fiduciaries.
752 Finally, both Justices Cotter and Trieweiler assert that, rather than depleting trust
resources to defend its position, Norwest should have granted the beneficiaries' request that
it resign. They fail to note, however, that Norwest has simply followed the terms of the trust
document and that it is because of Norwest's capable management of the trust that both the
assets and the income of the trust have substantially increased over the years.
Issue 2.
753 Whether the District Court erred in awarding Nonvest its attorney'sfees and expenses
in defending this action in the trial court.
754 On September 18, 2000, the District Court entered an order approving an award of
$10,463 in attorney's fees and costs to Nonvest for defending this action. In addition, the
court determined that that amount should be paid by the trust, rather than by Appellants.
755 We have repeatedly stated that absent a contractual agreement or statutory provision,
the prevailing party in a civil action is not entitled to recover attorney's fees. In re Estate of
Dern Family Trust (1996), 279 Mont. 138, 154, 928 P.2d 123, 133 (citing Thompkins v.
Fuller (1983), 205 Mont. 168, 186,667 P.2d 944,954). This case, however, is one in which
both contractual and statutory provisions govern the awarding of attorney's fees and costs.
756 Appellants argue on appeal that the award of attorney's fees to Nonvest should be
vacated because it is not reasonable given that Nonvest "breached the Trust, ignored the
Trust's purposes, and managed the Trust for its own financial benefit." As Appellants note
in their supplemental brief, they do not challenge the amount of the attorney's fees, but rather,
they object to any award of attorney's fees to Nonvest. They maintain that a trustee has a
duty to administer a trust solely in the interest of the beneficiaries and that Nonvest failed to
do so here.
757 We disagree. As we already noted elsewhere in this Opinion it is a basic principle of
trust law that a trust is to be managed to carry out the testator's intent. Lindgren, 268 Mont.
at 100, 885 P.2d at 1282. And, as we held in the previous issue, Nonvest did exactly that.
758 Furthermore, as we also noted in the previous issue, the threshold inquiry in any trust
case is to examine the terms of the trust document. George, 253 Mont. at 344, 834 P.2d at
1380. In this case, paragraph (b)(4) of the will provides: "My trustee shall be reimbursed
out of the trust estate for all reasonable expenses incurred in its management or protection,
including attorney's fees and costs." In addition, 3 72-33-63 1, MCA, provides that a trustee
"is entitled to the repayment out of the trust property for . . . expenditures that were properly
incurred in the administration of the trust; . . ."
759 Accordingly, we affirm the District Court's award of attorney's fees and expenses to
Norwest for defending this action.
Issue 3.
760 Whether the District Court erred in failing to allow Norwest to recover all of its
attorney's fees and expenses incurred in preparing the Twenty-Ninth Accounting.
76 1 In its February 1,2000 Findings of Fact, Conclusions of Law and Order, the District
Court approved Norwest's Twenty-Ninth Accounting, including the trustee fees, but denied
awarding Norwest its attorney's fees and expenses in preparing the Twenty-Ninth
Accounting. Norwest subsequently filed a motion in the District Court seeking clarification
of the court's order. On April 2 1,2000, the District Court issued a Memorandum and Order
denying Norwest's request to modify its previous order regarding attorney's fees and expenses
for preparing the Twenty-Ninth Accounting.
762 Norwest now argues on appeal that the will, the provisions of the Montana trust
statutes and prior decisions of this Court support Norwest's right to reimbursement for
reasonable attorney's fees and expenses in preparing the Twenty-Ninth Accounting. The
reason the District Court gave for denying the fees and expenses of presenting the Twenty-
Ninth Accounting was that the amount of the attorney's fees were unsubstantiated. Nonvest
argues that while that justifies withholding approval of those fees and expenses until such
time as Nonvest provides proper supporting evidence, it does not justify an outright denial
of the fees and expenses. We agree.
163 Paragraph (b)(4) of the will directs that the trustee be reimbursed "out of the trust
estate for all reasonable expenses incurred in its management or protection, including
attorney's fees and costs." In addition, § 72-33-63 1, MCA, provides that a trustee is entitled
to reimbursement from the trust for necessary expenses. And, finally, in Dern, this Court
held that a trustee is entitled to recover its attorney's fees absent a showing of breach of the
trustee's fiduciary duties. Dern, 279 Mont. at 154-56,928 P.2d at 133-34. No such showing
was made in this case.
