Petitions For Instructions And Declarations Of Rights---Not All Trust Litigation Is Necessarily Nasty

Frequently trust litigation stems from a heated dispute between trustees and beneficiaries, or co-trustees who cannot agree on the trust administration, or beneficiaries who cannot agree on their respective rights under a trust instrument, or other disagreements between various parties incident to a trust.  When such disputes cannot be resolved amicably by the parties themselves, with or without the assistance of legal counsel, sometimes the only practical recourse is to file suit and let a judge or jury decide who should prevail depending upon the facts,  circumstances and evidence. 

With this in mind, Ark. Code Ann. § 28-73-201(b)  does not mandate continuing court supervision of trusts.  Rather, a court may intervene in the administration of a trust whenever it is asked to by an “interested person or as provided by law.”  Ark. Code Ann. § 28-73-201(a).  Such judicial proceedings involving a trust “may relate to any matter involving the trust’s administration, including a request for instructions and an action to declare rights.”  Ark. Code Ann. § 28-73-201(c) (emphasis added). 

In sum, occasionally trust-related judicial proceedings do not involve an alleged breach of trust, breach of fiduciary duty, misappropriation of assets, etc.  That's a good thing because such disputes---often involving family members fighting over money---can turn into some of the ugliest and most contentious wealth wars imaginable. 

Rather, petitions for instructions and requests for declaratory judgments---such as the ones contemplated in Ark. Code Ann. § 28-73-201(c)---are typically less heated because theoretically they involve an innocuous request that the court merely provide instructions or guidance to the trustee or beneficiaries. Perhaps the proceeding stems from an alleged ambiguity in the trust terms, maybe there is a question regarding which beneficiaries are supposed to receive trust income or principal, or possibly the court is simply being asked to declare the rights and obligations of various individuals associated with the trust.  

While these matters can still be adversarial in nature, they are usually not the classic battles in which someone is claiming that another party necessarily engaged in intentional fraud or other wrongdoing.  Accordingly, when appropriate this type of proceeding should be considered as an option whenever there is a need for court intervention in a situation which does not necessarily rise to the level of a full-blown  "divorce on steroids," as we sometimes call the nastiest of the inheritance-related disputes in which we are frequently asked to become involved. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Presentation At The 2016 Arkansas Bar Association Annual Meeting

Today one of my law partners, Pat James, and I will be privileged to make a presentation at the Arkansas Bar Association Annual Meeting in Hot Springs, Arkansas, where over 1,200 lawyers and judges congregate every June for 4 days of continuing education seminars,  meetings, and socializing.   The title of our presentation is---not surprisingly given that you are reading this blog---"WEALTH WARS:   Arkansas  Estate, Trust, Probate And Inheritance Litigation."

The hour-long presentation is designed to be a broad overview, for the general practitioner, of numerous topics arising in this area of law.   For an A to Z listing of the topics to be discussed, inclusive of some written materials containing a checklist of common claims and causes of action; a checklist of common defenses; an exemplary case theme (the “fraud triangle”); a lengthy list of Arkansas statutes frequently arising in litigated estate and trust matters; and citations to a few helpful general and Arkansas-specific secondary materials,  please click on the following link:    Written Materials For June 2016 CLE Presentation 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Brief Thoughts On Claims Of Undue Influence

As stated in my previous post regarding the capacity of a testator to execute a will or trust, the two concepts are closely related.  For example, incapacity relates to invalidation of a will, trust, deed, etc. because of the testator’s own deficiencies (typically mental impairment).  Undue influence, however, is when the will, trust, deed, etc. may be invalidated by the actions of others because they allegedly exercised such a degree of influence and power over the testator thatthey were induced to act by something other than free will.

As a general matter, the less testamentary capacity that one possesses, the less proof of undue influence will be necessary.  A presumption of undue influence may be triggered by a confidential relationship between the testator and someone who is receiving a benefit from the document, such that the burden of proof can shift to the proponent of the document to prove that there has in fact been no undue influence.  Unless there is “procurement” involved, in Arkansas the proponent merely has the burden of proving no undue influence by a preponderance of the evidence (more likely than not, as opposed to a higher standard such as beyond a reasonable doubt).

Obviously influence is ever-present and we are constantly influencing others to take certain actions.  This is especially true in the context of family and other close relationships.  However, mere influence doesn’t necessarily equate to taking advantage of someone.

Accordingly, while a testator may be legitimately influenced by his children, for example, the influence may go too far if the kids dictate or control the testator.  Likewise, the mere existence of a confidential relationship between the testator and the beneficiary, or a close and affectionate relationship, may not in and of itself constitute undue influence although it can in some instances have the effect of shifting the burden of proof.

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Demographic Trends Suggest More Estate, Trust And Probate Litigation In The Decades To Come

I have long been interested in demographic trends, emerging technologies, cultural changes, and shifting societal patterns.  For example, 20+ years ago when I was in college I read Alvin and Heidi Toffler's  "War And Anti-War," which while a bit dated now predicts how future wars will be fought (but with an eye toward peace and avoiding such conflicts).   Similarly, about 5 years ago I read George Friedman's "The Next 100 Years:  A Forecast For The 21st Century,"  which was an eye-opening look at how our  nation and world may likely look in the years and decades to come.  I highly recommend either book for some fascinating reading, and it will be interesting to someday see how accurate or inaccurate their predictions were.

