In re R.J. Wenck Trust ( 2024 )

IN THE COURT OF APPEALS OF IOWA
No. 23-0022
Filed February 7, 2024
IN THE MATTER OF THE TRUST OF THE R.J. WENCK TRUST UNDER THE
LAST WILL/TESTAMENT OF LANNY L. WENCK,
R.J. WENCK,
Appellant/Cross-Appellee,
and
ANTHONY WENCK, BRENDA HOLT, and KRIS MCDONALD,
Appellees/Cross-Appellants.
________________________________________________________________
Appeal from the Iowa District Court for Madison County, Martha L. Mertz,
Judge.
A lifetime beneficiary of a trust appeals the denial of his application for
distribution. Trust remaindermen cross-appeal an order for the trust to pay a
portion of the lifetime beneficiary’s attorney fees. AFFIRMED ON APPEAL;
REVERSED ON CROSS-APPEAL.
James R. Monroe of James R. Monroe Law Firm, Des Moines, for
appellant/cross-appellee.
Billy J. Mallory and Trevor A. Jordison of Mallory Law, West Des Moines,
for appellees/cross-appellants Anothony Wenk, Brenda Holt, and Kris McDonald.
Robert C. Gainer of Cutler Law Firm, P.C., West Des Moines, for appellee
R.J. Wenck Trust.
Heard by Schumacher, P.J., and Ahlers and Langholz, JJ.
2
AHLERS, Judge.
This case presents two distinct issues—one presented on direct appeal and
the other on cross-appeal. Both issues involve the R.J. Wenck Trust. As the
relevant facts and circumstances relating to the two issues are distinct, we address
each issue and the relevant facts separately.
I. Direct Appeal
Lanny Wenck died in 2017. His last will and testament divided the residue
of his estate equally between four children. While three of the children received
their shares of the estate residue directly, the share left to the fourth child, R.J.
Wenck, was to be held in trust for R.J.’s benefit during his lifetime. The remainder
beneficiaries of the trust are the other three children.1
The terms of the trust require the trustee2 to pay R.J. all net income of the
trust annually. It also provides that the trustee,
in their sole and absolute discretion, may pay to or apply for the
benefit of R.J. . . . such portions of the principal of the trust as the
trustee[] deem[s] advisable to provide for the education, health,
support and maintenance of R.J. . . . after taking into account any
other resources available to him for these purposes.
In an effort to protect the trust from creditors, the trust contains this spendthrift
clause:
No title in the Trust created in this instrument or in any
property at any time becoming a part of this Trust, or in any income
from this Trust, shall vest in any beneficiary, and neither the principal
nor the income of such Trust shall be liable to be reached in any
manner by the creditors of any beneficiary and no beneficiary shall
have the power to sell, assign, transfer, encumber or in any other
1 The remainder beneficiaries are Anthony Wenck, Brenda Holt, and Kris
McDonald.
2 The trust named Lanny’s wife and Kendall Kerns as trustees. But Lanny’s wife
predeceased him, leaving Kerns to serve as the sole trustee.
3
manner to anticipate or dispose of his or her interest in such Trust,
or the income produced thereby, prior to its actual distribution by the
Trustees to the beneficiary.
In April 2019, R.J. filed an application for distribution of the 2018 net income
and distribution of a portion of the principal. With respect to the principal, R.J.
sought distribution to cover the costs of life insurance, health insurance, student
loans, outstanding consumer and medical debt, and the purchase of a truck. He
explained he needed “help . . . getting back on his feet” and had “suffered a back
injury” that impacted his ability to work “higher paying auto-body technician
positions.” In total, R.J. sought payment of $79,740.72 from the trust.3 The trustee
initially objected to the application for distribution and sought more information from
R.J. before deciding whether to invade the principal.