764 Accordingly, we hold that the District Court erred in failing to allow Nonvest to
recover its attorney's fees and expenses incurred in preparing the Twenty-Ninth Accounting
and we remand for further proceedings in the District Court to determine the amount of those
attorney's fees and expenses.
Issue 4.
765 Khether Nonvest is entitled to reimbursementfrom the trustfor its attorney j. fees and
other expenses of this appeal.
766 Nonvest argues that it is also entitled to reimbursement from the trust for attorney's
fees and expenses it incurred in responding to this appeal. In addition, Nonvest requests
direction on whether those fees and expenses should be charged equally to the principal and
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income portions of the trust, or whether they should be charged entirely to income inasmuch
as the income beneficiaries caused the fees and expenses to be incurred.
767 As we stated in our discussion under Issues 2 and 3 of this Opinion, paragraph (b)(4)
of the will allows the trustee to be reimbursed out of the trust estate "for all reasonable
expenses incurred in its management or protection." We conclude that responding to this
appeal is a reasonable expense incurred in the management and protection of the trust. See
also fj 72-33-63 1, MCA; Dern, 279 Mont. at 154-56, 928 P.2d at 133-34.
768 Accordingly, we hold that Nonvest is entitled to reimbursement from the trust for its
attorney's fees and expenses on appeal and we remand to the District Court for a
determination of the amount of those fees and expenses and for a determination of whether
those fees and expenses should be charged equally to the principal and income portions of
the trust.
169 We affirm in part, reverse in part, and remand for hrther proceedings consistent with
this Opinion.
* r .
Justice
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We Concur:
-
Justices
Justice Patricia 0 . Cotter, dissenting.
170 I dissent from the Court's conclusion that there is no justification for the removal of
Nonvest as trustee. The Court reached this conclusion pursuant to the provisions of 5 72-33-
61 8(2), MCA. I would reach the opposite conclusion, premised upon both 5 72-33-618(2),
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MCA, and 5 72-33-406, MCA. I
171 As the Court points out, the income beneficiaries (Appellants) and five of the six
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residual beneficiaries joined in the petition to remove the trustee and appoint a new trustee.
The Court further notes that the sixth residual beneficiary stated that she chose to "remain
neutral." (Majority Opinion, at 7 14). In actuality, the sixth residual beneficiary, Leslie
Barrett, indicated in a "To Who it May Concern" letter made part of the record, that she
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chose to remain neutral because ". . . I am not knowledgeable in the area of Trusts and I feel
it should be left to the actual Beneficiaries as well as someone with an acute business acumen
and experience to handle such issues." Thus, while Barrett expressed an interest in remaining
neutral, her letter leaves the clear indication that she would defer to the actual beneficiaries
(the appellants herein) as to the propriety of removing the trustee in favor of a successor
trustee.
172 In its findings of fact and conclusions of law, the District Court referenced, but
declined to apply, 5 72-33-406, MCA, which allows for modification or termination of an
irrevocable trust by all beneficiaries. That statute provides:
(1) Except as provided in subsection (2), if all beneficiaries of an
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irrevocable trust consent, they may compel modification or termination of the
trust upon petition to the court.
(2) If continuance of the trust is necessary to carry out a material
purpose of the trust, the trust cannot be modified or terminated unless the
court, in its discretion, determines that the reason for doing so under the
circumstances outweighs the interest in accomplishing a material purpose of
the trust. . . .
Section 72-33-406, MCA. I believe sub-section (1) of this statute squarely applies here, and
the District Court erred in refusing to apply it.
773 Section 72-33-618, MCA, which specifically addresses removal of a trustee, permits
a trustee to be removed by the court on its own motion or on petition of a beneficiary.
Moreover, the grounds for removal of a trustee under the statute are not statutorily limited.
As 5 72-33-6 18(2)(e), MCA, indicates, a trustee may be removed by the court for specified
reasons or for "other good cause."
774 The District Court stated it would not apply 5 72-33-406, MCA, in part because the
instant action was not an action to modify or terminate the trust, but was rather a petition to
remove the trustee, which is governed by 5 72-33-618, MCA. I do not agree that the two
statutes are mutually exclusive. Security Bank and Trust Company of Bozeman, Montana
was named in the original trust agreement as trustee. Nonvest is its duly authorized
successor. Thus, if the trustee is to be changed, then the trust by necessity has to be
modified. Appellants' petition therefore qualifies as both a petition to modify an irrevocable
trust, pursuant to 5 72-33-406, MCA, and a petition for removal of a trustee, pursuant to 5
72-33-61 8, MCA.