 Then,  a couple weeks ago I came across a very interesting article by a Georgia attorney named John J. Scroggin, in Wealth Strategies Journal,  which focused in particular upon 30 positive and negative trends that will impact estate planning over the next several decades:  "Where Is The Estate Planning Profession Going?"    While I focus much of my law practice upon estate, trust and probate litigation---as opposed to estate planning and drafting of wills, trusts, and the like---the article still addressed my areas of interest and I thought I would share a couple excerpts here.  Better yet, lawyers and laypersons   should take the time to read the entire article  which not only encompasses great analysis but also contains good references to other articles, checklists, outlines, etc.

               For example, with regard to estate and trust litigation in general Mr. Scroggin opines that:

               "(9) Estate and Trust Litigation. As a result of the combination of poorly drafted  documents, dysfunctional families, incompetent fiduciaries, greedy heirs, inadequate  planning and poorly prepared fiduciaries, estate litigation has been booming in the last  few decades. This growth will continue.

               One consequence of the increased litigation will be an increased effort by both individual and institutional fiduciaries to make sure estate and trust instruments provide for strong  fiduciary protection. We should anticipate more protective provisions in fiduciary  instruments, including broader indemnity provisions for fiduciaries, modifications of the  normal fiduciary standards and investment polices, broader use of no contest clauses,  limited liability for delegated powers and limits (or increases) on disclosures to  beneficiaries. These changes will increase the need to create counter-balancing powers  designed to protect beneficiaries (e.g., a wider use of Trust Protectors and fiduciary  removal powers). As a result, there will be longer discussions with clients and the  complexity of the documents will increase."

               Related to the foregoing are Mr. Scroggin's thoughts on avoiding estate and trust litigation altogether, through conflict minimization:

               "(10) Conflict Minimization. The corollary to estate and trust litigation is planning  designed to mitigate the potential sources of intra-family estate conflicts. According to  the Wealth Counsel 6th Annual Industry Trends Survey, the top motivation for doing  estate planning was to avoid the chaos and conflict among the client’s heirs. Many clients  have an abiding desire to establish structures which minimize the potential points of  conflict and provide a mechanism to resolve future family conflicts. Clients want to  dispose of assets in a manner designed to minimize family conflict - leaving a legacy of  relationships rather than a legacy of conflict. This is a growing part of the discussion with  clients and a part of their planning documents. Solutions include using personal property  disposition lists, looking at real or perceived conflicts of interest when appointing  fiduciaries, or passing the family business only to the children running the business. As  noted above, attorneys will need to spend more time talking with clients about providing  greater protections to fiduciaries and creating counterbalancing protections for heirs.

 Many individual fiduciaries agree to serve without fully understanding the potential  liabilities and conflict they may be inserting themselves into. Should attorneys provide written materials (perhaps signed by the client and the fiduciary) detailing the  responsibility of the fiduciary, the risk of conflict and the means by which the drafter has  tried to minimize those exposures? Should attorneys more thoroughly advise their clients  on the necessary skill   sets needed by their fiduciaries - instead of just accepting the  client's choices at face value?"

  In sum, as I have written before on this blog, American society is rapidly changing.  The Baby Boomers have begun retiring over the last many years and will continue to do so over the next 2-3 decades.  Large sums of wealth have been acquired and will be transferred to younger generations.  People are living longer, and the aging population will be less competent due to Alzheimer's Disease and other forms of dementia which will lead to conflicts over whether a deceased person had the requisite capacity to execute a will or trust.  These and other trends strongly support the notion that there will be increasingly more estate, trust and probate litigation in the decades to come.

               Matt House can be contacted by telephone at 501-372-6555, by e-mail at  mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Managing Someone Else's Money

 Estate, trust, power of attorney and probate disputes often develop due to disagreements over the manner in which someone managed another person's money. For example, the beneficiaries of a will might disagree with the executor's claim for fees related to administration of an estate.  Co-trustees might differ as to the best investments for maximizing the income and assets of a trust.  Two children might question the propriety of their third sibling's withdrawals of money from their mother's bank account, pursuant to a financial power of attorney that the mother apparently executed at some point in the past.

 To provide guidance in these situations, the Consumer Financial Protection Bureau has recently released 4 booklets entitled "Managing Someone Else's Money" which are intended for such persons as trustees, agents under powers of attorney, court-appointed guardians, and government fiduciaries.  Not only do they assist those who are honestly and legitimately attempting to assist in the management of money or property for a loved one, they also provide information on warning signs and things to look for when someone else is doing the managing of that person's finances.

 Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Common Mistakes When Serving As Trustee

My last post discussed the pros and cons of institutional trustees vs. family member trustees.  Regardless of whom is serving as trustee, in the course of my law practice there are common themes which repeatedly arise in the area of trust disputes and litigation.  Specifically, it is easy for trustees---especially inexperienced family member trustees---to make mistakes when administering a trust.  Some of these were nicely summarized in a recent article, published in Barron's Penta, entitled "The Five Biggest Ways To Bungle A Trust." 