Having his distribution requests denied by the trustee, R.J. applied to the
district court seeking an order directing the trustee to make the distribution. The
district court held hearings on the application. At the hearings, R.J. reduced the
amount of money he was requesting from the principal. He noted there was not
actually $12,232.28 in net trust income from 2018 to distribute4 and was instead
seeking “about $4000” to cover medical and life insurance, “about $9500” to pay a
Snap On tool account for R.J.’s work tools, “about $4500” for his student loans,
“approximately $20,000” to purchase his friend’s truck he had been borrowing, and
$5000 for expenses.
3 R.J. claimed he was entitled to $12,232.28 in 2018 net income and requested
$43,141.87 to pay various debts, $4366.57 to pay for 2019 health and life
insurance premiums, and $20,000 to purchase a truck from the trust principal.
4 Counsel for R.J. instead explained, he was “asking if there was any net income,
that it be distributed.”
4
R.J. testified and explained why he believed he needed funds from the trust
principal. He explained he lived with his girlfriend, Sarah, with whom he shared a
child, and he also helped care for her three other children. R.J. explained that he
and Sarah struggled with their finances and made modest incomes that could not
support their family of six. R.J. went on to testify they have and require two
vehicles, but one no longer works, so he borrowed a truck from a friend and
promised to eventually buy the truck from the friend. R.J. testified he suffers from
back problems, which impedes his ability to work and requires medical care,
although he admitted he had worked full-time until a week prior to the first day of
the hearing, when he decided to stop working.
The trustee also testified. The trustee explained that Lanny asked him to
take care of the trust funds for R.J. and make “good financial decisions” to assist
R.J. for his entire lifetime. He noted that the trust paid off the mortgage note on
R.J. and Sarah’s home and the bank assigned the promissory note and mortgage
to the trust so that R.J. would have to make mortgage payments to the trust instead
of the bank.5 But R.J. stopped making mortgage payments to the trust in August
of 2018.
The trustee also explained why he denied the April 2019 application for
distribution. He stated the 2018 income distributions were made in the form of
property tax payments and the trust’s acquiescence following R.J. and Sarah’s
ongoing failure to make mortgage payments on their home loan, so there was no
5 Lanny originally co-signed the mortgage note with R.J. and Sarah. The trust
presumably took over the mortgage so that the bank would not initiate foreclosure
proceedings in the event R.J. failed to make his mortgage payments.
5
net income to pay to R.J. Then the trustee explained what factors he took into
consideration when determining whether to invade the trust principal for the
expenses for which R.J. sought payment or reimbursement. With respect to the
truck R.J. wanted to buy, the trustee explained the purchase of the pickup truck
with 195,000 miles that would not hold all members of R.J.’s household and was
not required by R.J.’s employer was not necessary. He was concerned about using
trust funds for a life insurance policy that would benefit Sarah, as the purpose of
the trust was not to benefit her, and the trustee felt that life insurance should be
budgeted for by R.J. as a part of the family’s budget. As to the medical insurance,
the trustee considered that R.J.’s employer offered health insurance that he could
have selected and that R.J. should have budgeted for it as a normal household
expense. The trustee also testified that he did not think the trust should cover the
Snap On tools debt because the tools were nicer than R.J. could afford and tools
of that quality and cost were not necessary. As for R.J.’s student loan, the trustee
considered that R.J.’s father was alive when R.J. took out the loan, so presumably
if his father wanted to pay the loan, he would have done so when he was alive.
The trustee also believed distribution of principal funds for outstanding debts would
not be appropriate under the trust’s spendthrift clause.
At the second day of the hearing, the trustee clarified that R.J. had not filed
a new application for distribution since he stopped working. And the trustee
explained that, when he reviewed the April application, R.J. had been employed
and “receiving a good income.” Likewise, the trustee did not have the medical
records R.J. submitted to the court between the first and second days of the
hearing when evaluating the April application.