775 Section 72-33-406(1), MCA, provides that beneficiaries, if they all agree that
modification is necessary, may "compel modification" of the trust upon petition to the court.
I would conclude that the virtually unanimous request of the beneficiaries (seven in favor and
one abstaining but not objecting) to modify the trust should have been granted pursuant to
5 72-33-406, MCA, and that this statutory basis for removal of the trustee constitutes "other
good cause" under 8 72-33-6 18(2)(e), MCA.
776 In deferring to the trustee as it has in its Opinion, over the express objection of the
beneficiaries, I believe the majority has erroneously placed the interests of the trustee ahead
of the interests of the beneficiaries. Rather than spending trust money to protect its position,
the trustee should have granted the request of the beneficiaries that it resign. Such an
approach would not have been a disservice to the trust. More to the point, it would have
avoided the instant litigation and would have prevented the significant depletion of trust
monies used to pay the trustee's fees and expenses. I would conclude that the trustee's
adamant refusal to resign in the face of a virtually unanimous request that it do so, and its
concomitant depletion of trust resources to defend its position, demonstrates that it was
ultimately more interested in protecting its trustee's fees than in serving the beneficiaries of
the trust. The trustee has an obligation to administer a trust "solely in the interest of the
beneficiaries." Section 72-34-103(1), MCA. I agree with the beneficiaries that the trustee's
conduct in this matter would support a finding that the trustee has breached this duty.
777 For the foregoing reasons, I would reverse the District Court's decision not to remove
Nonvest as trustee. I dissent from our refusal to do so.
Justice
Justice Terry N. Trieweiler dissenting.
778 I join in the dissent of Justice Cotter to the extent that it is based on tj 72-33-618(2),
MCA. I conclude, based on the following additional thoughts, that removal of, and
substitution of, Norwest Investment Management and Trust as trustee of the Berthot Estate
was appropriate under both subsection (a) for breach of the trust and subsection (e) for other
good cause. I depart from that dissent to the extent that it would reverse the District Court
on the basis of 5 72-33-406, MCA.
779 I agree with the majority's conclusion that a trust must be managed to carry out the
testator's intent. My problem with the majority Opinion is what I believe to be its premise
as set forth in 7 47 where the majority states, "the purpose of the trust is not to provide
income for the income beneficiaries, but rather, to preserve trust assets for later distribution
to the residual beneficiaries." To believe that is to believe that Mildred I. Berthot, who
executed this testamentary trust at the age of 73, in 1953 cared more about her unborn and
unknown great grandchildren than she did her own daughter and living grandchildren. To
make that assumption defies everything that I understand about human nature and
relationships.
780 Mildred's will, which includes the trust, mentions only three beneficiaries, her
daughter Bernice B. Klingensmith and her granddaughters, Ellen M. Collins and Joanne
Barrett, who are the petitioners in this case. Collins was 11 years old when the trust was
executed and had no children. Barrett was 24 and, based on the record, may or may not have
recently given birth to her first child but no others. (The oldest child has joined in the
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petition to replace the trustee.) It would have been unnatural for Mildred to be more
concerned about the amount of the residual estate left to her yet unborn great grandchildren
than the three descendants who were specifically mentioned as income beneficiaries of her
trust and I would conclude that her primary reason for establishing the trust was to benefit
her three named descendants. The original trustee would have known that. Mildred
designated Security Bank and Trust of Bozeman as trustee. Her husband was a founder and
the officers were friends of the family. It was not until after her death that Nonvest was
substituted as trustee.
78 1 The majority state in 7 5 1 that Mildred's exact intent is a matter of speculation. I agree
and only speculated based on the corresponding effort to do so in the majority Opinion.
However, I continue to believe that reliance on human nature will bring us closer to the truth
than reliance on the legal fiction drawn from boilerplate language that this 73 year old
grandmother of two intended the current consequences of the discretion she vested in her
family bank.