(1) Not Keeping Good Trust Records---The Arkansas Trust Code, and presumably trust laws in most if not all other states, contain requirements mandating that trustees provide beneficiaries with accountings of trust assets, income, expenditures, etc.  The timing and extent of those accountings can vary based upon certain factors, including whether one is an income beneficiary or a remainder beneficiary.  However, at all times the trustee is to act in the interest of the beneficiaries, which includes maintaining comprehensive and accurate records.  Trustees who do not keep such records act at their own peril, as gaps and inaccuracies in documentation (even if purely innocent) can create an aura of suspicion and sometimes later liability for breach of trust, breach of fiduciary duty, etc. 

(2) Not Diversifying Trust Investments---Another duty which too often goes unfulfilled is the trustee's obligation to properly diversify trust investments.  Just because the trustee might handle their own investment portfolio in a certain manner does not mean that the investments are being properly handled with regard to the beneficiaries of the trust.  For example, if the beneficiary is an elderly person in need of income, having the trust's assets invested in 100% tech stocks is not likely to be deemed a wise investment strategy.  Arkansas has a Prudent Investor Act which must be reviewed and followed, and it is based upon a well-recognized uniform act that is utilized in many other jurisdictions as well. 

(3) Not Distributing Trust Assets Fairly---A trustee owes a fiduciary duty to current beneficiaries, as well as to remainder beneficiaries.  Sometimes this can create problems when a duty to one conflicts with a duty to another.  Also, sometimes in the case of family member trustees, the trustee is herself a beneficiary (e.g., perhaps the father named his daughter as trustee of his trust after his death, but also named her as a beneficiary like his two sons/her two brothers).  Especially when no trustee fee is involved (see below), we have seen cases in which the trustee is tempted to take extra distributions, etc. as purported justification for being saddled with the extra time and work associated with acting as trustee.  This can be dangerous as it can constitute an actual impropriety, or at least suggest an appearance of impropriety.  It is therefore wise to maintain clear and well-documented records of all distribution decisions.

(4) Not Properly Handling The Trustee Fee---The fact is that administering a trust can involve a lot of work.  It can be very profitable, which is precisely why institutional trustees exist.  Families often do not want to see their assets being consumed in part by the fees of an institutional trustee (notwithstanding some of the advantages to using one), and so often a family member is named as trustee.  The family member, however, might have a time-consuming occupation and/or an active family life.  Adding the trustee duties on top of an already-busy schedule can naturally trigger a desire for some sort of compensation associated with the extra work.  Whatever the trustee fee arrangement is (assuming trustee fees are paid at all), similar to asset distributions discussed above it is wise for there to be a well-documented record of how trustee fees will be paid, when they will be paid, and how they will be calculated.

(5) Not Watching Your Back---A trusteeship has been viewed as involving the highest duty owed another under the law.  It entails a tremendous amount of responsibility, and should not be lightly regarded.  Individuals named as trustee in a trust instrument often view it as an honor, which is fine so long as the trustee treats it as such.  However, money has an uncanny way of sometimes causing people---including trustees and beneficiaries---to engage in actions and behavior which they (and others) perhaps never previously conceived.  Occasionally this will result in nasty disputes between trustees and beneficiaries which can ultimately erupt into actual litigation.  A trustee might innocently take on that "oath of office," so to speak, never imagining that they might someday be mired in stressful, expensive disagreements with once-close friends or family members.  On that note, typically the trustee's dispute is not with the person who named them as trustee (i.e., in a revocable trust situation the grantor of the trust can simply remove or change the trustee)---instead, the fight will frequently be with the children or grandchildren of the grantor. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Family Member Trustees vs. Institutional Trustees

When a trust is formed, one of the many decisions that must be made by the "settlor" (the one who forms the trust) is who will serve as trustee.  The settlor may also select multiple trustees ("co-trustees," who serve with each other) and later ("successor") trustees (who may serve after the original trustee can no longer serve [death, disability, etc.] or for some other reason [resignation, removal, etc. of the original trustee]. 

The selection of trustee is an important one because they have a fiduciary obligation to carry out the terms of the trust and the desires of the settlor.  Because the trustee exercises great power and discretion over money and property, the pros and cons of family member trustees vs institutional trustees should be considered.  Trust disputes often relate back to whom, and how, was selected to serve as trustee.  

FAMILY MEMBER TRUSTEES
Family members such as spouses and children are frequently named as trustees, but this selection occasionally results in trouble down the road due to sibling rivalries and the trustee's lack of knowledge and experience.

Advantages of family member trustees include a familiarity with the beneficiaries, and possibly the trust property as well; and a common willingness to serve with little or no compensation.

Disadvantages of family member trustees include an inability or disinclination to carry out the duties of a trustee; favoritism or unfairness toward certain beneficiaries; the need for a successor trustee at the resignation, incapacity, or death of the trustee; the lack of insurance coverage in case of liability; and tax consequences if the trustee is also a beneficiary.

INSTITUTIONAL TRUSTEES
Institutional trustees include such entities as banks and trust companies, which have their pros and cons as well.