6
The district court issued an order on the matter roughly a year later. The
court determined that R.J. received the 2018 income from the trust and the trustee
did not abuse his discretion when denying R.J.’s April application for distribution of
trust principal. R.J. filed an Iowa Rule of Civil Procedure 1.904 motion to amend,
enlarge, or modify the court’s ruling, claiming he never received any 2018 income
from the trust. The parties addressed the motion at another hearing. The court
issued an order ruling on the motion but did not modify its original order in any
manner. R.J. appeals.
A. Standard of Review
Because trust proceedings are tried in equity, our review is de novo. In re
Steinberg Fam. Living Tr., 894 N.W.2d 463, 468 (Iowa 2017). However, to the
extent we are required to review the district court’s statutory interpretation, we
review for legal error. In re Est. of Melby, 841 N.W.2d 867, 871 (Iowa 2014). “Our
interpretation of a trust is guided by the intent of the testator.” Steinberg, 894
N.W.2d at 468. “We determine intent based on the language of the trust itself,
utilizing the ordinary and usual meaning of the words included.” Id.
B. Analysis
1. 2018 net income
On appeal, all parties agree that the trust requires annual trust income to
be distributed to R.J. But they disagree about whether there is outstanding 2018
income to pay R.J. R.J. points to a 2018 tax return showing that the trust made
$5019 in income, so he reasons he is due those monies. But the remaindermen
counter that R.J. was actually compensated by the trust’s use of the 2018 income
to pay the property tax and give credit to R.J. for missed payments on his home
7
mortgage. Dispositive of the issue is R.J.’s attorney’s concession at the hearing
on the motion. There, counsel stated: “We’re asking if there was any net income,
that it be distributed. But I don’t think there was any net income.” (Emphasis
added.) From this, we conclude there is no additional 2018 trust income payable
to R.J. One way or another the trust used the 2018 income to benefit R.J., and
there is no 2018 income left to pay. Moving forward this should not be an issue,
as the trust, R.J., and Sarah modified the promissory note on their home loan to
explicitly permit the trust to withhold any distributions and intervene to pay the
property taxes should the taxes become delinquent.
2. Distribution of the principal
With respect to his application for distribution of the principal, R.J. first
contends “payment of necessities or debts to finance necessities are not subject
to the spendthrift provision of the trust under Iowa Code section 633A.2302(3)
[(2019)]” and the district court erred by concluding otherwise. But the district
court’s order does not discuss the spendthrift provision beyond mentioning that the
trust language contains a spendthrift provision in its recitation of facts. In short, its
analysis did not hinge on application of the spendthrift provision.
We move on to R.J.’s second and primary contention, which is that he “has
an enforceable right against the trustee [and] the trustee is required to distribute
funds to R.J. for his support, health, and education[,] which are not subject to the
trustee’s discretion.” What R.J. does not explain is why he believes distribution of
principal funds is compulsory and not at the trustee’s discretion.
We look to the language of the trust. With respect to distribution of the
principal, the trust language at issue states:
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the trustee[], in their sole and absolute discretion, may pay to or apply
for the benefit of R.J. . . . such portions of the principal of the trust as
the trustee[] deem[s] advisable to provide for the education, health,
support and maintenance of R.J. . . . after taking into account any
other resources available to him for these purposes.
This language limits for what purpose the trust principal can be distributed—limiting
it to “education, health, support and maintenance of R.J.” But that does not
necessarily mean that the trustee is bound to make principal distributions
whenever R.J. requests funds for one of these approved purposes. Instead, the
trust gives the trustee “sole and absolute discretion” to decide whether to make a
distribution after considering the “other resources available to [R.J.]” To conclude
that R.J.’s request for distribution is not subject to the trustee’s discretion would
make this language superfluous. See Steinberg, 894 N.W.2d at 468 (noting that
we consider the trust document as a whole and reconcile all provisions when
reasonably possible); see also U.S. Bank, N.A. v. Bittner, 986 N.W.2d 840, 848
(Iowa 2023) (noting that courts assume no part of an agreement is superfluous).
