In the Matter of the John F. Dybvik Revocable Trust ( 2020 )

IN THE COURT OF APPEALS OF IOWA
No. 20-0200
Filed November 30, 2020
IN THE MATTER OF THE JOHN F. DYBVIK REVOCABLE TRUST,
JULIE ANDERA,
Appellant/Cross-Appellee,
vs.
NOLA DYBVIK, JED DYBVIK and FIRST CITIZENS BANK f/k/a FIRST
CITIZENS NATION BANK, Trustee of the John F. Dybvik Revocable Trust,
Appellees/Cross-Appellants.
________________________________________________________________
Appeal from the Iowa District Court for Winneshiek County, Alan T.
Heavens, Judge.
The trust beneficiary appeals the adjustment to her trust share based on
her improper actions as a trustee. AFFIRMED ON APPEAL; AFFIRMED ON
CROSS-APPEAL.
James Burns and Dana DeSimone (until withdrawal) of Miller, Pearson,
Gloe, Burns, Beatty & Folta, P.L.C., Decorah, for appellant.
Shaun Thompson of Newman Thompson & Gray PC, Forest City, for
appellees Nola Dybvik and Jed Dybvik.
Collin M. Davison of Heiny, McManigal, Duffy, Stambaugh & Anderson,
P.L.C., Mason City, for appellee First Citizens Bank.
Considered by Doyle, P.J., and Mullins and Greer, JJ.
2
GREER, Judge.
After forcing narratives designed to create more monies for her, Julie
Andera finds herself with the scars from a losing battle. Two court battles over
trust monies bring us to this appeal. By the time of his death in April 2015, John
Dybvik (Dybvik) accumulated assets of approximately $6,134,126.1 Before
passing, he lived with his fiancée, Andera,2 and had two adult children from a
different relationship, Nola and Jed Dybvik.3 Although Andera and Dybvik lived
together, they never married. Over the course of their relationship, Dybvik suffered
from a series of health problems, and he died after a bout with terminal cancer. As
an estate plan, Dybvik created the John F Dybvik Trust (Trust) in 2002. He
amended it in 2014. Under that Trust, Dybvik named Andera as successor trustee
if he could not serve. The Trust provided she would receive ten percent of the
adjusted gross estate with the remainder split between Jed and Nola, with principal
distributions to his children to occur in the future.
After Dybvik’s death in April, Andera became trustee. But by December,
Jed and Nola were unhappy with Andera’s actions as trustee, and petitioned for
her removal, urging that she breached her fiduciary duties. After a trial, the district
court removed Andera as trustee in March 2017 and appointed First Citizen’s Trust
(First Citizens) as successor trustee. The district court confirmed Andera engaged
1 This number represents the “adjusted gross estate” value as defined in the Trust,
which is important in addressing the appropriate distribution to Andera.
2 Andera moved into the Dybvik home on January 1, 2014. Their relationship
began in 1993.
3 To avoid confusion and to track the ruling of the district court, we will refer to
Dybvik’s children as Nola and Jed. In some pleadings Nola is called Nola
Wradislavsky.
3
in self-dealing, delayed trust accountings, and made unsupported claims for
money. The 2017 ruling also addressed Andera’s claim that she and Dybvik had
a common law marriage. The district court rejected that premise.
With the new trustee in place, work on the trust plan required a distribution
of Andera’s ten percent share. Complicating matters were various decisions made
by Andera as a trustee that cost the Trust significant sums of money. Serving as
successor trustee, First Citizens argued Andera (1) caused federal and state tax
penalties plus interest because of late filed estate and inheritance tax returns and
(2) incurred additional tax for failing to timely make an alternative value election.