Advantages of institutional trustees include expertise and competence at carrying out trustee duties, such as adherence to the prudent investor rule; impartiality with regard to trust property and beneficiaries; avoidance of the problem of successor trustees; the possibility of additional services such as tax reporting or money management; and sufficient insurance coverage in case of liability.

Disadvantages of institutional trustees include greater administrative costs; a lack of familiarity with the beneficiaries ; and an inability to administer certain types of trust property, such as real estate. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Recent Articles On Alzheimer's Disease, And Trustee/Beneficiary Relationships

There is not much to this post, primarily because the articles referenced below already thoroughly discuss the issues.  Specifically, both articles shed light upon two common problem areas which can often eventually erupt into estate, trust and probate disputes. 

The first article is from the New York Times and addresses the effect of Alzheimer's Disease and dementia upon an individual's ability to control and account for their finances.  Given our aging population and ever-increasing life expectancy, it's recommended reading for everyone as this concern affects innumerable families in this country. 

The second article is from the Wall Street Journal and touches upon the often-tense relationship between trustees and beneficiaries.   It may especially be interesting and insightful for anyone who already acts as trustee or who may eventually act as a trustee in the future.

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Stealing From Grandma And Grandpa---Inheritance Theft

A recent lengthy but interesting series of stories (Part I and Part II) on the odd heiress, Huguette Clark, appeared to prompt a good article yesterday from Bob Sullivan, who covers Internet scams and consumer fraud for msnbc.com.  Mr. Sullivan's posting focuses upon allegations and situations involving elder financial abuse, which is a significant portion of my own law practice.  I suggest that you read the article when you have a free moment, as it extensively summarizes a growing issue in this country and is obviously one in which you may very well have an interest if you regularly read or have merely stumbled upon my Blog.  

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Inheritance Hijackers: Who Wants To Steal Your Inheritance And How To Protect It

At the recommendation of a client, I have recently started reading a fascinating book entitled Inheritance Hijackers:  Who Wants To Steal Your Inheritance And How To Protect It (Ovation Books 2009) written by a Florida attorney named Robert C. Adamski.  The book is primarily written for beneficiaries and potential beneficiaries of an inheritance.  Mr. Adamski's book sets forth an extensive discussion of the growing phenomenon which he calls "inheritance theft," and which of course is a primary component of what I do in my own law practice as well (representation of beneficiaries, but also fiduciaries such as trustees andexecutors, in estate, trust and probate litigation).  "Inheritance theft" is defined on page 2 of the book as "the act of diverting assets from the intended recipient to another person[.]" 

While the book is available for sale at Mr. Adamski's own website, Amazon.com, and I'm sure other places, a good overview of the phenomenon can be found below which is directly from a prior post by Mr. Adamski: 

1.  Who steals inheritances?

Inheritance theft is a crime of opportunity committed by those we place our trust in. These are family members, close associates, care givers and others we depend on as we grow older. Inheritance hijacking is always a surprise to the victim, who never expected a trusted family member or friend to betray their trust.

2.  Who are the victims of inheritance hijacking?

There are always two classes of victims. The first is the person who intended to give the inheritance. The second is the person or persons who were the intended recipient of the inheritance. As we age we are all potential victims because we become weaker in our physical and mental ability. We then are forced to rely upon and put our trust in others. This gives the trusted persons the opportunity to hijack our inheritance.

3.  How are inheritances hijacked?

The hijacker's bag of tricks includes undue influence, duress, forgery, theft by an administrator, marriage, and more. Administrators of probate estates and trusts are common hijackers. They have the opportunity and ability to take advantage. Marriage is the 'Silver Bullet" in the world of inheritance theft because it is all but impossible to overturn a marriage which hijacks an estate. Care givers earn the trust of their victims and as a result are often inheritance hijackers. An important element of inheritance theft is the trust which is gained by the hijacker and later betrayed. Without that element of trust it would be very difficult to hijack an inheritance.

4.  How can I determine if my inheritance is at risk?

Take the Inheritance Risk Quiz at www.ProtectYourEstate.Net to determine the risk to the inheritance you intend to give or the inheritance you expect to receive.

5.  How do I protect the inheritance I intend to give or the inheritance I expect to receive?

Self education and proper estate planning are the first steps. But it does not end there. It is vital to understand how inheritances are hijacked and how to guard against inheritance hijacking. The book, INHERITANCE HIJACKERS: Who Wants to Steal Your Inheritance and How to Protect It, was written to help people protect their families from inheritance theft. Learn more about the book at www.ProtectYourEstate.Net

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I have not yet finished Mr. Adamski's book, but can already tell that I will be recommending it to beneficiary-clients, and potential clients, who anticipate possibly receiving inheritances.  The book contains an immense amount of valuable information for a very reasonable price. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Removal Of A Trustee Under Arkansas Law

My previous blog post generally discussed principles associated with the removal of executors or personal representatives of an estate.  This post is similar except that it analyzes this issue in the context of trusts rather than estates.  Every trustee of a trust, and every beneficiary of a trust, should be aware of these principles as well.  

