Amendments To Wills And Trusts Can Result In As Many Or More Disputes As The Original Documents Themselves

Often estate and trust litigation revolves not around the will or trust itself, but rather changes to those instruments (a codicil to the will, an amendment to the trust, etc.).  That was the case in the recent appeal of Harbur v. O’Neal, et al., 2014 Ark. App. 119 (February 19, 2014).   The matter involved numerous issues, but one of them entailed the question of whether or not certain amendments to a trust were valid.  

Frequently the settlor of a trust has a legitimate reason for wanting to amend their trust.  Perhaps they want to change a successor trustee, remove or add a beneficiary, alter the trust’s assets, or there could be any number of other reasons why the trust may need to be amended.  However, it is important that the settlor of the trust amend their instrument with the competence to do so, of their own free will and volition, without being coerced, and without undue influence by someone else.  That was one of the disputes in the Harbur case.

Specifically, like so many cases that I handle and so many estate and trust litigation matters in general, this lawsuit involved battling siblings and children of the trust settlor.  One of the litigants, Jeanne, was found to have performed every step of obtaining information regarding a first trust amendment, she actually prepared the amendment, she produced and finalized the document, and she also benefitted from the amendment. 

The trial court held that because these facts supported a conclusion that Jeanne procured the trust amendment, a rebuttable presumption of undue influence arose and the burden of proof shifted to Jeanne to prove beyond a reasonable doubt that her mother had both the mental capacity and freedom of will at the time she executed the trust amendment.

Likewise, Jeanne also testified that she prepared a second trust amendment for her mother’s signature as well.  This amendment made Jeanne the sole beneficiary of the trust upon her mother’s death, and made Jeanne’s children sole beneficiaries of the trust if Jeanne did not survive her mother. 

Similar to the reasons stated for finding procurement with regard to the first trust amendment, the trial court also found that Jeanne had procured the second amendment.  The appellate court affirmed these rulings holding that there was overwhelming evidence of procurement, including but not limited to Jeanne’s own testimony.

A number of lessons can be learned from this case.  For example, this appeal demonstrates that the settlor’s intent should control and they should be able to dispose of their property as they wish, without coercion or undue influence from anyone.  If and when they do want to amend the trust, they either need to do it by themselves or preferably with the assistance of a trusted attorney who is acting solely in their interest and whom is independent from the beneficiaries. 

Further, a beneficiary should consider not preparing the trust amendment, even at the request of a settlor, because that beneficiary may be risking the validity of the very amendment from which they would benefit if someone attempts to set aside the trust amendment based upon procurement, undue influence, coercion, and the like.

In sum, amendments to wills and trusts are fertile ground for estate and trust litigation because frequently the changes are executed many years after the original documents are signed.  Amendments can, in a very short and sweeping document, fundamentally change the intent of the original estate planning documents and the assets disposed of by those documents.  Such amendments are sometimes signed in haste or at a point in the deceased person’s life when they may not fully understand or appreciate the nature of what they are doing (assuming the settlor signed the amendment(s) at all). 

With the stroke of a pen, millions of dollars and valuable real or personal property can be inherited by or administered by persons other than those initially envisioned by the original instruments.  For these reasons, as much or even more care should go into the preparation and execution of the amendments as go into the original versions.  Similarly, as much or more scrutiny should be paid to the preparation and execution of these amendments as was paid to the initial documents.

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.

Arkansas Court Of Appeals Affirms Agreement To Split Joint Accounts Despite Beneficiary Designations

 There is often confusion regarding what property falls within an estate, or trust, and what property falls outside of either.  For example, commonly bank accounts, IRA’s, etc., are titled in such a way that upon one person’s death, the remaining monies are left to the other person or person(s) identified on the account paperwork such that this property passes outside the estate or trust.  It can often be a difficult task to demonstrate that this money should be divided in a different manner.

 However, the Arkansas Court of Appeals recently affirmed a trial court’s ruling that this was what was supposed to occur, in the case of Richardson v. Brown, 2012 Ark. App. 535 (September 26, 2012) stemming from Faulkner County Circuit Court.  This was actually a case that I handled on behalf of a client, and the Judge ruled in his favor.  The ruling was left wholly intact by the appellate court.