First Citizens also requested reimbursement for rent Andera owed under the
previous court ruling. The bank offered Andera this proposed distribution of her
share:
AMOUNT DESCRIPTION
$613,412.60 Ten percent of the adjusted Taxable Estate using date of
death values
$(105,079.10) Inheritance tax, penalties and interest ($88,012.00 +
$17,067.05)
$(101,824.00) Additional tax related to failure to elect alternate value on the
federal estate tax return (IRS Form 706 tax difference
$281,650.00 - $179,826.00)
$(133,303.12) Penalty and interest on IRS Form 706 due to late filing
$(5,750.00) House rent due (Court Order at p. 8: rent period June 1,
2015 to April 30, 2017, totally 23 months at the rate of
$250.00 per month)
$267,456.38 PROPOSED DISTRIBUTION
Andera rejected the plan, so First Citizens applied in September 2019 for
court approval of a distribution of $267,456.38 to Andera. Andera responded with
her own plan. Under her proposal, the Trust would pay Andera for her unpaid work
while serving as trustee ($58,691.40), credit the tax on the alternative value issue
4
with the capital gain savings related to the stepped-up basis ($40,729),4 and
reimburse her for payment on a loan made for a farm purchase ($15,000). First
Citizens disputed these requests and then filed for an award of sanctions against
Andera. Nola and Jed intervened in the trust matter as beneficiaries with an
interest in the outcome and joined the First Citizen’s motion for sanctions. With no
agreement on the distribution, the parties proceeded to a bench trial. The district
court defined the “fighting issue” as whether Andera’s trust share should be
reduced because of errors she made as trustee. The district court authored a
distribution plan for Andera’s share and awarded Andera trustee fees. Sanctions
against Andera were denied. The distribution approved by the court was:
Julie’s 10% Share in the Trust: $613,412.60
Reduction for Iowa Inheritance Tax: $88,012.00
Reduction for Tax Penalties and Interest: $150,370.17
Reduction for Alternative Value: $101,824.00
Reduction for Rent: $5,750.00
Increase for Trustee Fees: $20,000.00
Andera’s Trust Distribution: $287,456.43
Andera appeals; and Nola, Jed, and First Citizens cross-appeal.
Standard of Review:
“Proceedings concerning the internal affairs of a trust, including
proceedings to compel the trustee to account to the beneficiaries are tried in
equity.” In re Tr. No. T-1 of Trimble, 826 N.W.2d 474, 482 (Iowa 2013); see also
Iowa Code § 633.33 (2019) (listing matters to be tried as law actions and noting
that “all other matters triable in probate shall be tried by the probate court as a
proceeding in equity”). Cases tried in equity are reviewed de novo. See Trimble,
4 As of the bench trial in this matter, this number was increased to $88,000.
5
826 N.W.2d at 482; see also Iowa R. App. P. 6.907. “We have a duty to examine
the entire record and adjudicate anew rights on the issues properly presented.” In
re Scheib Tr., 457 N.W.2d 4, 8 (Iowa Ct. App. 1990). “[W]e give weight to the
probate court’s findings, but we are not bound by them.” Trimble, 826 N.W.2d at
482. We accord the district court considerable discretion in taxing fiduciary fees.
In re Estate of Gaeta, No. 13-1719, 2014 WL 5862037, at *2 (Iowa Ct. App. Nov.
13, 2014).
We review a district court’s denial of sanctions under an abuse of discretion
standard. Barnhill v. Iowa Dist. Ct., 765 N.W.2d 267, 272 (Iowa 2009). Although
our review is for an abuse of discretion, we will correct erroneous application of the
law. Weigel v. Weigel, 467 N.W.2d 277, 280 (Iowa 1991). Still, if supported by
substantial evidence, the district court’s findings of fact are binding on us.
Zimmermann v. Iowa Dist. Ct., 480 N.W.2d 70, 74 (Iowa 1992).
Andera’s Appeal Issue:
Andera narrows her appeal to focus on the court’s decision to deduct the
assessed penalties and interest from the form 706 tax filings against her trust share
($150,370.17).
Reduction of Andera’s Share.
Sometimes the answer to a question requires a review of the history. Such
is the case here. Back when the district court ruled in the March 2017 proceeding,
it concluded Andera engaged in self-dealing. Although Andera pushed the notion
of a common law marriage to frame her claims, the district court disagreed and
found she delayed accounting responsibilities related to the Trust and Dybvik
estate for her potential benefit. The district court noted in this earlier proceeding,
6
“[t]he bulk of the trial presentation . . . pertained to [Andera’s] claims for money
under theories of a common law marriage, partnership, and compensation for
services provided [Dybvik] during his lifetime. Those claims did not directly pertain
to [Andera’s] administration of the trust.” Yet the district court removed Andera as
trustee for self-dealing and rejected her claims for more money.
Now, in this current case, the question is should Andera’s share of the trust
distribution be reduced by the assessed penalties and interest ($150,370.17) from
the delinquent 706 tax filings? As we noted, after a hearing, the district court
itemized the final distribution to Andera:
Julie’s 10% Share in the Trust: $613,412.60
Reduction for Iowa Inheritance Tax: $88,012.00
Reduction for Tax Penalties and Interest: $150,370.17
Reduction for Alternative Value: $101,824.00
Reduction for Rent: $5,750.00
Increase for Trustee Fees: $20,000.00
Andera’s Trust Distribution: $287,456.43
Andera points to Trust terms that protect her from liability for decisions she made
in her administration of the Trust. She references paragraph 8.8, entitled “Liability
of Trustees.” That paragraph reads:
No person or corporation acting as a trustee hereunder shall at any
time be held liable for a mistake of law and/or fact for an error of
judgment, nor for any loss or injury coming to any trust estate or to
any beneficiary thereof (or to any beneficiary under this trust
agreement or to any other person) except as a result of actual fraud
or willful misconduct on the part of the trustee to be charged.