Instead, consistent with the express language of the trust, we agree with the district
court that distribution of the principal is at the trustee’s discretion.
Section 633A.4214(1) requires that a trustee “exercise a discretionary
power within the bounds of reasonable judgment and in accordance with
applicable fiduciary principles and the terms of the trust.” Section 633A.4214(2)
provides further guidance, explaining:
Notwithstanding the use of such terms as “absolute,” “sole,”
or “uncontrolled” in the grant of discretion, a trustee shall act in
accordance with fiduciary principles and shall not act in bad faith or
in disregard of the purposes of the trust or the power. Absent an
abuse of discretion, a trustee’s exercise of discretion is not subject
to control by a court.
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So we review the trustee’s refusal to distribute the principal for an abuse of
discretion.
Upon our review of the record, we conclude the trustee did not abuse his
discretion when denying the application for distribution. He provided justification,
based on the information available to him at the time, as to why he did not approve
the application with respect to each item for which R.J. sought distribution. 6 We
conclude it was reasonable for the trustee to expect R.J. to budget for common
household expenses like life insurance and health insurance rather than relying on
the trust to fund those expenses so that the trust would not be depleted over time
through various reoccurring household expenses.7 And we take no issue with the
trustee refusing to use trust funds to purchase R.J.’s desired truck based on the
trustee’s conclusion that it would not fit R.J.’s entire household and R.J.’s job did
not require a heavy-duty truck. In other words, the trustee reasonably concluded
the desired truck provided features R.J. did not need while not providing him with
features he did need. As to R.J.’s student loan, we find no abuse of the trustee’s
discretion in concluding that because R.J. took the loan out when Lanny was alive,
6 We note R.J. points to information and events that came to the trustee’s attention
after the trustee rejected his application for distribution. For example, he points to
medical records from medical visits months after the trustee’s rejection of his
application and the fact that he stopped working about six months after the
rejection. Because the trustee did not have that information available to him when
reviewing the April 2019 application, we do not consider it when determining
whether he abused his discretion.
7 R.J. complained that his household was strapped for cash and simply did not
have the means to budget for life insurance and health insurance premiums. But
the remaindermen pointed out that R.J. appeared to spend his money freely—
making near daily trips to convenience stores to purchase non-necessities such as
snacks and tobacco or vaping products, while also regularly spending money at
restaurants and bars and purchasing hundreds of dollars’ worth of vitamins.
10
Lanny must have decided against paying the loan for him, so the principal should
not be used to do what Lanny already decided not to do.
Finding no abuse of discretion in the trustee’s decision to deny R.J.’s
application for distribution of principal funds, we affirm the district court on the direct
appeal.
II. Cross-Appeal
We turn to the cross-appeal. The district court’s ruling on R.J.’s
1.904 motion also addressed a few other, unrelated matters pending before the
court. One of those was an application made by R.J. for the trust to pay his
attorney $58,981 in fees and $2408 in costs for the attorney’s involvement in
recovering missing assets from Lanny’s estate.
Apparently, over $300,000 in cash was discovered in Lanny’s safe following
his death, and Lanny had made a $160,000 personal loan to one of his children
and a $100,000 loan to another individual. The cash was informally given to three
beneficiaries of Lanny’s estate; and the outstanding loans and cash were not
originally inventoried as assets of the estate. The annual trust report prepared in
January 2019 showed a November 2018 deposit of $103,000 into the trust, which
the parties agree was done to match the cash Lanny’s other beneficiaries received
from his safe.8 Special litigation counsel for the trust, retained in November 2019,
also secured a settlement benefiting the trust.9 See In re Tr. of R.J. Wenck, No. 22-
8 The appendix contains a ruling from the estate proceedings referencing this
$103,000. However, it is not a part of the record in this trust case. As such, its
inclusion in the appendix is improper, and we do not consider it.