Without going into too much detail, the parties' mother passed away leaving three children as her heirs.  Certain property passed to the children pursuant to a will, but the mother had other property (a car, bank accounts, IRA, etc.) that were titled in various ways as between her and her individual children.  Our client argued that despite the titling on the various property, the three children had in fact an oral agreement, as demonstrated by the later actions and conduct of the children, to split all of the properties evenly.  He had received the “short end of the stick” and, basically, believed that his sisters had intentionally deprived him of his equal one-third share.

 In a hard fought battle, our client ultimately prevailed at trial and proved that, notwithstanding the titling on the various properties, there was an express agreement among the siblings to equally divide the various accounts.  The trial court imposed a judgment and a substantial attorneys’ fee award, both of which were affirmed by the Court of Appeals.

 In doing so, among other things the Court ruled that ordinarily ownership of a joint bank account with a right of survivorship is conclusive proof of the parties’ intent for the property to pass to the survivor.  However, this general rule does not prevent the survivor from making a different disposition by agreement, and in this case the trial court determined that such an agreement had in fact been made among the siblings.  This is a difficult argument to make, because courts presume that the titling on an account is strong evidence of how that property is to be distributed.  But, if the facts and evidence warrant it, this case demonstrates that a court will sometimes hold that an agreement to divide the property otherwise will prevail over the titling of an account.

 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.

Arkansas Court Of Appeals Rules Dying Woman Not Competent To Execute Deed

Sorry for no posts as of late---I've been tied up preparing for, and then engaged in, a lengthy trust litigation case in which the jury, after a 6 day trial in Pulaski County Circuit Court, returned a significant verdict for our clients.  I'm just now trying to catch up on other work, but hope to resume regularly updating this blog again soon. 

One case that I read about since my last blog post demonstrates that although it is difficult to prove the invalidity of a deed, will, trust, etc. by proving that the person signed the will was not competent (whether due to mental illness, undue influence, duress, etc.), occasionally such claims are successful.  For example, in Munzner v. Kushner, 2010 Ark. App. 196 (an appeal from Washington County Circuit Court), the Arkansas Court of Appeals affirmed the trial court's ruling that a deed transferring property was invalid due to the incapacity of the grantor.

Specifically, a mere 36 hours before her death, Mrs. Kehoe executed a deed conveying her home to her brother, Mr. Munzner.  Mrs. Kehoe apparently had to sign the deed with an "X" as she was too weak to finish the signature of her name when she lost her place.  Her daughter, Ms. Kushner, sued asserting the invalidity of the deed.

At trial, Mrs. Kehoe's doctor testified that just prior to her death she had been administered morphine (utilized for severe pain and suffering), a medication that fights anxiety and sedation, a medication which causes confusion, and a powerful narcotic.  The doctor testified that it would be ill-advised to make any life decision while taking any of the medicines and that they would have impaired her ability to make decisions related to her property. 

On the other hand, friends and relatives who spoke to Mrs. Kehoe that day testified that she was competent.  Moreover, Mrs. Kehoe's attorney, who spoke to her about the deed on that day, also stated that she was competent. 

After considering all of the evidence, the trial court ruled that because Mr. Munzner was Mrs. Kehoe's brother and she had a close confidential relationship with him, he had the burden of proving that his sister was competent to make the deed.  This was especially the case in light of the lack of any consideration (exchange of money or property) for the deed.  The trial court then found that Mrs. Kehoe had been too mentally impaired to execute the deed and ordered it set aside.

Mr. Munzner appealed but the Court of Appeals affirmed.  Specifically, the Court held that Mrs. Kehoe's mental impairment was debilitating to the point that she could not function appropriately to execute the deed regardless of whether she may have been exposed or susceptible to any undue influence.

