Recent Cases of Interest to Fiduciaries - August 2020

Recent Cases of Interest to Fiduciaries ABBEY L. FARNSWORTH, ASSOCIATE MEGHAN GEHR HUBBARD, PARTNER 804 775 4782 | afarnsworth@mcguirewoods.com 804 775 4714 | mghubbard@mcguirewoods.com LAURA A. MEIS, ASSOCIATE SEAN F. MURPHY, PARTNER 804 779 7682 | lmeis@mcguirewoods.com 703 712 5487 | sfmurphy@mcguirewoods.com SCOTT W. MASSELLI, ATTORNEY STEPHEN W. MURPHY, PARTNER 804 775 7585 | smasselli@mcguirewoods.com 434 977 2538 | swmurphy@mcguirewoods.com FARHAN N. ZAROU, ASSOCIATE KIMBERLY T. MYDOCK, ASSOCIATE 202 857 1703 | fzarou@mcguirewoods.com 904 798 3236 | kmydock@mcguirewoods.com ALICIA C. O’BRIEN, ASSOCIATE 310 315 8248 | aobrien@mcguirewoods.com September 2020 www.mcguirewoods.com McGuireWoods marketing communications are intended to provide information of general interest to the public. Marketing communications are not intended to offer legal advice about specific situations or problems. McGuireWoods does not intend to create an attorney-client relationship by offering general interest information, and reliance on information presented in marketing communications does not create such a relationship. You should consult a lawyer if you need legal advice regarding a specific situation or problem. Contents © 2020 McGuireWoods LLP. Recent Cases of Interest to Fiduciaries - September 2020 | Page i TABLE OF CONTENTS Page In the Matter of the William J. Raggio Family Trust, 460 P.3d 969 (Nev. April 9, 2020) ............................................................................................. 1 Canarelli v. Eighth Judicial Dist. Court in & for Cty. of Clark, 464 P.3d 114 (Nev. May 28, 2020) .................................................................................. 4 In re Matter of Curtiss A. Hogen Trust B, 940 N.W.2d 635 (N.D. March 19, 2020) ......................................................................................................... 7 Demircan v. Mikhaylov, 2020 WL 2550067 (Tex. May 20, 2020) ....................... 11 United States v. Argyris, 2020 WL 1957549 (U.S. Dist. Nev. April 22, 2020) ....................................................................................................... 14 Ex Parte Huntingdon College, 2020 WL 1482371 (Alabama March 27, 2020) ....................................................................................................... 16 In re Estate of Little, 2019 Tex. App. LEXIS 7355, 2019 WL 3928755............... 18 Roth v. Jelley, 45 Cal. App. 5th 655, 259 Cal. Rptr. 3d 9 (1st Dist. 2020) .......... 20 Ron v. Ron, 2020 WL 1426392 (S.D. Tex. Feb. 4, 2020) .................................. 22 Hunter v. Hunter, 838 S.E.2d 721 (Va. 2020) .................................................... 24 Berry v. Berry, 2020 Tex. App. LEXIS 1884, 2020 WL 1060576 (March 5, 2020) ....................................................................................................... 27 Miller v. Bruenger, 949 F.3d 986 (6th Cir. 2020) ................................................ 30 Gowdy v. Cook, 455 P.3d 1201 (Wyo. 2020) ..................................................... 33 In re Thomson, No. 1075 EDA 2019, 2020 WL 3440529 (Penn. Sup. Ct. June 23, 2020) ........................................................................................ 37 In the Matter of Joanne Black, etc. v. Bernard Steven Black, etc., – P.3d –, 2020 WL 1814272 (Colo. Ct. App. Apr. 9, 2020) ..................................... 41 Recent Cases of Interest to Fiduciaries - September 2020 | Page 1 In the Matter of the William J. Raggio Family Trust, 460 P.3d 969 (Nev. April 9, 2020) Nevada Supreme Court found that the settlor’s surviving spouse, as trustee, did not have a duty to consider her other assets, including assets in a sub-trust, prior to making distributions to herself from a second sub-trust under the specific terms of the trust and Nevada law. Facts: Settlor William Raggio created the William J. Raggio Trust that split into two sub-trusts upon his death: (i) the Marital Deduction Trust; and (ii) the Credit Shelter Trust. Pursuant to the terms of the William J. Raggio Trust, petitioner Dale Checket Raggio (the settlor’s second wife) was the named trustee and life beneficiary of the sub-trusts. More specifically, the sub-trust permitted Dale, as trustee, to distribute as much of the principal of the sub-trust “as the Trustee, in the Trustee’s discretion, shall deem necessary for the proper support, care, and maintenance” of Dale. Leslie Righetti and Tracy Chew (the settlor’s daughters from his first marriage) were the remainder beneficiaries of the Marital Deduction Trust. Dale’s grandchildren from her first marriage were the remainder beneficiaries of the Credit Shelter Trust. Following the death of the settlor, the daughters sued Dale for breach of trust and breach of fiduciary duties as trustee of the Marital Deduction Trust. In sum, the daughters alleged that Dale only made distributions for her benefit from the Marital Deduction Trust