Addressing the Trust terms, the district court observed that a trustee will not be
relieved from liability under the Iowa Trust Code if the breach of trust is “committed
intentionally, with gross negligence, in bad faith, or with reckless indifference to the
7
interest of the beneficiary, or for any profit derived by the trustee from the breach.”
Iowa Code § 633A.4505(1). The district court found:
To the contrary, the Court finds credible evidence that [Andera]
purposefully delayed filing the returns while she was pursuing a claim
to be [Dybvik’s] common law spouse. [Andera] stood to recognize a
significant financial benefit from the Trust if she was [Dybvik’s]
spouse but she faced significant problems in claiming that status
which included the fact that she was not legally married to [Dybvik],
they filed separate tax returns, and no court had ever declared that
the relationship they had with each other qualified as a common law
marriage.
Had [Andera] filed a tax return while her common law spouse
claims were pending, she would have had to indicate [Dybvi’'s]
marital status for legal and tax purposes was not “married.” The
delay in filing the tax returns caused the late filing penalties and
interest to be incurred. The Court views [Andera’s] decision to
pursue her common law spouse claim at the expense of filing a timely
and accurate tax return was an intentional act of gross negligence
done with reckless indifference to what might happen to the shares
of Jed and Nola if the Trust had to pay price that comes with not
meeting tax deadlines.
Andera disputes these findings by arguing the “record is devoid of evidence
supporting the court’s conclusion.” Although the court earlier disagreed, Andera
argues that under her good-faith belief that she had a common law marriage with
Dybvik, she, as a spouse, did not have to file a federal form 706 return. Plus, she
contends that any mistake in judgment does not meet the standard required to
require payment. Finally, she argues she relied on the advice of counsel in tax
matters. But, the Trust paragraph 8.8 cannot be used to relieve Andera, as trustee,
from her responsibility to the courts or her duties to the trust beneficiaries. See
Keating v. Keating, 165 N.W. 74, 77-78 (Iowa 1917).
We consider the district court’s finding from the 2017 trial that Andera
engaged in self-dealing that she attempted to justify through her common law
marriage theme. We are bound by these findings from the earlier decision. See
8
Weishaar v. Snap–On Tools Corp., 582 N.W.2d 177, 180 (Iowa 1998) (explaining
that issue preclusion bars further litigation on a specific issue). In the earlier action
between the Dybvik children and Andera the court determined:
In the instant case, the Court finds self-dealing by [Andera] in that
she has continued to occupy [Dybvik’s] home, without compensating
the trust for her use of the residence. [Andera] attempts to justify her
actions by relying on her claim of a common law marriage; however,
this Court finds no credible evidence supporting that claim. In
addition to self-dealing, [Andera] unreasonably delayed any type of
accounting of trust and estate property. She filed multiple claims for
money, without evidentiary support. She acknowledged she did not
expect to recover on all claims. From her testimony it appears she
expected to increase her chances of recovery, by filing multiple
claims. Her interest in securing additional monies for herself from
the trust, conflicts with her duties as trustee. Good cause and a
material breach of trust (self-dealing) exist for [Andera’s] removal as
trustee.
Here, the pattern continues. Andera used the common law marriage claim to
advance her quest for more monies from the trust. She failed to timely file the 706
tax forms with the hope she might gain a one-third spousal share of the Trust,
rather than her ten percent interest in the Trust. That action led to additional cost
to the trust in tax liability, penalties, and interest. See Orud v. Groth, 708 N.W.2d
72, 79 (Iowa 2006) (noting trustees are prohibited from engaging in self-dealing
transactions with the trust and from obtaining personal advantage from their
dealings with trust property). Andera breached her duty to not engage in self-
dealing, and the consequence is she must repay the resulting costs of that breach.
See Martin D. Begleiter, Son of the Trust Code–the Iowa Trust Code After Ten
Years, 59 Drake L. Rev. 265, 343 (2011) (citing Restatement (Third) of Trusts § 78
cmt. 8 (Am. Law. Inst. 2007)). We affirm the district court’s reduction of Andera’s
ten-percent share by $150,370.17 for the tax penalties and interest.
9
Cross-Appeal Issues:
Trustee Fees.