Under Arkansas law, the determination of whether a deed is void because of the mental incapacity of the grantor is generally measured by her mental ability at the time of execution of the deed.  Andres v. Andres, 1 Ark. App. 75, 83, 613 S.W.2d 404, 409 (1981).  If the grantor is mentally competent at the time that the deed at issue is executed, the deed will be deemed valid.  Id.  In this case the Court held that Mrs. Kehoe's mental impairment was so debilitating that she was unable to function in a capacity to execute the deed, due to her medication and due to her medical condition.  Because the trial court placed great weight upon the physician's opinion, and because a trial court generally has great discretion with respect to considering the credibility of the various witnesses who testify at trial, the Court of Appeals did not find that there was sufficient reason to reverse the trial court's ruling.   

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.

Arkansas Court Of Appeals Rejects Cousin's Attempt To Set Aside Gifts To The Decedent's "Yardman"

One common thread running throughout this blog since its inception has been the issue of competency, i.e., the ability of a person to make informed decisions.  Conflicts often arise when ill or elderly people are claimed to have made signficant decisions regarding disposition of their property shortly before they died---sometimes the decision will be legitimate, the culmination of some long, thought-out plan that just never was memorialized on paper until shortly before their death---whereas sometimes the "decision" will be illegitimate, the product of undue influence or overreaching by a dishonest relative, family friend, or advisor.  Whatever the facts and circumstances, it can be difficult to prove that the person did not have competency to make the decision that they purportedly made.  A recent Arkansas Court of Appeals decision demonstrates that the outcome of these disputes usually boils down to the specific evidence that was presented to the trial court, and ultimately what evidence that the trial court found to be the most credible. 

For example, on March 3, 2010, the Court of Appeals ruled in the case of Deslauriers v. Marilyn Irene Deslauriers Revocable Trust, 2010 Ark.App. 211.  An appeal from Lonoke County Circuit Court, the appellant (Killeen) attempted to invalidate certain documents (quitclaim deed, revocable trust, will, etc.) executed by her cousin, the deceased, during and after her 2005 stay in a hospital due to a stroke.  As a result of those documents, the appellee (Richard, the deceased's "yardman") received the bulk of the cousin's estate.  Killeen filed suit after the cousin's death to contest the validity of the documents in question, contending that the cousin was not competent to execute them due to her medical condition. 

Under Arkansas law, the party contesting the validity of a will generally has the burden of proving, by a preponderance of the evidence ("more likely than not"), (1) that the decedent lacked mental capacity at the time the will was executed or (2) that the decedent was acting under undue influence.  The Deslauriers Court affirmed the trial court's ruling that the cousin attempting to set aside the documents did not satisfy that burden. 

Killeen presented the testimony of multiple doctors who had treated the deceased around the time of her execution of the documents, and they all testified  that she suffered from dementia and would purportedly be incompetent to sign the documents (though they were admittedly not in attendance at the signing).  Medical records also demonstrated a range of impairment (from mild to severe) at different times during the relevant time period.  Killeen likewise presented the testimony of two non-medical witnesses, one of whom contended that  the deceased was mentally incompetent (in their experience) and both of whom testified that the deceased intended to keep her property "in the family."

Richard presented the testimony of the lawyer whom the cousin used to prepare the documents in question, and he testified that he was very careful to determine whether his client was legally competent to execute the documents.  The attorney also testified that he had been hired to prepare a power of attorney so that Killeen and Richard could be placed in charge of the deceased's business affairs, and that Killeen herself believed the deceased to be an odd person but very competent.  Two other witnesses also testified, in a manner favoring Richard's position, to the extent that they were disinterested employees working at the hospital where the deceased was treated and they observed her as competent when they witnessed her signing of the will.   Richard also offered other evidence in the form of the attorney testifying that he met with the deceased several times after her initial execution of the documents, and in the  form of a doctor who treated the deceased remarking that he was impressed how mentally capable (though not physically capable) she remained after her stroke.