182 As Justice Cotter mentions in her dissenting opinion, the trust simply has not been
managed by Nonvest for the benefit of Mildred's three named descendants. From the time
of Bernice Klingensmith's death in 1994, the percentage of the trust value paid to Mildred's
grandchildren has steadily declined and the fee paid to Nonvest has steadily increased as the
following table indicates:
YEAR MARKET PERCENT OF MARKET VALUE DISTRIBUTION TO NORWEST
VALUE DISTRIBUTED TO BENEFICIAFUES EACH BENEFICIARY FEE'
183 The fact is that Norwest now receives practically the same amount in fees as is
distributed as income to each of Mildred's granddaughters. Furthermore, because Norwest
collects half of its fee from the residual beneficiaries and half of its fee from the income
beneficiaries, the income beneficiaries bear an increasingly disproportionate share of that
expense. The trustee's fee in 1998 equals nearly 49% of the income distributed to the income
beneficiaries compared to 22% of the income distributed in 1995. By comparison, the I,
percentage of Norwest's fee paid by the residual beneficiaries in 1998 was the equivalent of
184 In 1998, while Mildred's grandchildren were receiving 1.7% of the trust's total value,
Norwest was being paid a fee equal to 28% of the total dividend and interest income. If
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attorney and accounting fees are included, an amount equal to 3 1% of the total dividend and
interest income was being paid to someone other than Mildred's intended income
beneficiaries. By 1998, Norwest had achieved a financial position equal to Mildred's
intended income beneficiaries.. The reason was that from 1994 until 1998, the amount of the
trust invested in equities increased from 70% to 87%. By 1998, it was clear to both
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Based on Norwest's estimate, that fee is equivalent to 0.85% of trust value.
beneficiaries, and five out of six of their children, that the trust was being managed primarily
for the benefit of Nonvest and not for the benefit of Mildred's two grandchildren. The reason
is clear. It was acknowledged during the District Court proceedings by Neil Severinson,
Nonvest's vice-president and trust officer, when he gave the following answers to the
following questions:
Q. Mr. Severinson, there's something that I've been wondering and perhaps
you can clear it up for both me and the Court. Why if beneficiaries of this trust
and five of the six residual beneficiaries of the trust have signed a petition
saying they don't trust you and they don't want you, why don't you just resign?
A. If the reason for asking that is because of the litany of alleged offenses, we
don't believe we have done those things. We think we have had good
performance.
Q. The question is why are you fighting it whether it's true or not true? They
don't trust your judgment. They don't trust your management. Why do you
want to continue to be the trustee?
A. That is what we do.
Q. It's the fees, isn't it?
A. That's why we are in the business; that's how we make our living.
Q. Alright. Okay. So you lose this trust, you lose some fees?
A. Sure.
Q. Okay. And you realize, don't you, that the higher the market value of the
trust, the greater fees you're going to generate?
A. Yes.
f 85 I would conclude there was sufficient basis, pursuant to (j 72-33-6 18(2)(a) or (e),
MCA, to remove Nonvest as trustee and that the District Court abused its discretion when
it refused to do so. Therefore, I would reverse the judgment of the District Court refusing
to do so and dissent from the majority Opinion.
Justice Jim Rice specially concurring.
786 I concur with the Court's holding on all issues addressed herein.
787 I am persuaded that the trustee's management of the estate cannot be faulted under
the terms of this trust document, particularly the provisions of paragraph (a)(7), which
indicate that the trustee shall have the authority to:
invest or reinvest such parts of the trust estate as may, from time to time, be in
cash or converted into cash. . . as the trustee shall deem proper and for the best
interests of the trust estate. The trustee shall have as wide latitude in the
selection and making of any investments, and all other powers and authorities
with respect to the trust estate as if such trustee was the absolute owner
thereof. . . . [Emphasis added.]
Clearly, investment strategy and decisions were placed in the absolute discretion of the
trustee under this provision. Given the growth of the trust estate under the trustee's
management, the District Court's finding that "Nonvest has met its duty to act with care,
skill, prudence and diligence" is well supported, as is its conclusion that there is not good
cause for removal of the trustee.
788 That does not mean, however, that the trustee, within the broad discretion granted to
it by the trust, could not or should not have managed the trust to produce a higher level of
income for the income beneficiaries. I do not concur with the Court's statement that "the
purpose of the trust is not to provide income for the income beneficiaries, but rather, to
preserve trust assets for later distribution to the residual beneficiaries." Taken to the extreme,
this conclusion could authorize the trustee to eliminate all income-producing investments in
favor of growth investments. In my view, the trustor intended to provide for both groups of
beneficiaries, and I am not persuaded that the language of the trust expresses a preference
which favors one set of beneficiaries over the other, only that the trust gave the trustee wide
latitude to make investment decisions in consideration of both groups.
189 For these reasons, I concur with the Court's holding.