The district court rejected Andera’s claim for trustee fees in the amount of
$58,691.40, and instead ordered a payment of $20,000 as the reasonable trustee
fee for legitimate trustee work performed during her tenure. First Citizens, Nola,
and Jed appealed this decision. If the terms of the trust do not specify the trustee’s
compensation, a trustee or co-trustee is entitled to compensation reasonable
under the circumstances. Iowa Code § 633A.4109. Andera served as the trustee
for about two years. The district court heard testimony and reviewed the itemized
statement for fees. Andera testified:
So I did basically everything that needed to be done. So from
the financial side,—Like I said, I’m not an expert to knowing every
part of the law. I was—Todd helped direct too. I said, yeah, you can
see the visit to make sure with the life insurance people, the
investors, because we had to get an EIN number, you know, because
there’s Social Security—the Social Security number that was no
longer valid.
So all this required time. Lots and lots of contacts because
there was a lot of individuals required to be contacted. Other things,
like I said, equipment issues, there were things that happened with
equipment that needed repair.
All the corn, we still had all the corn. So there was—there had
been some bushels that had been—I want to say—contracted by
John. Yes, there had; but the bins were full, and all that corn needed
to be marketed yet. So there was a lot of time spent contacting
different providers or different cooperatives to determine and try to
find best prices for selling corn. Contacts for then making those—
making the sales happen but then getting—Everything had to be
loaded and taken. So contacting semi drivers. A lot of other things
went into administering.
One of the—probably the really large projects was preparing
for the farm auction. There was a lot of farm equipment and, you
know, I tried to proceed exactly how John wanted this. These were
things we knew—at some point, we knew would be inevitable. Had
not expected—You know, we were anticipating a few years based
on the information we had been given by the physicians.
10
Certainly, we talked through things to plan and prepare so I
would know what to expect, too, even more. But one of the things
he had suggested was selling the farm equipment actually relatively
soon before it would lose value but just to have that part done. There
was a mortgage, you know, to be paid. There was payments on the
combine that needed to be done. So kind of cleaning up all this debt
so it would all be accomplished. So all those kinds of things. There
was a lot of—a lot of business that was done. When the books were
handed over to the new trustee, there was more than a million dollars
in the checking account of which I had kept track of and tried to have
all itemized and, like I said, had worked with Todd through all of this
too. I was doing things to the best of my ability and yet trying to
maintain a life, and I had a work life too because you know what? I
wasn’t—I wasn't getting a penny for this, and I still had life bills.
Under the abuse-of-discretion standard, we cannot say that the reduction of trustee
fee to $20,000 is unreasonable under the circumstances. Iowa Code section
633A.4109 governs compensation for trustees, but the district court has
considerable discretion in the allowance of such fees. See In re Woltersdorf, 124
N.W.2d 510, 511 (Iowa 1963). The reduction considers the complaints made
about inappropriate charges for mowing or taking care of Dybvik’s dog, but also
recognizes the work performed selling crops, working with insurance carriers,
paying trust bills, and other trustee functions.5 Finding no abuse of discretion, we
affirm the trustee fee award of $20,000.
Sanctions.
Emotions drive this sanction request. The primary purpose of sanctions
under Iowa Rule of Civil Procedure 1.413(1) is deterrence, not compensation. See
Barnhill, 765 N.W.2d at 276. Although First Citizens requested sanctions from the
district court, it makes no request for sanctions in this appeal. In a passion-laced
5Even Nola and Jed admit in their brief that Andera performed “legitimate work”
as trustee during her two-year tenure, but they assert her efforts provided no
benefit to the Trust.
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brief, Nola and Jed urge some punishment against Andera for many of her
demands and actions involving the Trust. Some of that emotion permeated in the
trial, and the district court noted in response to an objection, “I agree with what
appears to be the consensus among these parties that their personal relationship
between [Nola] and Ms. Andera is not relevant.” And in this trust-distribution
matter, Nola and Jed repeat allegations they made in their original lawsuit against
Andera. Finding the appropriate remedy for Andera’s missteps in the
administration of the Trust was a reduction of her share, no sanctions were ordered
by the court. And while Nola and Jed alerted Andera they would seek sanctions if
she pursued claims for trustee fees, the district court found she was entitled to
additional reasonable fees, although not at the amount requested. See In re
Roehlke’s Estate, 231 N.W.2d 26, 27 (Iowa 1975) (noting that while not bound by
them, we do defer to a trial court’s findings of fact).
Here, the district court could assess the witnesses. And although the court
did not agree with Andera’s ultimate position on her claims, it found she had a
basis—both in fact and in law—for asserting her theories. See Rowedder v.
Anderson, 814 N.W.2d 585, 591 (Iowa 2012) (finding it important that the attorney
did not take his actions in bad faith and “his actions were not vindictive or willful
insofar as to suggest he acted with evil intent.”). We agree with the district court
that sanctions were not appropriate in this case.
Conclusion:
For the reasons set out above, we affirm the district court on all issues
raised in this appeal.
AFFIRMED ON APPEAL; AFFIRMED ON CROSS-APPEAL.