Employment-Based Trustee Conflicts Presumed and Beneficiary Access to Partner Financials: The Montana Supreme Court’s Framework in Matter of the Potter Exemption Trust

Introduction

In Matter of the Potter Exemption Trust (2025 MT 231), the Montana Supreme Court addressed a recurring but underdeveloped problem in trust administration: when a trustee simultaneously serves as an employee of an entity that does business with the trust, does that dual role trigger a statutory presumption of conflict that taints transactions and entitles a beneficiary to broad discovery of the entity’s financials? And can such a conflict support removal of the trustee?

The Potter Exemption Trust (PET) owns approximately 4,000 acres subject to a conservation easement and holds a minority partnership interest in E Bar L Ranch, LLP (E Bar L), a historic guest ranch. PET derives income from leasing its land to E Bar L and from its partnership interest. One of PET’s two current trustees, Caitlin Wall, is an assistant manager at E Bar L, receives compensation and housing, and reports to E Bar L partners. The sole income beneficiary, Betty N. Potter, challenged (1) Wall’s continued service as a trustee due to an alleged conflict of interest, (2) the validity of a 2022 PET–E Bar L lease on PET land negotiated while Wall was a trustee and E Bar L employee, and (3) the trustees’ refusal to provide E Bar L financial information necessary to test conflicted transactions and enforce beneficiary rights. She further argued the trust instrument required three co-trustees and allowed her to appoint a replacement trustee.

The District Court granted summary judgment to the trustees and E Bar L across the board. The Montana Supreme Court reversed on the principal issues—conflict, lease validity, and information rights—and remanded for discovery and fact-finding, while affirming that nothing in the instrument mandated three trustees or authorized the beneficiary to appoint successor trustees.

Summary of the Opinion

Conflict presumption: The trustee’s employment with the counterparty (E Bar L) can trigger the statutory presumption of conflict of interest under § 72-38-802(3)(d), MCA, even absent an ownership stake. Whether that presumption applies here presents genuine issues of material fact precluding summary judgment.
Lease validity: Because the 2022 PET–E Bar L lease was negotiated while the trustee plausibly operated under a conflict, its “reasonableness” and “fairness” are fact questions. Transactions “affected by” a conflict are voidable under § 72-38-802(2), MCA. Summary judgment upholding the lease was improper.
Beneficiary information rights: A beneficiary is entitled under § 72-38-813, MCA, to information “reasonably necessary” to enforce rights or to prevent/redress a breach, including discovery of a trust partner’s financials where the trustee’s conflict and challenged transactions make those records material. Courts should employ privilege logs, in camera review, and protective orders under M. R. Civ. P. 26 to balance confidentiality and access.
Trustee removal: Summary judgment denying removal was premature. The district court must reassess removal under § 72-38-706(2), MCA—considering “serious breach,” ineffective/impartial administration, and substantial change in circumstances—after conflict-focused discovery.
Trust governance: The instrument did not mandate three PET co-trustees and did not give the beneficiary power to appoint successor trustees. The district court’s ruling on this point was affirmed.
Remedial directives: Absent a protective order, E Bar L must produce tax returns, balance sheets, and QuickBooks files (2020–present) and profit-and-loss statements (2013–present), with any withholdings supported by a Rule 26(b)(6) privilege log.