To remedy a breach of trust under the Arkansas Trust Code, the Court may:

(1) compel the trustee to perform the trustee’s duties;

(2) enjoin the trustee from committing a breach of trust;

(3) compel the trustee to redress a breach of trust by paying money, restoring property, or other means;

(4) order a trustee to account;

(5) appoint a special fiduciary to take possession of the trust property and administer the trust;

(6) suspend the trustee;

(7) remove the trustee as provided in § 28-73-706;

(8) reduce or deny compensation to the trustee;

(9) subject to §28-73-1012, void an act of the trustee, impose a lien or a constructive trust on property, or trace trust property wrongfully disposed of and recover the property or its proceeds, or

(10) order any other appropriate relief. 

See Ark. Code Ann. § 28-73-1001(b).

Also, section 706 of the Trust Code further elaborates on the removal of an trustee:

(a) the settlor, a co-trustee, or a beneficiary may request the court to remove a trustee, or a trustee may be removed by the court on its own initiative.

(b) A court may remove a trustee if:

(1) the trustee has committed a serious breach of trust;

(2) lack of cooperation among co-trustees substantially impairs the administration of the trust;

(3) because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries;

(4) there has been a substantial change of circumstances or removal is requested by all of the qualified beneficiaries, the court finds the removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and suitable co-trustee or successor trustee is available.

See Ark. Code Ann. § 28-73-706(a) and (b) (emphasis added).

So, as one can tell the grounds for removal of a trustee are very broad.  Accordingly, similar to estates, those administering trusts in the State of Arkansas must take their duties seriously so as to avoid placing themselves in a situation in which their actions and inactions could be questioned.  Similarly, beneficiaries of a trust should be vigilant in monitoring the conduct of the trustee to ensure that they are properly doing their job.  In the appropriate case, Arkansas courts have not hesitated to remove trustees where the facts and circumstances warrant it. 

American Bar Association Releases "Legal Guide For The Seriously Ill: Seven Key Steps To Get Your Affairs In Order"

Estate, trust and probate litigation often involves allegations that elderly adults' estate planning desires were not carried out after their deaths (either by someone's intentional acts or negligence), or that those elderly adults were taken advantage of and their estate planning desires were thwarted while they were still living (albeit without their knowledge or consent).  With respect to the latter scenario, sometimes the claims are true, and sometimes they aren't.  Issues of (in)competency, illness, undue influence, and fraud are often raised in these types of proceedings.   Each case is different and we have certainly represented those doing the accusing as well as those being accused. 

But one common theme that I have noticed in virtually all of these cases is that no matter how much estate planning that the elderly person actually did, in virtually every situation they probably could have done a bit more.  It might not have ultimately made a difference with respect to whether or not litigation would have resulted, but where more planning is undertaken that can frequently result in a lesser likelihood of later conflict. 

With this in mind, thanks to a tip on the Wills, Trusts & Estates Blog, the American Bar Association has apparently just released the "Legal Guide For The Seriously Ill: Seven Key Steps To Get Your Affairs In Order."  I've given the document an overview and  would heartily recommend it to anyone dealing with such circumstances (or anyone with a loved one who is dealing with this situation).

UPDATED: Practical Help For Estate Administrators (Executors) & Trust Administrators (Trustees)

One of my very first posts on this blog generally discussed the legal duties of trustees under Arkansas law.  While that post summarized some of the more abstact legal principles at issue, a much more common question posed to me and other attorneys at dinner parties and elsewhere is what are the practical duties of trustees (and, similarly, the practical duties of estate executors, a.k.a. personal representatives). 

With this in mind, a couple of days before Christmas while doing some last-minute book shopping at Barnes & Noble for some friends, I happened to come across one of the best little books that I have seen on the subject.   Specifically, I was somewhat surprised to discover that "Estate & Trust Administration For Dummies" is a great resource for lay persons charged with the responsibility of serving as trustee for a trust or executor for an estate.  Even though I am historically the not-so-proud purchaser of multiple "Dummies" books on various mundane topics which I am too embarrassed to detail here, I must admit that I did not expect much substance when I first cracked open this text on the sparsely-populated "Law" aisle at B&N.  However, much to my surprise there was a tremendous amount of solid, easily understandable information there that---if utilized---should help any trustee or executor more ably and easily perform their duties and reduce the likelihood of future estate, trust or probate litigation. 

So, if you're a current or future fiduciary and have a bookstore gift card that you need to burn through, consider heading over to the probably-vacant leather chairs next to the Law section at B&N and checking out this book.  Considering the expense of this type of litigation, it might be the best 15 bucks that you'll ever spend. 

In closing, thanks for checking out the "Wealth Wars" blog over the first 3-4 months of its existence.  I wish you a happy and prosperous 2010.     

UPDATE:  The Arkansas Bar Association's website also has a free publication that may come in handy as well:  Handbook For Personal Representatives In Arkansas.  It is more of a very broad overview than anything else, but is still helpful since it is Arkansas-specific. 

UPDATED: Sentencing Time In The Ultimate Wealth War: The Astor Family Fortune

As we are in the midst of the holiday season and families all around the world are coming together to enjoy each other's company for a few fun-filled days (or in some cases a couple of miserable hours), it can be a little disheartening to read about (much less write about) another wealth war in the news.  However, this one is pretty spicy, has a celebrity aspect to it (Barbara Walters and Henry Kissinger were witnesses at the underlying trial), and even has some criminal twists and turns. 

