WisBar News: Testamentary Trust: Court Resolves Intra-family Lake Cottage Dispute :

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  • WisBar News
    December
    15
    2015

    Testamentary Trust: Court Resolves Intra-family Lake Cottage Dispute

    Joe Forward

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    Dec. 15, 2015 – Rene Von Schleinitz died in 1972. His will provided for a trust to hold land with “improvements,” including cottages on Cedar Lake in West Bend. Recently, a state appeals court ruled that “improvements” did not include septic and well systems serving a cottage built and owned by Von Schleinitz’s daughter and her husband.

    In addition, in Lindemann v. Maclay, 2014AP2123 (Dec. 15, 2015), a three-judge panel for the District I Court of Appeals ruled that a stipulated agreement prohibiting unilateral legal action by one trustee superseded the statutory authority of trustees to commence court actions. The panel identified that issue as one of first impression.

    The Testamentary Trust

    The Cedar Lake Trust was to hold all property situated in West Bend, together with “improvements.” At the time of his death, Von Schleinitz owned real estate consisting of land with improvements in the form of four cottages, including one cottage, the “Hillside Cottage,” built and paid for in the 1950s by his daughter, Edith, and her husband.

    The will said that Edith could occupy the “Hillside Cottage” for as long as she desired. In 1975, the probate court in Milwaukee County ordered transfer of the Cedar Lake property to the trust, including three cottages. But the probate court excluded the Hillside Cottage from the trust, concluding Edith and her husband owned it outright.

    Edith and her husband, Geoffrey Maclay Sr., had four children. Their two eldest children, Christine Lindemann and Geoffrey Maclay Jr., became co-trustees of the trust after Edith and a bank, originally named as co-trustees, resigned from that post in 1977.

    The Trustee Trilogy

    Lindemann and Maclay Jr. are also beneficiaries of the Cedar Lake Trust. In 2004, Lindemann filed a petition to amend the trust property. She said the Hillside Cottage was improperly excluded from the trust, contrary to the terms of her grandfather’s will.

    The court dismissed the petition as untimely, and Lindemann did not appeal. In 2006, Edith and Geoffrey Maclay Sr. (Maclays) obtained a declaratory judgment determining that they, not the trust, owned the land underlying and adjoining the Hillside Cottage.

    Lindemann appealed. The appeals court affirmed, and also confirmed that the Maclays owned an easement over the trust real estate to access the Hillside Cottage.

    In 2011, Edith filed a petition asking the probate court to remove Lindemann as a co-trustee of the trust. But the parties ultimately agreed to appoint a third trustee, a reserve judge, to resolve tie-breakers between Lindemann and the other co-trustee, Maclay Jr.

    The stipulated order determined that a single trustee could not take unilateral action regarding the trust or its assets. But in 2013, Lindemann brought a unilateral action for declaratory judgment, arguing that the Hillside Cottage’s septic system is trust property, in addition to the cottage’s well, garage, and the walkways and pathways around it.

    The Maclays moved to dismiss on the ground that Lindemann could not take unilateral action as a trustee, under the stipulated order. However, the court ruled that Lindemann had statutory authority, as trustee, to commence the circuit court proceeding.

    The Maclays continued to argue that Lindemann lacked authority to file the action because the stipulation against unilateral legal action was the law of the case.

    The circuit court disagreed, but ultimately ruled that the septic system was not trust property and the Maclays owned it since it was “essential to the requirements and workings” of the Hillside Cottage. However, the court also ruled that a well and pump supplying water to the Hillside Cottage, as well as a retaining wall, a garage, and a patio erected near the cottage, would become trust property at Edith’s death.

    Finally, the circuit court denied Lindemann’s request for an audit of trust funds as unnecessarily costly to the trust, and also denied her request for attorney fees, noting that she commenced the action without ratification from the two other co-trustees. The circuit court also denied the Maclays’ motion for attorney fees as untimely.

    Appeal and Cross-Appeal

    The three-judge panel affirmed that the septic system servicing the Hillside Cottage was not an “improvement” to trust property and belonged to the Hillside Cottage.

    “It would defy logic for us to conclude that the system responsible for disposing of the cottage’s wastewater from the time the cottage was built is an ‘improvement’ belonging to an entity other than the owners of the cottage,” wrote Judge Joan Kessler.

    However, the panel also ruled that the water well and pump system was not an improvement to trust property, overturning the circuit court’s conclusion that it was an improvement because the well did not serve the Hillside Cottage exclusively.

    “Applying the same logic and the same definition of ‘improvement,’ we also conclude that the water system belongs to the Maclays as it is an essential component of their home,” wrote Judge Kessler, noting the Maclays installed and paid for the well.

    Judge Kessler said Lindemann never established that the well and pump serve other buildings besides the Hillside Cottage or that it was an “addition” to the cottage.

    “The practical effect of the circuit court’s finding suggests that the water system is an amenity that can be severed from the home,” Judge Kessler wrote for the three-judge panel. “This is contrary both to the intent of the Trust – which clearly established that Hillside Cottage was the exclusive property of the Maclays – and to logic.”

    The panel also upheld the circuit court with respect to Lindemann’s demand for an accounting. She had noted that her father, Geoffrey Sr., was the bookkeeper. But the panel ruled that the court was justified in concluding an audit was not necessary.

    Unilateral Action Prohibited

    The Maclays had cross-appealed, arguing that the case should have been dismissed because Lindemann did not have authority to commence the suit. That is, the law of the case prohibited a unilateral action regarding the trust; a majority vote was required.

    The panel agreed that Lindemann needed a majority vote to commence the action because statutory rights can be waived if done so voluntarily and intentionally.

    “The consequence of the failure of a trustee to follow an order requiring majority support by existing trustees when a trustee claims to act on behalf of the trust appears to be one of first impression in the State of Wisconsin,” Judge Kessler wrote.

    The panel noted that all trustees, the present beneficiary (Edith), and the contingent beneficiaries (Lindemann and Maclay Jr.) all signed the stipulated agreement, and the co-trustees objected to Lindemann filing the subsequent action four months later.

    “In the face of Lindemann’s refusal to follow the court order, and in the face of specific objections to the litigation by the majority of trustees, the court should have dismissed Lindemann’s petition,” Judge Kessler wrote. “This is exactly the type of situation the law of the case doctrine was designed to prevent.”

    Attorney Fees

    The panel agreed that Lindemann was not entitled to attorney fees payable from the Trust, because the action directly violated the stipulated court order.

    “To grant Lindemann attorney fees for her violation would be both unfair to the Trust and simply nonsensical,” Judge Kessler wrote.

    However, the panel ruled that the Maclays were entitled to attorney fees from Lindemann, and remanded the case for a determination of what those fees will be.

    “We conclude that the circuit applied an incorrect theory of law when it denied the Maclays’ request for attorney fees from Lindemann,” Kessler noted. “The Maclays filed a timely motion to dismiss which, as we have explained, should have been granted.”

    The panel noted that the Maclays initially filed a request for attorney fees in their motion to dismiss, not the day before the end of trial, as the circuit court had concluded.

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