Detailed Analysis

Statutory Framework

Duty of loyalty and conflict rules (§ 72-38-802, MCA): A trustee must administer the trust solely in the beneficiary’s interest. Any transaction involving trust property that is affected by a conflict of interest between the trustee’s fiduciary and personal interests is voidable by an affected beneficiary. A conflict is presumed when the trust transacts with an enterprise in which the trustee has an interest that “might affect the trustee’s best judgment.” § 72-38-802(3)(d).
Duty to inform and report (§ 72-38-813, MCA): Trustees must keep qualified beneficiaries reasonably informed and promptly respond to requests for information reasonably necessary to enforce rights or to prevent or redress a breach of trust. Required reporting includes annual statements of trust property, liabilities, receipts, disbursements, asset listings (with values if feasible), and relevant tax returns.
Remedies and removal (§§ 72-38-706, -1001, MCA): Courts may remove a trustee for serious breach, ineffective/impartial administration, or substantial change in circumstances, and may order appropriate relief (accountings, appointment of a special fiduciary, voiding acts).
Discovery management (M. R. Civ. P. 26): Broad discovery of non-privileged, relevant material is permitted. When confidentiality is asserted, the withholding party must serve a privilege log (Rule 26(b)(6)); courts may employ in camera review and issue protective orders (Rule 26(c)).

Precedents and Authorities Cited

The Court anchors its analysis in a line of cases emphasizing that fiduciary conflicts, breaches of trust, and reasonableness determinations are fact-intensive and rarely amenable to summary judgment:

Hendricks v. State, 2006 MT 22, ¶¶ 13–15: Conflicts must be proved through a factual showing; assessed case-by-case.
In re Charles M. Bair Family Trust, 2008 MT 144, ¶¶ 46–47: Breach-of-trust issues present questions of fact.
Poole v. Poole, 2000 MT 117, ¶ 14; Meloy v. Speedy Auto Glass, Inc., 2008 MT 122, ¶ 10; House v. U.S. Bank N.A., 2021 MT 45, ¶ 14: Summary judgment is improper where genuine issues of material fact exist; it is an “extreme remedy.”
Wild W. Motors v. Lingle, 224 Mont. 76, 82 (1986) (duty of utmost good faith); § 72-38-801, MCA (general duty to administer the trust).
In re Guardianship & Conservatorship of Elizabeth Saylor, 2005 MT 236, ¶ 16; Restatement (Second) of Trusts § 201: Breach of trust includes violation of any duty owed to the beneficiary.
In re Baird, 2009 MT 81, ¶ 12; Restatement (Third) of Trusts § 37, cmt. e: “Serious breach of trust” justifying removal; repeated or flagrant failures are especially grave.
Uniform Trust Code § 706, cmt.: A trustee’s failure to keep beneficiaries informed is a “particularly appropriate” basis for removal because it can mask more serious violations.
Lorang v. Fortis Ins. Co., 2008 MT 252, ¶ 136: Reasonableness is generally a question of fact.
Grady v. Livingston, 115 Mont. 47, 56 (1943): Voidable contracts are not void until so decreed.
Patterson v. State, 2002 MT 97, ¶ 15: Montana civil discovery policy is liberal and broad.
State v. George Burns, 253 Mont. 37, 39 (1992); Krakauer v. State, 2016 MT 230, ¶¶ 39–40: In camera review balances privacy with need-to-know, particularly when third-party interests are implicated.

The Court also canvasses confidentiality statutes and partnership duties to explain why those regimes do not categorically bar production when trust law compels disclosure:

26 U.S.C. § 6103 and § 15-31-511(1), MCA: Tax return confidentiality provisions contain exceptions (e.g., material interest; court order).
Montana partnership statutes (§§ 35-10-401 to -408, MCA): Partners owe fiduciary duties to the partnership and to one another; these duties do not automatically block court-ordered disclosure where trust law and discovery rules require targeted production with protections.
§ 72-38-106, MCA: Principles of equity supplement trust law.

Legal Reasoning

1) Presumption of Conflict Under § 72-38-802(3)(d), MCA

The Supreme Court holds that the undisputed facts—Wall’s employment by E Bar L, free housing and meals, supervisory relationships, compensation increases, and E Bar L’s dependence on PET’s land lease—are sufficient to create a genuine issue of material fact that Wall’s “best judgment” could be affected. The statute requires only an interest that “might affect” judgment; it does not require ownership in the counterparty or proof that judgment was actually affected to trigger the presumption. Nor does unanimity among co-trustees cure one trustee’s conflict. Because reasonable minds could differ on whether the presumption applies, summary judgment was improper.