9 The global settlement agreement was referenced several times during the
hearing on R.J.’s application for fees, but it does not appear in our record. A May 4,
11
0478, 2023 WL 2671867, at *1 (Iowa Ct. App. Mar. 29, 2023). That special litigation
counsel was paid by the trust on a contingency fee basis and ultimately received
$55,216.44 in fees and costs. Id.When ruling on R.J.’s application for fees, the district court reasoned Iowa
Code section 633A.4507 permitted payment of some of R.J.’s attorney’s fees
because his efforts ultimately benefitted the trust by serving as a key catalyst to
the trust receiving the $103,000. The court ordered the trust to pay $10,300 of the
requested fees. The remaindermen cross-appeal that portion of the court’s ruling.
A. Standard of Review
We review an award of attorney fees for an abuse of discretion. In re Tr.
No. T-1 of Trimble, 826 N.W.2d 474, 482 (Iowa 2013). “A court abuses its
discretion when its ruling is based on grounds that are unreasonable or untenable.”
Id. “The grounds for a ruling are unreasonable or untenable when they are based
on an erroneous application of the law.” Id. (internal quotation marks and citation
omitted).
B. Analysis
The remaindermen claim R.J.’s attorney cannot be reimbursed for his
efforts because the trust was represented by special litigation counsel and “the
trust ha[s] already compensated its attorney.” While that is true, the trust received
the $103,000 before it ever retained special counsel. So payment for special
counsel’s services was unrelated to the $103,000. Still the remaindermen balk at
the contention that R.J. and his attorney’s efforts actually uncovered the fact that
2021 order states that the global settlement was dictated into the record. Because
no party ordered that transcript for our review, we do not have access to it.
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cash was removed from the safe and improperly distributed to Lanny’s other
beneficiaries. They claim it was their attorney who made the discovery and reason
that R.J.’s attorney should not get reimbursed for uncovering something he did not
actually uncover. Emails between the attorneys show both were investigating what
happened to the cash from the safe and the outstanding loans. 10 Regardless of
who discovered that the cash in the safe had been improperly distributed and
omitted from the estate’s assets, it was R.J. and his attorney that picked up the
thread and followed it, resulting in the trust receiving an additional $103,000.
However, the remaindermen have a final and persuasive argument that
“[t]here was no judicial proceeding involving the administration of this trust which
may give rise to R.J.’s request for the trust to pay his personal attorney fees.”
Section 633A.4507 permits recovery of attorney fees “[i]n a judicial proceeding
involving the administration of a trust.” (Emphasis added.) While R.J.’s attorney
undertook efforts to discover what happened to the money from Lanny’s safe and
the trust ultimately benefitted by receiving an additional $103,000 from the estate,
R.J.’s attorney’s actions relate to administration of the estate rather than
administration of the trust. Bolstering that conclusion is an exhibit provided by R.J.
that shows his counsel filed a “petition for declaratory judgment determining
ownership of assets and request for hearing” in the estate proceedings only. No
similar filing was ever made in the trust proceedings. Moreover, aside from the
parties’ agreement that the $103,000 deposit into the trust was done to match the
cash the other estate beneficiaries improperly received from Lanny’s safe, the trust
10 Some of this investigation related to matters ultimately resolved by special
litigation counsel.
13
record contains no explanation of the source of the $103,000 deposit. That is
because the matter was handled in the estate proceedings and not in the trust
proceedings.
In short, R.J. and his attorney’s actions did not relate to administration of
the trust, so payment of related attorney fees cannot be authorized by
section 633A.5407. We conclude the court erred in finding that section 633A.5407
authorized it to order payment of a portion of R.J.’s attorney fees from the trust.
We reverse the district court’s order for the trust to pay $10,300 toward R.J.’s
attorney fees.
AFFIRMED ON APPEAL; REVERSED ON CROSS-APPEAL.