In Aagard v. Jorgensen, 2014 UT App. 269 (filed November 14, 2014), the Utah Court of Appeals approved a modification of an LLC operating agreement that was proposed by the Petitioner, who was the manager of the LLC. The Petitioner was also the owner of all of the LLC interests, partly in his capacity as trustee of several irrevocable family trusts, and partly in his individual capacity. The petition proposed the removal of a veto power that the Petitioner’s sister held over the sale of ranch property the LLC owned in northern Utah.
Both the family trusts and the LLC had been created by the Petitioner’s parents. Initially, the trusts and the LLC operating agreement all contained provisions giving the Petitioner’s sister a veto power over the sale of any of the ranch land. During their lifetimes, the parents removed the veto provisions from the trusts, but did not remove the veto provision from the LLC operating agreement. After the deaths of the parents, the Petitioner, as the holder of all of the LLC interests, sought to remove the veto power from the operating agreement.
The Petitioner’s sister argued that the proposed modification would be a voidable transaction under Utah Code §75-7-802(2) because it was affected by a conflict of interest. The district court agreed that the modification would involve a conflict of interest. The Court of Appeals reversed.
The Court of Appeals held that the modification was not a “sale, encumbrance or similar transaction” within the meaning of §75-7-802(2), and further held that there was no conflict of interest. The Court stated that a trustee does not violate his duty of loyalty to the trust beneficiaries simply because he owns LLC interests in both his individual and fiduciary capacities. The Court explained that hypothetical conflicts are always conceivable in such a case, but that a conflict of interest exists, and the duty of loyalty is breached, only when the interests in question are inconsistent or incompatible.
For a discussion of trustee responsibilities in Utah, see “Serving as Trustee” on the home page of this website.
Rust Tippett is the author of this blog post.
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This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC. The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.