In sum, the trial court concluded that the cousin did not prove incompetency and that the deceased was sufficiently competent at the time that she executed the documents.  The Court of Appeals affirmed, holding that while proof of medical condition around the time of the execution of the documents is relevant and important, ultimately the medical condition at the time of execution is paramount.  The Court seemed to attach particular significance to the testimony of the witnesses who were actually in the room when the decedent signed the documents in question.  Observing that it is possible for a testator to execute a document during a "lucid interval" in a period where they may otherwise be incompetent as a general matter, the case generally demonstrates the difficulty that a party can have in attempting to prove a testator's   incompetency. 

Court Rules Testator Was Not Under Insane Delusions When He Revoked His Will

It has been estimated that well over 1/2 of all Americans do not have a will.  I personally know many attorneys that do not even have a will, even though virtually every Arkansas lawyer passed a bar examination covering wills and trusts and more than likely also took a decedents' estates class in law school.  Whether because of not wanting to confront the inevitable (death), procrastination, or other factors, drafting a will is simply not high on the list of priorities for a large percentage of people. 

A primary reason why people do have a will, however, is to have direction and control as to whom their property will be distributed after their death.  Dying without a will is called dying "intestate," and the intestacy laws of the State of Arkansas set forth a rather strict statutory scheme detailing how a person's property will be divied up (to children, descendants of children, surviving spouse, parents of the decedent, etc.).  If a person does have a will, but then validly revokes it without ever executing a new one, then that person will "die intestate" as well.

That is what happened in the recent appeal of Heirs of F.D. Goza, Jr., et al. v. Estate of William E. Potts, Deceased, CA 09-235 (February 17, 2010).  Specifically, this was a probate case in which the former in-laws of the decedent, Mr. Potts, were attempting to take their shares as beneficiaries of a 1989 will which, the estate asserted, was revoked sometime between 2002 and Mr. Potts' 2006 death.  The appellants, relatives of Mr. Potts' deceased wife, Ms. Goza, argued that Mr. Potts lacked testamentary capacity and was under insane delusions when he revoked his will.  The trial court disagreed, ruled that Mr. Potts died intestate (meaning that Mr. Potts' property amounting to several hundred thousand dollars went to persons other than the appellants), and the Arkansas Court of Appeals affirmed. 

The facts and circumstances surrounding Mr. Potts' revocation were interesting to say the least, and involved Mr. Potts marking "void" over each paragraph, writing "bastard" and "get nothing" on the will, applying Liquid Paper over the names of the beneficiaries, and later shredding the document in front of witnesses.  There were tales of alleged affairs and "wife stealing," temper tantrums, and other curious claims, but in the end the Court held that "the evidence clearly showed that Bill was an irascible, angry, suspicious, controlling, profane, and difficult man for most of his adult life; however, we cannot say that the trial court erred in refusing to find that he labored under insane delusions."   

The lesson learned from this case is that not only must a testator have the capacity to execute a will (the ability to understand the effects if executed), the testator much also have the same capacity to later revoke that will after it has been executed.  As the Court held, "complete sanity in a medical sense is not essential to testamentary capacity, provided power to think rationally exists."  Given the steep standard for proving lack of capacity by a testator, contesting a will (or, in this case, a will revocation) can be a difficult task in the absence of very persuasive evidence.    

Court Rules Handwritten Note Found By Deceased's Mother Did Not Result In Change Of IRA Beneficiary

As previously discussed on this Blog, a common fact scenario in estate, trust and probate lawsuits involves an eleventh-hour change in a dying person's final wishes regarding their property.  Quite often the last-minute decision appears legitimate, although occasionally there is an aura of suspicious facts and circumstances surrounding the event which arises to the level of an "inheritance theft."  Frequently the change in question is expressed in the form of a handwritten note, and courts are commonly called upon to rule whether or not such "wishes" will actually be  enforced.