2) Lease Validity and Fairness

The 2022 lease is materially different from prior arrangements: a five-year term with two optional five-year renewals (potentially 15 years), a starting annual rent of $50,000 (far below prior levels of $91,400–$125,000), CPI escalators, exclusive use subject to limited carve-outs, and ongoing joint decision-making via annual operating plans (including capital improvements and the Land Steward Manager). In light of a plausible conflict, whether the lease is “affected by” the conflict and whether its terms are reasonable and fair are fact questions under § 72-38-802(2) that cannot be decided on summary judgment.

3) Beneficiary’s Right to Information

The Court rejects an unduly narrow reading of § 72-38-813. A beneficiary need not first prove a breach or show immediate impact on distributions to obtain information reasonably necessary to enforce rights or to prevent/redress a breach. Where a trustee’s conflict is plausibly implicated and transactions are intertwined with a trust partner’s finances, targeted production of that partner’s financial records may be required.

The Court balances confidentiality against transparency by directing trial courts to:

Require a Rule 26(b)(6) privilege log for withheld items;
Use in camera review to validate claims of privilege or undue sensitivity;
Enter protective orders under Rule 26(c) to manage dissemination.

On this record, the Court found the requested E Bar L financials relevant to testing lease fairness and trustee conflict because (a) E Bar L’s ability to pay historically influenced rent negotiations; (b) the operating plan allocates costs and obligations between PET and E Bar L; and (c) the beneficiary cannot otherwise evaluate whether financial burdens were shifted to favor E Bar L over PET.

4) Trustee Removal

Removal is available for serious breach, ineffective/impartial administration, or substantial change in circumstances. Because conflict and information-denial issues are intertwined and unresolved, summary judgment denying removal was premature. On remand, the Court instructs the district court to reassess removal after targeted discovery and with attention to whether conflict-driven conduct constitutes a serious breach or impairs impartial and effective administration.

5) Trust Governance

The Court affirms that the trust instrument does not require three co-trustees and does not authorize the beneficiary to appoint successors. PET trustees alone have discretion to select successors, and the settlors expressly excluded the surviving spouse from serving as PET trustee.

Impact and Practical Implications

Immediate Doctrinal Significance

Employment-based conflicts: Under § 72-38-802(3)(d), MCA, employment with a counterparty enterprise is a sufficient “interest” to trigger a presumption of conflict. Ownership is not required. The threshold is whether the interest might affect judgment.
Co-trustee unanimity: Consensus among co-trustees does not cure a single trustee’s conflict for purposes of the presumption or voidability analysis.
Discovery against partner entities: When trust transactions are contested due to conflict, beneficiaries can obtain partner-level financials reasonably necessary to assess fairness, subject to privilege logs, in camera review, and protective orders.
Summary judgment caution: Conflict, fairness, reasonableness, and removal are fact-driven determinations. Courts should avoid resolving them on undeveloped records.

For Trustees and Fiduciaries

Dual-role governance: Trustees who are employed by trust counterparties should implement robust conflict-management protocols—recusal, independent trustee or special fiduciary oversight, independent appraisals, and documented fairness processes.
Disclosure posture: Anticipate that beneficiaries may obtain entity financials when conflicts are at issue. Prepare to offer protective orders and privilege logs proactively.
Recordkeeping: Maintain granular records of lease negotiations, financial modeling, and decision-making rationales (including why a given rental rate or cost allocation is fair).

For Beneficiaries

Information leverage: Use § 72-38-813 strategically. Frame requests around enforcement needs and prevention/redress of breach. Suggest protective orders to address confidentiality concerns and signal reasonableness.
Targeted discovery: Seek records that connect directly to the challenged transaction’s fairness (e.g., P&Ls, cash flows, capital improvement budgets, operating plan allocations).

