Reimbursement Claims in Estates; Drainage District Assessments

Overview

Two interesting issues that sometimes come up in the agricultural setting are those involving claims in a decedent’s estate as well as those involving drainage district assessments.  Matters involving ag estates are often difficult because family members tend to be involved.  Drainage issues can also become contentious and can become tangled in numerous ways.

Reimbursement claims in an estate and drainage district assessments – it’s the topic of today’s post.

Former Trustee Fails to Establish Claims for Reimbursement

In Re Estate of Bronner, No. 20-0747, 2021 Iowa App. LEXIS 488 (Iowa Ct. App. Jun. 16, 2021)

A married couple as operated a 276-acre family farm.  Upon the husband’s death, his one-half interest in the farm passed to a family trust for his wife for life, and named a son as trustee.  Upon the surviving spouse’s death, the trust would terminate with the remaining assets distributed to the couple’s then surviving children.  The surviving spouse and trustee son continued to operate the trust’s farmland.  In addition, the trustee rented other land from his mother for his own farming operation, and he paid his annual farm rent by depositing into his mother’s account the amount necessary to cover the loan payment and real estate taxes on the trust’s farmland.  The trustee also made insurance premium payments. 

Ultimately, the surviving spouse’s cognitive function declined, and she was no longer competent to enter into contracts.  The trustee then arranged for the sale of a 76.11-acre parcel of trust farm property to an adjoining landowner through a private sale for $275,000.  The net sale proceeds were paid to reduce the amount owed on the existing farm loan.  Shortly before the surviving spouse’s death, another son sued the trustee for elder abuse, but later agreed to dismiss his claim in exchange for a court-appointed guardian and conservator for his mother.  When the surviving spouse died, the trustee was appointed executor of her estate.  The other son sued to remove the trustee son as executor, alleging that he breached his fiduciary duties as trustee by paying farm rent at less than market value and in selling the 76.11-acre parcel of land for less than its market value. 

The trial court found that the trustee had breached his fiduciary duties and removed him as trustee.  He was not compensated for his services.  He was also removed as executor.  He then sued to recover for expenditures he made on behalf of his mother and the family trust totaling over $199,000 for farm maintenance/capital improvements; taxes and insurance; appraisal costs; costs associated with prior litigation; and funeral and nursing home/medical expenses.  The trial court denied the claims for maintenance and capital improvements, and the appellate court affirmed noting that most of the expenses went to improve his own farming operations or to benefit himself personally, and the invoices he submitted did not establish that he paid the expenses.  The appellate court also affirmed the trial court’s denial of reimbursement for taxes and insurance as they were considered part of his farm rent payments and the evidence showed that some were paid by the estate.  The appellate court also affirmed the trial court’s denial of appraisal costs because the costs didn’t benefit the trust, and the trial court’s refusal to allow reimbursement for legal expenses because the expenses were court-ordered as part of prior litigation.  The former trustee/executor also failed to substantiate that he had paid funeral expenses, and the appellate court affirmed the trial court’s decision to he was not entitled to reimbursement of these costs. 

Observation:  Keeping good records of transactions personally entered into on behalf of an estate or trust is an essential part of successfully being reimbursed for expenses incurred. 

Drainage District Incorrectly Makes Improper Assessment

Union Pacific Railroad Co., et al. v.  v. Drainage District 67 Board of Trustees, No. 20-0814, 2021 Iowa App. LEXIS 458 (Iowa Ct. App. Jun. 16, 2021).

In 1913, a wholly owned subsidiary of the plaintiff built a railway within its right-of-way.  The right-of-way became included in the defendant’s drainage district that was established in 1915.  State law requires drainage districts to keep any improvements in good condition and to pay for repairs, and when a drainage district has insufficient funds to pay for a repair, it must assess the costs of repairs to the property located within it in proportion to the benefit the land receives from the improvement.  A classification of benefit remains the same unless the drainage district reclassifies the land. A reclassification commission determines the percentage of actual benefits received by each tract of land and makes an equitable apportionment of the costs of repairs.  Apportionment of costs must be made strictly in accordance with the benefits reasonably expected or actually enjoyed. 

The defendant constructed an artificial tile to drain the agricultural lands in the district with the main tile crossing the railroad’s right of way.  The railroad had been originally assessed 5.81 percent for its share of the drainage benefits in the district.  In 2018, the defendant discovered that tile needed repaired or replaced, including a collapse in the tile under the plaintiff’s tracks that, if not repaired, would cause soil to enter the main tile.  To comply with federal safety requirements, the portion of the repair running under the right-of-way required steel casing and mechanical restrained leak resistant joints.  Use of these materials approximately doubled the cost of using just corrugated plastic pipe.  The drainage district received a base bid price of $200,891 for the project.  Of that figure, $98,343 was for items necessary to prevent erosion at the railroad crossing – about 49 percent of the project cost.  The reclassification commission found that about one-half of the construction costs resulted from federal regulations and determined that the railroad would receive 100 percent of the benefit of compliance.  Thus, the reclassification commission recommended that the railroad be assessed one-half of the total cost of repair. 

At a public hearing, the railroad objected to the assessment, but the defendant approved it.  The plaintiff sued, and the trial court noted that the defendant had the authority to modify an assessment if there was evidence of an erroneous assessment or inequitable apportionment.  However, the trial court determined that the plaintiff had satisfied its burden to show that the cost had not been properly assessed.  Specifically, the trial court found that the defendant had reclassified the land based on “extra costs” driven by compliance with federal requirements that were not a benefit to the plaintiff so as to lower the assessments to other lands in the district.  The appellate court affirmed the trial court’s award of summary judgment for the plaintiff, noting that construction costs are not benefits that may be considered in a reclassification, nor are the costs of federal compliance.

Conclusion

The law intersects with agriculture in many ways.  Sometimes production activities are involved, sometimes the two meet at the point of family relationships and transactions, and other times it’s a matter of only tangential connections that can ultimately have an impact on production activities.  Often, state law is involved.  The two cases discussed in today’s post are an illustration of the myriad of ways that the law can touch agriculture and those involved in it.