ILNews

Court tackles timeliness of trust distribution

Back to TopCommentsE-mailPrintBookmark and Share

A recent Indiana Court of Appeals decision offers guidance to those working in trust and estate matters regarding how long a trustee should wait before turning to a probate court for guidance on distributing money to beneficiaries when a dispute exists over the amount that will be received.

In a June 27 decision in In the Matter of the Trust of Harrison Eiteljorg, No. 49A02-1005-TR-485, a three-judge appellate panel disagreed on whether trustees acted reasonably and with care when deciding not to distribute money because of concerns they had about potential future tax liability. Attorneys practicing in this area say the ruling highlights an issue they often face and must advise on.

“This seems like a pretty common sense decision to me,” said Indianapolis trust attorney Suzanne Katt, who chairs the Indiana State Bar Association’s Probate, Trust, and Real Property Section. “I really believe in the timeliness of distribution, and anytime a lawyer or trustee has a concern about distribution the simplest remedy is to get a court order and ask for guidance immediately.”
 

katt-suzanne-mug.jpg Katt

The case involves two sons whose late father, Harrison Eiteljorg, founded the Eiteljorg Museum of American Indians and Western Art in downtown Indianapolis in 1989. The case doesn’t involve or have any impact on the museum, dealing only with the family trust matter that has been in dispute for six years.

Brothers Harrison “Nick” Eiteljorg II and Jack Eiteljorg were the remainder beneficiaries of a trust their father set up effective upon his death, which occurred in 1997. Their mother, Sonja, was their father’s second wife, and she was designated sole beneficiary at the time of her death in 2003. Nick, his stepson Roger, and accountant John Lienhart were co-trustees of the trust.

In October 2004, the parties met to discuss the distribution of trust property, which consisted of $6.5 million, including $3.2 million in liquid assets. Nick wanted he and his brother to receive $2 million total, but Lienhart disagreed because he was worried about any remaining estate tax that may be owed. Roger and Lienhart suggested distributing only $1 million total, which Nick rejected; he later indicated the brothers would seek legal counsel.

The parties tried unsuccessfully to negotiate further, and the brother’s lawyer sent a letter asking Roger and Leinhart to resign as trustees; their attorney wrote back proposing an additional distribution similar to the first amount. In January 2005, the brothers filed a petition in Marion Probate Court to remove the trustees and filed notice raising 13 claims of breach of trust. Judge Charles Dieter wouldn’t remove the trustees, but he issued a preliminary order in July 2005 that they distribute $1.5 million, which the trustees did along with $300,000 in non-liquid assets. When he issued a final ruling nearly two years later, Judge Dieter found the trustees didn’t promptly distribute the funds and that they should have sought court authority to deviate from the trust terms in retaining the trust property.

Judge Dieter died before he could rule on the issue of damages, so then-Marion Superior Judge Tanya Walton Pratt concluded that the relevant damages period lasted from October 2004 to October 2007, when the trust was wrapped up. She awarded Nick more than $150,000 representing lost earnings from an investment opportunity and awarded Jack more than $110,000 in lost profits from a missed real estate deal. She also awarded the brothers more than $353,000 in attorney fees.

On appeal, Judges Nancy Vaidik and Michael Barnes upheld Judge Dieter’s finding that Leinhart and Roger breached their duty to administer the trust according to its terms but found Judge Pratt erred in her damages assessment. They should not have been allowed to recover damages for their lost investment opportunities under Indiana Code 30-4-3-11(b)(3) because that section applies to profits lost to the trust corpus due to a trustee’s misuse, not to allow beneficiaries to recover for individual profits they would have allegedly generated on their personal shares but for the trustee’s failure to timely distribute, Judge Vaidik wrote. The brothers were deprived of the $1.2 million ordered by Judge Deiter for only 9 months, so they are only entitled to interest for those months. Any assessment of compensatory damages beyond that point is erroneous, she wrote. The majority also reduced the attorney fees to $150,000 based on the record.

Judge John Baker disagreed that Lienhart and Roger committed a breach of the trust, and he noted that Nick originally rejected the $1 million distribution proposal. The judge pointed to Lienhart’s many years of experience as a certified public accountant as justifying his belief that the $2 million he wanted to hold back for taxes was appropriate. When the court dispute materialized, Lienhart and Roger petitioned for instructions from the probate court, and once instructed they immediately made the distributions as ordered.

“In my view, to penalize John and Roger for doing that which we consistently direct trustees to do — and which they are statutorily entitled to do — is misguided and contrary to law,” he wrote.

Attorneys involved in the case declined to comment on the issue because the appeal is ongoing. A transfer request is pending before the Indiana Supreme Court, but the justices haven’t issued a decision on whether they’ll accept it.

Trust attorneys watching this issue generally say that if Eiteljorg stands, it’s an important ruling that emphasizes what many advise their clients: don’t wait to seek court guidance if there’s a dispute with beneficiaries. Oftentimes, disputes can arise and the parties may disagree on what might be considered “reasonable” or “timely,” they say. Some lawyers might hold off on advising trustees to get immediate advice in order to foster more negotiation, but the line is unclear about when that should be required.