On January 27, 2010, the Arkansas Court of Appeals addressed a somewhat similar situation in the case of Nunneman v. Estate of Donald T. Grubbs, et al, Case No. 2010 Ark.App. 75.  Specifically, Mr. Grubbs had named Ms. Nunnenman as beneficiary of his IRA, and a few days before his death evidently called a lawyer to his hospital bed and executed a will, leaving all of his property to his mother, Ms. Grubbs.  She then asked the Court to freeze certain IRA monies contending that she had discovered a 2005 note in Mr. Grubbs' bible which stated:  "My Will.  I Donnie Grubbs want all of my estate All IRA and any SBC Telco and all other assets and worldly goods to go to my Mother Shervena Grubbs.  Being of sound mind.  Donnie Grubbs."  Ms. Grubbs alleged that she had found the note in the presence of a coworker, but that witness claimed that she had not known of the note's existence before the trial. 

After considering the evidence, the trial court ruled that the handwritten note should have the effect of changing the IRA beneficiary.  Ms. Nunnenman appealed and the Arkansas Court of Appeals reversed the trial court, ruling that it was clear error to find an effective change of the IRA beneficiary.  Specifically, the Court pointed to the conflicts in the testimony regarding the discovery of the note and also focused upon the fact that the very person who discovered the note was the same person who would end up benefitting from its discovery.  The Court also opined that it was significant that while Mr. Grubbs had undertaken steps to call a lawyer to come to his bedside, he had not taken similar measures to change his IRA beneficiary. 

In sum, this case is a good example of the heavy burden that a party has when attempting to prove a change in property disposition by means of a handwritten document.  As a general matter the Court will need to be presented with a strong showing of evidence before favorably considering such a request. 

Arkansas Court Of Appeals Affirms Trial Court's Ruling In Will Contest

Earlier this month the Arkansas Court of Appeals ruled in an appeal from the Crawford County Circuit Court that the trial judge did not err in denying a motion to dismiss and finding that the statutory formalities for execution of a will had been satisfied.  Specifically, in Baxter v. Peters, No. CA 09-594, a dispute arose between the executor of the grandmother's estate and the grandchildren.  The grandmother apparently left nominal gifts of money to the grandchildren and the bulk of her estate to the National Cemetery in Fort Smith, Arkansas.  Presumably the grandchildren were hoping for a larger inheritance if the will in question was not deemed to be valid, and in any event a will contest followed.

At trial the probate court heard conflicting testimony on the issue of whether the will was witnessed with the appropriate number of witnesses (the parties did appear to stipulate that the will in question was in fact signed by the grandmother).  Questions had been raised since the attorney who prepared the will had apparently been in the habit of sometimes not calling in all of the witnesses when the will was being signed (the attorney's own son, for example, evidently testified that he practiced law with his father for a few years and that occasionally witnesses would sign wills outside the presence of the testator).  Ultimately however, the trial court concluded that the signing of the will had been proven according to the statutory formalities. 

While the case is not groundbreaking in the sense that it creates a new rule of law, it is nevertheless instructive because it serves as a careful reminder that testators and their attorneys should be extra careful to ensure that all of the prerequisites for signing a will have been followed (e.g., the will should be in writing, actually signed in front of witnesses, and witnesses should also sign in front of the testator and at their request, etc.).  The fact is that circumstances surrounding the signing of wills and trusts can often be suspect, and those who get sloppy about complying with the statutory requirements are proceeding at their peril as---many years later---estate, trust and probate litigation can ensue long after their deaths. 

Questions About Notarized Document Result In Reversal Of Trial Court's Ruling

More times than I can count since I started practicing law, I have been involved in lawsuits in which the authenticity of a signature on a document was a primary disputed issue in the case.  Whether our law firm was representing the plaintiff who was suspicious of a signed document, or instead representing the defendant who was insisting upon the validity of a signed document, many of these situations entailed questions over how and/or when a notary public witnessed a person's signature.  The types of documents involved (e.g., wills, trusts, deeds, contracts, etc.) is as varied as the types of alleged misconduct (e.g., never actually witnessing the signature, backdating a document, failing to properly identify a signer, willfully stating as true a material fact known to be false, etc.).  Make no mistake---there are laws governing notaries and their actions, but for some reason often many notaries can get somewhat loosey-goosey regarding their obligation to strictly follow the letter of the law.

