Last week we introduced the story of a battle over a portion of the Walt Disney fortune. His grandson is challenging the sale of a ranch in Wyoming by the trustees of a family trust. The article reporting the story contained a number of questionable statements that might be worth reviewing if only to illustrate some points of trust law and empathize with the difficult job of a trust officer. (See the link below to the original article.)
“Trustees for Bradford Lund, the grandson of legendary animator and producer Walt Disney, have reportedly negotiated the sale of a family ranch outside Jackson against Lund’s wishes.”
The trustees are bound by a fiduciary duty to all the trust’s beneficiaries, a group that may include many others aside from Brad. Hence, his wishes to keep the ranch is not dispositive and may violate the trustees’ duty to other beneficiaries.
“For months, Lund has been locked in a legal battle with his own trustees over Eagle South Fork, the 110-acre ranch in Teton County left to Lund and his twin sister, Michelle, by their father.”
The sentence is contradictory. It displays a common misunderstanding of trusts. Assuming the governing law is similar to New York’s, then a trust may be the legal owner of the ranch while the beneficiaries are the beneficial owners. While the trust may be the legal owner of the ranch, the trustees hold it in a fiduciary capacity for the benefit of the beneficiaries. In fact, if this were the only asset of the trust and the beneficiaries relied on the trust for income, then Brad would be complaining of the trustees violating their duties under the Prudent Investor Act (or its local equivalent) in failing to make the trust assets diversified and productive for his living expenses. Can Brad challenge the sale? Sure, perhaps the trust instrument stipulated that barring extenuating circumstances the ranch was to remain in the trust and enjoyed by family members for years to come. After all, who among us would not like to live on ranch in Wyoming on a trout stream?
“In January, trustees told Lund he could pay just over $34 million (which they referred to as a “discounted price”, despite the residential appraisal of his portion of the land coming in at under $10 million) to retain ownership of his half of the ranch. Michelle Lund was reportedly not interested in keeping her share.”
Wait a minute, something does not add up here. The property was set to sell for $35 million by the trustees to a third party. Assuming (a big assumption) Mr. Lund and his sister Michelle are equal beneficiaries of the trust, on both the income and principal side, and therefore equal ultimate owners of the trust’s assets, then the trustees would be free to sell the ranch to Brad for its net fair market value (whatever that may mean under the circumstances) and credit him for his share of the equity. Valuation disputes are always difficult to litigate, even at these high values, because they involve expert testimony and, as all litigators know, one can get an “expert” to testify that up is down or that down is up.
“Lund’s legal team argues he shouldn’t have to pay out of pocket for property already owned by his own trust — a trust that, by law, is supposed to act according to his interests.”
Maybe yes, maybe no. They may be other family members whose interests in the trust do not coincide with Brad’s. The trustees must steer a course of undivided loyalty to all beneficiaries of the trust, both present beneficiaries and future ones as well. If Brad’s conduct is found to be unreasonable and contrary to the wishes of the other beneficiaries, then he could (in New York) be made to pay not only his own legal fees but to have the trustees’ legal fees come from his share of the trust estate.
“The letter says the trustees don’t expect the sale to be final until this fall, and an affidavit ordered by Lund’s team has them under oath that the sale won’t close until September. If the sale goes through before then, the trustees could be guilty of perjury.”
Bwa hah hah hah . . . That’ll be the day.
“According to court filings, the trustees are set on having the case heard in a Los Angeles court out of convenience for them. But Lund’s legal team argues it should be heard in Wyoming, where the ranch is. A motion to bring the case to Wyoming was denied by a judge this week.”
The issue of jurisdiction and the issue of venue are different concepts in the law and it is impossible to say in this instance who is right and who is wrong. While the instrument that created the trust may choose to have a particular state’s law govern the relationship, that does not mean that the choice of law in one state is the preferred or even the proper venue to bring the proceedings. Perhaps the real issue here is a tactical one. The trustees want to litigate where they have home field advantage (of convenience only, of course) and Brad vice versa.
“If the sale does go through, the trustees have indicated they’ll receive a 2% “marketing fee” for facilitating the deal. According to Chris Hawks, a Jackson lawyer representing Lund, that’s highly unusual.”
No, no they won’t, at least under New York law. The trustees are already compensated by a commission (in New York, it is statutory and for a corporate trustee it is according to a schedule set by the trustee) and an added sales commission on the sale of a trust asset would be, in New York, “self-dealing,” an egregious breach of a fiduciary’s duty.
“Aside from the litigation over the ranch, Lund has also petitioned the Los Angeles County Probate Court to remove his team of trustees from their positions, citing a pattern of breaches in their duties to him as the trust’s beneficiary.”
Removal of trustees – easy or difficult? The courts in New York usually give great deference to the choice of fiduciaries made by a testator (for an executor) or a grantor (for a trustee). Nonetheless, the court has the power to remove a fiduciary for a variety of causes ranging from misconduct to (in rare cases) extreme hostility between the beneficiary and the trustee.
“He has struggled to access inheritance payments that have been withheld for more than 15 years, as trustees claim he’s mentally incompetent to receive the money. Lund, now 50, was meant to receive payments of approximately $20 million every five years between his 35th and 45th birthdays — meaning he’s out around $60 million dollars in total.”
Wait! What? If the trust requires said payments, they cannot be withheld. If the trustees believe their beneficiary is incompetent, they have a remedy that corresponds to their duty, one similar to a guardianship in New York but they cannot do what they are said to have done. That being said, why is there even a dispute over the ranch that must be generating huge legal fees? (One of Brad’s attorneys is Washington political figure Lanny Davis.) The trust could have made a distribution in kind to Brad of the net value of the ranch in lieu of one or more of those large distributions. I hope there is more to the story than being reported.