Specifically, msnbc.com had an article today which contains one of the more extreme examples of an estate and trust battle.  I was vaguely familiar with Brooke Astor, or rather her last name due to her philanthropy, but became much more interested after hearing and reading of the unfortunate last few years of her life in which she was apparently taken advantage of by her only child.  Mrs. Astor's third husband, Vincent Astor, was a descendant of John Jacob Astor, whose fortune was accumulated in fur trading and real estate.  Mr. Astor was one of the first multimillionaires, and Mrs. Astor ultimately gave away almost $200 million to institutions and was given a Presidential Medal of Freedom for her generosity.  She passed away in 2007 with many more tens of millions in her portfolio. 

According to the msnbc.com article, Anthony Marshall, Mrs. Astor's son, apparently led a successful, well-regarded life until one of his own sons, Phillip Marshall, exposed his father's apparent abuse of his mother (Phillip's grandmother) and her wealth in the course of a 2006 civil suit.  The stealing of her fortune was evidently so bad that the 85 year old Marshall actually was convicted of crimes a couple of months ago after a 5 month long trial and now faces sentencing next week, along with an estate lawyer who was likewise convicted of shenanigans associated with Mrs. Astor's fortune.  The case is rather intriguing given the fact that celebrities such as Whoopi Goldberg and Al Roker have come to his defense and pleaded for leniency from the sentencing judge.  Only time will tell whether he actually receives it, as there were tales told at trial of Papa Marshall engaging in gamesmanship with respect to Mrs. Astor's will so as to benefit him over her favorite charities, stealing her artwork, and giving himself a million dollar raise for his efforts in managing her wealth. 

As a lawyer who has previously worked on many white collar criminal defense matters, I speak from some experience in stating that white collar crime is pretty rarely prosecuted.  The public seems to be more taken aback by crimes of drugs, sex, and violence, and therefore the politicians and the strapped resources of governmental officials are largely dedicated to prosecuting those types of crimes.  White collar crimes are also typically complex, document-intensive, and often go uncovered much less unprosecuted. 

The Astor/Marshall case, however, is one instance in which the facts and circumstances can occasionally be so bad that they warrant more than a civil suit and instead the intervention of criminal investigators.  I do not know why, for instance, stealing $100,000 from a relative by altering some documents is any less of a prosecutable crime than stealing a carton of cigarettes from a convenience store, but for some reason it seems like the latter is much more likely to receive the attention of the law enforcement authorities.  In any event, the Astor/Marshall case contains lessons for lawyers and wealthy individuals alike in ensuring that the estate planning and trust administration processes are as free of hanky-panky as possible. 

UPDATED:  According to msnbc.com, Phillip Marshall was sentenced to 1-3 years in prison, although he may be able to stay out of prison on bail pending appeal.  According to the New York Times, Mr. Marshall's lawyer apparently received the same sentence.

Avoiding Estate, Trust & Probate Litigation

Since one of my areas of practice is estate, trust & probate litigation, it is obviously not in my economic self-interest to counsel against getting involved in this type of litigation in the first place.  However, first and foremost is a lawyer's duty to his or her client, which while sometimes involves filing or defending a lawsuit can also mean trying to avoid that lawsuit altogether.  After all, Abraham Lincoln once advised:  "Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser---in fees, expenses and waste of time."  That is still generally solid advice, although sometimes the fight just cannot be avoided.

That said, U.S. News published a good little article over the Thanksgiving holiday entitled "8 Tips To Avoid Nasty Estate Surprises" which provides some good pointers for avoiding estate, trust & probate litigation.  In summary:

1.  Pick aa reputable, experienced lawyer who has not performed any work for any of the other beneficiaries.  Basically, you want an attorney who knows what they are doing in this area, who does not have a conflict of interest, and who will be representing your interests (only). 

2.  Pick an administrator who can get along with the family, maybe even a professional fiduciary (like a bank trust department) if no one else could practically fill this role.  This is a biggie---oftentimes when one beneficiary is chosen to act as executor or trustee it can cause consternation with respect to the other beneficiaries. 

3.  Talk about your intentions with family members before any will or trust is drafted, in order to preclude surprises and fights after death and making everyone aware of your plans and desires.  Open, honest communication can go a long way toward heading off battles over the family fortune. 

4.  Consider your state's laws and create trusts if necessary to bypass probate if it is particularly burdensome under applicable state law.  Again, our law firm engages in estate, trust & probate litigation---not estate planning---however we can refer you to some reputable attorneys in this area if needed.

5.  Update the will or trust often so that challenges are less likely.  One of the best ways to avoid litigation is to occasionally update your documents---under facts and circumstances (lots of objective, detached witnesses, etc.) demonstrating the absence of fraud and undue influence from others---so that it can be demonstrated you were polishing your estate and trust objectives up until the end your life.

6.  Be sure to title your assets properly so that the assets pass through or outside of probate as you originally intended.  Too many folks spend a lot of money creating fancy trusts and then never do the relatively simple work of actually transferring assets into the trust. 