In any event, on October 22, 2009, the Arkansas Supreme Court intervened in such a dispute and reversed a trial court's ruling that a power of attorney transferring real property was valid.  In Jones v. Owen, 2009 Ark. 505, an appeal from Sebastian County Circuit Court, the Court considered a case involving disputed land, a father's will, and that father's power of attorney.  You can guess what happened, of course . . . the will said that the land went to X while the power of attorney ultimately resulted in the land being  conveyed to Y.  Litigation ensued and the trial court ruled that the power of attorney was valid.

In overturning that decision, the Arkansas Supreme Court concluded that the power of attorney was not valid and did not authorize the property to be transferred.  Specifically, in this instance the power of attorney was apparently acknowledged by a notary public prior to the decedent ever signing it.  That is, the notary public had signed the acknowledgment and left the date blank, which was later filled in by the attorney handling the transaction.  The Court ruled that in some circumstances a signature could be notarized without the notary public physically being there to witness the signature (e.g., after signing a grantor can appear before a notary and acknowledge his signature, a grantor can acknowledge his signature via a telephone call with the notary, etc.).  However, if the grantor never appears to acknowledge his signature, but the notary falsely certifies that the grantor did appear, then the acknowledgement will be deemed void. 

Moral of the story:  Notaries have a tremendous amount of power, as they add a significant measure of validity to the execution of documents which record major financial transactions and carry out a person's final wishes regarding their property.  Those powers should not be exercised carelessly, much less fraudulently.  Jones v. Owen appears to be a clear message from the Court that it will require notaries to strictly comply with their  legal duties, and that the Court will not hesitate to set aside transactions when warranted under the facts and circumstances.

Newly-Discovered Assets In Old Estate Result In New Litigation

A recent decision from the Arkansas Court of Appeals in Ellingsen v. King, 2009 Ark. 655 (October 7, 2009) illustrates how some long-forgotten but newly-discovered property can often send family members and creditors scrambling for their piece of the pie.  This interesting case involved Mr. McAlexander, who died in 1988 a resident of Shelby County, Tennessee.  An domiciliary probate estate was opened in Tennessee, and an ancillary probate estate was opened in Arkansas.  Mr. McAlexander's creditors did not file a claim against the ancillary estate in Arkansas, and its known assets (a fractional mineral interest to 85 acres of land in Conway County, Arkansas) were transferred to the Tennessee estate, such that the Arkansas estate closed in 1990.  In 1991, a Tennessee probate court concluded that the estate was insolvent and approved a plan of distribution to the estate's three creditors (the United States of America [60%], a bank [20%], and Mr. McAlexander's widow [20%]), before the estate was closed in 1996. 

A decade went by and in 1996 it was discovered that Mr. McAlexander had actually also held an interest in the mineral rights to approximately 4800 additional acres of land in Conway County, Arkansas, which everyone in Arkansas now knows is in the heart of the booming Fayetteville Shale natural gas play.  The ancillary estate in Arkansas was reopened but none of the creditors filed a claim.  In 2007 the Arkansas trial court authorized the executor of the estate to execute an oil and gas lease that included a cash bonus in excess of $1,000,000.00. 

At that point, of course, it appears that people came out of the woodwork to claim the money.  Specifically, the executor asked the trial court to determine the rights and interests of the creditors who had filed claims agains the Tennessee estate.  The trial court granted summary judgment in favor of the creditors, with the end result being that Mr. McAlexander's five daughters receiving nothing under the trial court's order.  On appeal, the Arkansas Court of Appeals noted that while there was no evidence to indicate that the creditors properly presented their claims pursuant to Arkansas law, under Arkansas law when an estate is deemed insolvent it is still possible in some circumstances for such creditors to be paid a portion of their claim.  While the Tennessee court had long ago held that the estate was insolvent, that finding was made before the assets at issue were discovered such that the Arkansas Court of Appeals reversed the trial court's summary judgment for factual findings as to the solvency of the estate in light of the newly-discovered assets.

I cannot help but think that in the coming years we will see many more stories like this, as people dust off old deeds and other documents only to discover that they possess mineral rights in North-Central Arkansas land that they never dreamed would become a profit-producing property.

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."