For Partnerships with Trust Partners

Expect court-ordered production: Partnership confidentiality norms do not categorically bar production where a trust partner’s fiduciary duties require transparency. Build this into partnership agreements and compliance protocols.
Align policies with trust law: Where a trust is a partner, anticipate that beneficiary information rights may require disclosure under court supervision.

For Litigators and Trial Courts

Discovery management blueprint: This decision provides a roadmap—privilege logs under Rule 26(b)(6), in camera review, and tailored protective orders—to balance confidentiality with necessary access.
Remedial flexibility: Consider interim remedies (e.g., appointing a special fiduciary) while conflict and fairness are adjudicated, per §§ 72-38-706(3), -1001.

For Drafters of Trust Instruments

Conflict clauses: Address foreseeable dual-role scenarios explicitly—recusal rules, independent oversight, mandatory fairness review, appraisal requirements, and processes for conflicted transactions.
Trustee composition: Consider requiring an independent co-trustee or special fiduciary when trust assets are intertwined with family businesses.
Information covenants: Clarify reporting expectations where the trust holds entity interests, anticipating tensions between entity confidentiality and trust transparency.

Open Questions and Issues for Remand

Burden and standard on fairness: While the opinion recognizes the conflict presumption and voidability, it leaves for the district court to evaluate the lease’s fairness and reasonableness on a developed record and to select appropriate remedies.
Scope of removal: The court will determine whether the conflict and any information-denial conduct collectively constitute a “serious breach” or otherwise justify removal, considering PET’s purposes and beneficiary interests.
Tailored remedies: Appointment of a special fiduciary, partial rescission, revised operating plan terms, or enhanced reporting could be crafted as intermediate measures pending final adjudication.

Complex Concepts Simplified

Presumption vs. proof: A statutory presumption of conflict arises when circumstances show an interest that might affect a trustee’s judgment. The presumption triggers heightened scrutiny and potential remedies; it does not automatically void the transaction but makes it voidable.
Voidable vs. void: A voidable transaction is effective unless and until a court sets it aside. A void transaction has no legal effect from inception.
Qualified beneficiary: Under the Uniform Trust Code model, a person currently entitled or potentially entitled to distributions. Trustees owe such beneficiaries robust information rights.
In camera review: The judge privately reviews documents to assess privilege or sensitivity before deciding on disclosure.
Protective order: A court order that limits dissemination or use of sensitive information produced in litigation (e.g., “attorneys’ eyes only”).
K-1: A tax form reporting a partner’s distributive share. It does not, on its own, reveal the partnership’s full financial picture or substantiate fairness in conflicted transactions.
CPI escalator: A contractual clause adjusting payments annually based on the Consumer Price Index to account for inflation.

Conclusion

The Montana Supreme Court’s decision in Matter of the Potter Exemption Trust clarifies and strengthens the state’s conflict-of-interest and transparency regime for trusts under the Uniform Trust Code. It establishes that a trustee’s employment by a counterparty enterprise presumptively implicates § 72-38-802(3)(d), MCA, even in the absence of ownership, and that the fairness of transactions tainted by that conflict is a fact question not to be resolved on summary judgment. It further confirms that beneficiaries can obtain non-partner financial records from entities that do business with the trust when such records are reasonably necessary to enforce rights or to prevent or redress breach—managed through privilege logs, in camera review, and protective orders to safeguard legitimate confidentiality interests.

Practically, Potter marks a significant recalibration toward trust transparency in Montana when trust assets are intertwined with closely held or family-run enterprises. It provides trial courts with a concrete toolkit for discovery management and signals to trustees and business partners that dual-role arrangements will be scrutinized, with co-trustee unanimity offering no safe harbor. While the Court did not decide ultimate remedies—lease voidability or trustee removal—it laid the legal groundwork and ordered targeted discovery to enable a fair adjudication. The affirmation that the instrument neither mandates three trustees nor grants beneficiaries appointment rights leaves settlor intent intact on governance—while ensuring that, in administration, loyalty and transparency remain the guiding principles.