“A few weeks would have been reasonable, but this took (three) months before the guidance was asked for ... I agree with the court that that’s just too long,” Katt said.

While the time it takes for a probate court to issue guidance varies between counties, she’s found that most courts would likely provide an order on distribution within a few weeks or a month. Katt described the Eiteljorg ruling as a “common sense decision,” but she noted that each probate matter is fact-sensitive and other factors can influence what might be considered “reasonable” or “timely” in each situation. That can get complicated for trustees who face those disputes, she and other lawyers say.

Indianapolis attorney Jeffrey Dible said the Eiteljorg case is going to be useful in determining how quickly one must act, though he agrees no blanket rule should be established because each case varies. An important aspect that could have protected trustees from breach-of-trust claims came with the enactment of a state statute in 2005, which wasn’t available at the time of this dispute.

Essentially, now trustees have more discretion and can “smoke out” objections by setting a deadline – unless a trust document specifically doesn’t allow that. But trust-drafting attorneys can make sure that discretion is included to ensure continued and timely discussion, even if no money is distributed before court guidance is sought.

“But in this kind of trust dispute, context, and the ability of a trustee or a beneficiary to claim and to hold the moral high ground is important,” he said.

In larger trust matters, Katt said she often encourages the use of professional fiduciary companies to avoid any confusion by trustees on what might be required to reasonably and timely distribute trust money.

“With a professional fiduciary, you know everything is taken care of and you can be pretty confident something is happening as it should be,” she said.•

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. The voices of the prophets are more on blogs than subway walls these days, Dawn. Here is the voice of one calling out in the wilderness ... against a corrupted judiciary ... that remains corrupt a decade and a half later ... due to, so sadly, the acquiescence of good judges unwilling to shake the forest ... for fear that is not faith .. http://www.ogdenonpolitics.com/2013/09/prof-alan-dershowitz-on-indiana.html

  2. So I purchased a vehicle cash from the lot on West Washington in Feb 2017. Since then I found it the vehicle had been declared a total loss and had sat in a salvage yard due to fire. My title does not show any of that. I also have had to put thousands of dollars into repairs because it was not a solid vehicle like they stated. I need to find out how to contact the lawyers on this lawsuit.

  3. It really doesn't matter what the law IS, if law enforcement refuses to take reports (or take them seriously), if courts refuse to allow unrepresented parties to speak (especially in Small Claims, which is supposedly "informal"). It doesn't matter what the law IS, if constituents are unable to make effective contact or receive any meaningful response from their representatives. Two of our pets were unnecessarily killed; court records reflect that I "abandoned" them. Not so; when I was denied one of them (and my possessions, which by court order I was supposed to be able to remove), I went directly to the court. And earlier, when I tried to have the DV PO extended (it expired while the subject was on probation for violating it), the court denied any extension. The result? Same problems, less than eight hours after expiration. Ironic that the county sheriff was charged (and later pleaded to) with intimidation, but none of his officers seemed interested or capable of taking such a report from a private citizen. When I learned from one officer what I needed to do, I forwarded audio and transcript of one occurrence and my call to law enforcement (before the statute of limitations expired) to the prosecutor's office. I didn't even receive an acknowledgement. Earlier, I'd gone in to the prosecutor's office and been told that the officer's (written) report didn't match what I said occurred. Since I had the audio, I can only say that I have very little faith in Indiana government or law enforcement.

  4. One can only wonder whether Mr. Kimmel was paid for his work by Mr. Burgh ... or whether that bill fell to the citizens of Indiana, many of whom cannot afford attorneys for important matters. It really doesn't take a judge(s) to know that "pavement" can be considered a deadly weapon. It only takes a brain and some education or thought. I'm glad to see the conviction was upheld although sorry to see that the asphalt could even be considered "an issue".

  5. In response to bryanjbrown: thank you for your comment. I am familiar with Paul Ogden (and applaud his assistance to Shirley Justice) and have read of Gary Welsh's (strange) death (and have visited his blog on many occasions). I am not familiar with you (yet). I lived in Kosciusko county, where the sheriff was just removed after pleading in what seems a very "sweetheart" deal. Unfortunately, something NEEDS to change since the attorneys won't (en masse) stand up for ethics (rather making a show to please the "rules" and apparently the judges). I read that many attorneys are underemployed. Seems wisdom would be to cull the herd and get rid of the rotting apples in practice and on the bench, for everyone's sake as well as justice. I'd like to file an attorney complaint, but I have little faith in anything (other than the most flagrant and obvious) resulting in action. My own belief is that if this was medicine, there'd be maimed and injured all over and the carnage caused by "the profession" would be difficult to hide. One can dream ... meanwhile, back to figuring out to file a pro se "motion to dismiss" as well as another court required paper that Indiana is so fond of providing NO resources for (unlike many other states, who don't automatically assume that citizens involved in the court process are scumbags) so that maybe I can get the family law attorney - whose work left me with no settlement, no possessions and resulted in the death of two pets (etc ad nauseum) - to stop abusing the proceedings supplemental and small claims rules and using it as a vehicle for harassment and apparently, amusement.

ADVERTISEMENT