7.  Think about including a no-contest clause tied to testamentary gifts of a degree sufficient to discourage legal disputes.  To help avoid post-death disputes it is worth possibly including a penalty clause that essentially poses a risk of losing their piece of the pie for any beneficiary who challenges the instrument  in question after your death. 

8.  Consider allowing some discretion with respect to distribution of assets so that beneficiaries can agree to a distribution that best meets their own needs and desires.  There is no one-size-fits-all strategy and of course none of us have a crystal ball, so sometimes providing for some flexibility is often a good practical solution. 

While not a fool-proof plan to avoid estate, trust & probate litigation, the foregoing reflects some good first steps to staying out of the courts with respect to the family fortune.  As we are in the heart of the Thanksgiving and Christmas seasons, I extend my best wishes to you with hopes for a fuss-free next few weeks.

Legendary College Football Coach's Son Sues Stepmom Over Trust Obligations

We're in the heart of the 2009 college football season and the Arkansas Razorbacks are having a better year than last year under second-year Coach Bobby Petrino (thank goodness), although losing against the Florida Gators a couple of weeks ago still stings.  Transfer Ryan Mallett had a fantastic game yesterday against the South Carolina Gamecocks, and it is interesting that his former coach at Michigan, Rich Rodriguez, is having a fairly mediocre year in his second year leading the Wolverines. 

This serves as a nice little segue into my latest blog post about a story involving legendary Michigan Coach Bo Schembechler.  Before passing away in 2006, according to the university's website he coached the Wolverines for 21 seasons and had a winning percentage of .796 overall and .850 in the Big Ten Conference.  Although he was never able to win a national championship while at Michigan, he took the Wolverines to 17 bowl games and won 13 conference titles. 

Given his success as a college football coach, and given the money that head football coaches make at major Division I universities, there is no doubt that Coach Schembechler accumulated some substantial assets over the years.  It appears that there is now a family dispute with respect to those assets, as a recent article discusses how Schembechler's son has sued his stepmother (his father's third wife) in Ohio federal court over her alleged failure to provide quarterly statements about the trust under which he is evidently a beneficiary. 

This is one of the most common types of disputes in trust litigation, because one of the very reasons that people form trusts is because of confidentiality concerns, and yet at the same time the beneficiaries of that trust desire and to some extent are entitled to certain information about the trust (depending upon each state's laws).  It will be interesting to see whether this particular conflict evolves into a larger dispute over trust administration and assets or is resolved quickly once the accounting issue is straightened out.

Modern Recordkeeping Fraught With Potential For Abuse When Individuals Die

An interesting article on msnbc.com from a few days ago sheds light on how modern day estate planning probably needs to catch up with the practicalities of modern day life.  Specifically, the article's author discusses how, years ago, when an individual died the survivors typically conducted a search of the house, papers, safety deposit box, etc. in order to determine and collect information and records regarding the assets and liabilities of the estate.  However, these days much of that type of information is not stored in "hard copy" form but rather on a computer, typically protected by a password and known only to the person who just passed away.  One never knows when they will breathe their last breath, of course, and often the decedent never shares their password with another family member, friend, or trusted legal or financial advisor.

As a lawyer who does not engage in estate planning but instead represents clients in estate, trust and probate litigation matters, I believe that the increasing use of digital record keeping is fraught with potential abuse.  Specifically, while most fiduciaries are honest and trustworthy, I have worked on many lawsuits in which shady estate and trust administrators are alleged to have destroyed, concealed, or otherwise failed to produce documents to beneficiaries.  When such records are never even printed out but rather are kept only in digital form, the beneficiaries' discovery of such matters can seemingly be made even more difficult if not impossible.  After all, in some ways it can be easier to manipulate digital data than a hard copy.  So, while computers can no doubt increase the efficiency and accuracy of diligent decedents and honest estate and trust administrators, it basically comes down (as it always does) to a universal truth---people who are inclined to cheat can probably find a way to do it.   

Statute Of Limitations For Breach Of Trust Suits Against Trustees

A couple of the most frequent questions in estate, trust, and probate litigation are:

(from trust beneficiaries)  "How long do I have to sue a trustee for breach of trust?", and

(from trustees or potential trustees)  "How long must I be concerned about potentially being sued for an alleged breach of trust?"

The Arkansas Trust Code (at Ark. Code Ann. Sec. 28-73-1005) addresses this issue and generally provides for two possible limitations of action:  (1) a shorter period when the trustee discloses the existence of a claim; and (2) a longer period if the trustee does not make a disclosure.

Basically, if the trustee discloses sufficient information to put the beneficiary on notice that they may have a potential claim, the beneficiary has one year after the date of the disclosure in which to bring suit.  Absent such a disclosure, the beneficiary has five years after the first to occur of: 

(1) the removal, resignation, or death of the trustee;

(2) the termination of the beneficiary's interest; or

(3) the termination of the trust

 in which to commence a claim against the trustee for the breach.

One question that does not appear answered by this statute (or any cases which so far have interpreted the statute) is whether the statute of limitation for breach of trust can be "tolled," or suspended, in situations where the trustee has engaged in fraudulent concealment.  If there has been concealment, Arkansas courts have generally held in other contexts that the statute of limitations does not begin to run until the person having the cause of action discovers the fraud or should have discovered it by the exercise of reasonable diligence. 