resulting in the intentional depletion of the daughters’ remainder interest while preserving the remainder interest of her grandchildren in the Credit Shelter Trust. The daughters further complained that the amount of the distributions from the Marital Deduction Trust were excessive pursuant to the terms of the sub-trust. During discovery in the litigation, the daughters sought an accounting and distributions from the Credit Shelter Trust. Dale objected to the discovery requests and sought partial summary judgment. The daughters moved to compel and further argued on summary judgment that the distribution standard in the terms of the William J. Raggio Trust fell within the statutory exception under Nevada law that required Dale to consider her other sources of income in making distributions, including the Credit Shelter Trust. Following a hearing and recommendation before the probate commissioner, and also a hearing before the district judge, the district court denied Dale’s Recent Cases of Interest to Fiduciaries – September 2020 | Page 2 motion for partial summary judgment. The district court found, among other things, that the “vested remainder beneficiaries are entitled to examine the need and propriety of the trustee’s decision to withdraw principal from the marital deduction trust by reference to other trust and non-trust resources available for the trustee’s necessary and proper support.” The district court further compelled Dale to provide the discovery related to the Credit Shelter Trust. Thereafter, Dale filed an appeal in the Nevada Supreme Court seeking a writ of prohibition, or alternatively, mandamus. The Nevada Supreme Court elected to exercise its discretion to hear Dale’s writ of prohibition request since it found that the discovery order was likely to cause irreparable harm as it implicated Dale’s privacy interests. Law: In considering specifically “whether Dale, as trustee, has an obligation to consider other assets, including those in the Credit Shelter Trust, before making distributions to herself, as beneficiary, from the Marital Trust,” the Nevada Supreme Court analyzed the applicable Nevada statute, NRS 163.4175, and found that it did not require a trustee to consider other assets unless set forth in the trust agreement. The court then analyzed the terms of the trust agreement as a whole, and specifically, the distribution standard set forth above. It found that a “fair and reasonable interpretation” of the trust agreement demonstrates that the settlor’s intent was not to restrict Dale’s discretion in making distributions for her benefit and did not require her to consider her other assets (including assets of the separate sub-trust). The Nevada Supreme Court explained that the words “necessary” and “proper” alone do not trigger the exception of NRS 163.4175 requiring a trustee to consider all other assets. Review of other provisions of the trust helped confirm this analysis. The section covering administration and distribution to the descendants of a grandson gave Dale discretion to make such payments as she deemed necessary for their proper support, but only “after taking into consideration any other income or resources of such issue known to …” Dale. Thus, this language demonstrated that the settlor understood how to restrict Dale’s authority but deliberately chose not to do so with regard to Dale’s discretion on distributions from the Marital Deduction Trust. Recent Cases of Interest to Fiduciaries – September 2020 | Page 3 In light of this analysis, the Nevada Supreme Court further ruled that the district court erred in compelling the discovery related to the Credit Shelter Trust. Holding: The Nevada Supreme Court held that neither the terms of the trust agreement nor Nevada trust law required the settlor’s surviving spouse (as trustee) to consider her other assets (in her capacity as a beneficiary) prior to making distributions from a sub-trust. The relevant provision of the trust agreement the court considered was the provision that allowed the trustee to make distributions “as much of the principal of the Trust as the Trustee, in the Trustee’s discretion, shall deem necessary for the proper support, care, and maintenance” of the beneficiary. The Nevada Supreme Court further held that discovery relating to her other assets were irrelevant as to whether the trustee breached fiduciary duties and did not require its disclosure. Recent Cases of Interest to Fiduciaries – September 2020 | Page 4 Canarelli v. Eighth Judicial Dist. Court in & for Cty. of Clark, 464 P.3d 114 (Nev. May 28, 2020) Nevada Supreme Court finds there is no fiduciary exception to attorney-client privilege. Facts: Scott Canarelli is the beneficiary of the Scott Lyle Graves Canarelli Irrevocable Trust. Scott’s parents, Lawrence and Heidi Canarelli served as family trustees of the trust and made certain discretionary distributions from the trust to Scott for his benefit. Edward Lubbers (who was also Lawrence and Heidi’s personal attorney)...