Can a trustee modify an LLC operating agreement without violating conflict of interest rules? In the matter of the Anna Blackham Aagard Trust Explained

The Utah Court of Appeals addressed whether a trustee can modify an LLC operating agreement to remove another family member’s veto power over property sales without running afoul of the state’s Uniform Trust Code in In the matter of the Anna Blackham Aagard Trust.

Background and Facts

Kim Aagard served as sole trustee of multiple family trusts and also held individual ownership interests in an LLC that owned nearly 9,000 acres of ranch land. The LLC’s operating agreement required both Kim and his sister Diane to consent in writing before any ranch property could be sold. When Kim sought to modify this operating agreement to remove Diane’s veto power, he petitioned the district court for preapproval, acknowledging potential conflict of interest concerns. The district court denied the petition, concluding that Kim’s dual roles created a presumptive conflict.

Key Legal Issues

The central question was whether the proposed modification violated sections 75-7-802(2) or (3) of Utah’s Uniform Trust Code. Section 802(2) makes voidable any “sale, encumbrance, or other transaction involving the investment or management of trust property” that is affected by a conflict between the trustee’s fiduciary and personal interests. Section 802(3) creates a rebuttable presumption of conflict when trustees enter into certain transactions with entities in which they have personal interests.

Court’s Analysis and Holding

The Court of Appeals reversed, finding that neither provision applied. First, the parties agreed on appeal that section 802(3) did not govern the proposed modification. More significantly, the court held that modifying the operating agreement did not constitute a “sale, encumbrance, or other transaction” under section 802(2). Applying the ejusdem generis canon of interpretation, the court determined that the modification accomplished nothing akin to transferring property interests or burdening title. The court also found no actual conflict of interest, noting that the Trust Code expressly permits trustees to hold undivided interests in LLCs both personally and in their fiduciary capacity.

Practice Implications

This decision provides important guidance for trustees managing family business entities. The court emphasized that hypothetical conflicts are insufficient to trigger Trust Code restrictions when the trustee’s fiduciary duties provide adequate protection for beneficiaries. Practitioners should carefully analyze whether proposed trustee actions actually fall within specific statutory categories rather than assuming broad conflict-of-interest provisions apply to all dual-capacity situations.