Eventually the Arkansas Court of Appeals or Arkansas Supreme Court will, once and for all, specifically decide whether or not the doctrine of fraudulent concealment also applies to the statute of limitations set forth in the Arkansas Trust Code.   Perhaps in doing so they can shed light on what statute of limitations, if any, applies to breaches of trust that are not governed by the Arkansas Trust Code (which only came into effect on September 1, 2005). 

No Breach Of Fiduciary Duty In Unique Trust Lawsuit

The Arkansas Court of Appeals recently ruled in an interesting case that a trustee's encumbrance of trust property did not, under the specific circumstances involved in the dispute, constitute a violation of the trustee's fiduciary duties.  Ordinarily such actions are looked down upon, but this case is an instance in which the unique facts involved apparently warranted a slight departure from the general rule.  

Specifically, on September 9, 2009, the Arkansas Court of Appeals issued its decision in the case of Hanna v. Hanna, #CA08-1256, which was an appeal from Washington County Circuit Court.  The ex-wife had sued her ex-husband for self-dealing, breach of fiduciary duty, and mismanagement of assets in their children's trusts.  The ex-wife had received a $16 million divorce settlement, and the ex-husbanddirected his chief financial officer to form a plan to gather the money (the couple had owned a successful candle company and several other entities) . 

Long story short, the ex-husband obtained loans to raise the funds and also used company assets as collateral for loans to company officers totaling $3 million.  The ex-wife brought the above-described claims against the ex-husband, and he defended arguing that he had not known it was wrong and that he had done it in the best interest of the children.  In doing so the ex-husband offered evidence that it was to the company's advantage that he settle, which he could only do by pledging company assets, and that the bank would not have funded the loan absent using company assets as collateral. 

Ultimately the trial court declined to award damages to the trusts or set aside the loan transactions, but did order the ex-husband to remove company assets as collateral for the officers' loans totaling $3 million.  The Arkansas Court of Appeals affirmed the trial court's decision, holding that this was not a situation in which a trustee was using trust assets solely to pay for his divorce settlement, nor was it an instance in which the trustee's actions failed to benefit the trusts.  The Court instead ruled that the parties to the lawsuit, the companies, and the trusts were all intertwined, and that the ex-husband's actions to carry out the divorce settlement in effect protected them all.  The Court did make clear, however, that its ruling was "confined to the particular circumstances of this case and should not be read to permit a trustee to encumber trust property in the absence of extraordinary circumstances."

General Duties Of A Trustee Under Arkansas Law

Clients and potential clients---whether a beneficiary of a trust or perhaps even the trustee of a trust---often ask about the duties of a trustee under Arkansas law.  This is a very broad question and cannot be done justice in a single Blog post.  

However, in general (unless the trust specifically overrides the general requirement) a trustee is charged with:

---A Duty To Obey The Grantor (while the trust is still revocable the duties of the trustee are owed to the grantor, and the trustee may generally follow a direction of the grantor even if it is still contrary to the trust's terms)

---A Duty Of Administration (to administer the trust in good faith, according to the trust's terms and purposes and the interests of the beneficiaries);

---A Duty Of Loyalty (perhaps the most important duty, which includes putting the interests of the beneficiaries above the interest of the trustee or any third party);

---A Duty Of Impartiality (whenever the trust has two or more beneficiaries, to act with impartiality with regard to the investment, management, and distribution of the trust property);

---A Duty Of Prudent Administration (regardless of whether the trustee receives compensation, to administer the trust as a prudent person would in light of the purposes, terms, requirements, and other circumstances of the trust);

---A Duty To Control And Care For Trust Property (to collect and insure trust property, pay debts and hire caretakers if necessary, keep adequate records, keep trust property separate from the trustee's own property, enforce claims of the trust, defend claims against the trust, not allow beneficiaries to use trust property unless otherwise allowed, etc.);

---A Duty To Report (to provide information about the trust in general, the trustee, the trust's existence, the trustee's compensation, the assets and liabilities, etc.; keep in mind that this duty may only come into effect once the grantor of a revocable trust is deceased or deemed incompetent);

---A Duty Of Confidentiality (trustees have been charged with the responsibility to keep trust matters, including the terms of the trust, the nature of the trust's assets, and the identity of beneficiaries, confidential unless waived by the terms of the trust or required by law);

---A Duty To Administer The Trust In An Appropriate Place (while the trustee can move a trust's primary place of administration, the trustee is under a continuing duty to administer the trust in a location that is appropriate in light of the trust's purposes, administration, and interests of the beneficiaries); and

---A Duty To Use Reasonable Care To Prevent Cotrustees From Breaching The Trust, And To Obtain Redress If A Breach Is Committed (this basically means just what it says---if the first trustee has a cotrustee [second trustee] and that second trustee is violating their fiduciary duties, the first trustee has an obligation to take reasonable action to prevent further harm).

A trustee's duties have been stated in different ways, but the foregoing is a fair summary of the trustee's primary obligations under Arkansas law.  Again, the terms of the trust itself can override some of these duties, which is why it is extremely important to read and understand the actual language of the trust instrument.  All of these issues will be examined in more depth in later Blog posts.