COA: Trustee breached duties by cheaply selling property, paying herself

The Indiana Court of Appeals affirmed Friday that a woman breached her duties as a trustee after she sold several real estate properties from a living trust for less than their fair market value and then paid herself.

Teresa Morningstar, a beneficiary and trustee of the Living Trust Agreement of Virgil C. Morningstar and Agnes M. Morningstar, completed an accounting after Virgil’s death for the period from August 2015 through May 2016. As part of her accounting submitted to the Allen Superior Court, Morningstar listed an asset item titled “Rental Real Estate” valued at $226,000 that was later listed as being sold for $210,342.63.

Her accounting also included a disbursement of $6,780 to Teresa Morningstar as well as monthly or bimonthly disbursements of $845.50. Certain real estate titles had been transferred to the trust before Vigil’s death, including 14 rental properties.

One of more than 20 beneficiaries of the trust, Nina Fortunka, objected to Morningstar’s court-ordered accounting, asserting that Morningstar had breached her fiduciary duties, committed self-dealing and carelessly and negligently handled trust assets.

Fortunka alleged Morningstar had sold all 14 rental properties in a single sale without appraisals performed either at the time of Virgil’s death or at the time of the sale, and that the sale was heavily discounted. She also alleged Morningstar continued to receive a salary and mileage as property manager after the sale and objected to several disbursements as unclear and invalid expenditures of the trust.

The trial court ultimately concluded that Morningstar had indeed breached her duty to preserve trust property by failing to adequately determine the real estate’s value through appraisals and selling it against the objections of multiple beneficiaries at less than fair market value and at a loss of at least $128,100. It also concluded that she breached her duty against self-dealing pursuant to I.C. § 30-4-3-5 by paying herself a finder’s fee without consulting the beneficiaries and breached her loyalty to them.

The Indiana Court of Appeals affirmed in Teresa J Morningstar v. Nina Fortunka, et al., 18A-TR-03044,  finding Morningstar had breached her duties as trustee. The appellate court first noted it would not disturb the finding that $226,000 was less than the fair market value of the trust real estate. It likewise found the trial court’s decision that $6,780 was not reasonable compensation paid for “unusual and extraordinary services” was not clearly erroneous because Morningstar simply held a meeting with the purchaser and did not conduct negotiations.

“Based upon the evidence and testimony presented, we conclude that Morningstar committed a breach of trust under Ind. Code § 30-4- 3-5 and affirm the judgment ordering her to disgorge the $6,780 payment,” Judge Elaine Brown wrote for the appellate court.