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Archive for the ‘Rights of beneficiaries’ Category

               I have long been interested in demographic trends, emerging technologies, cultural changes, and shifting societal patterns.  For example, about 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 laymen 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 skills 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.

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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.

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          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.

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In a middle-of-the-night deal during jury selection of a New York trial, it appears that a settlement has been reached in the infamous Huguette Clark estate dispute.  You can read all about it at this link.  I had written about this over 3 years ago back in August 2010 at this link.  This litigation serves as a very interesting case study in undue influence allegations and other issues commonly associated with estate and trust disputes.  A more comprehensive overview of the stories, videos, and other coverage of this saga can be found at this link.

          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.

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               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.

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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.

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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 rivaliries 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.

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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.

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Lawsuits are not the only way to resolve disputes, and arguably are not even the best way.  Litigation can be financially expensive, time-consuming, and emotionally tolling.  Especially in the context of estate, trust and probate litigation, the disputes often involve persons who know each other, including relatives, friends, and business associates.  Accordingly, in addition to the expenditure of money, time and emotions, litigation can sometimes involve harm to the relationships between the litigants. 

 

Because of the foregoing concerns, different types of alternative dispute resolution have been developed over the years.  One of these methods, in particular, is conducive to the issues arising in inheritance-related disputes.  Specifically, mediation generally involves a third party called a “mediator” who is specially trained to attempt to bring the adverse parties to a compromise and settle their differences.  Unlike the judge or jury, or an arbitrator, a mediator does not resolve the dispute for the parties but instead aims to facilitate a final resolution that the parties reach on their own.  There are many such mediators in Arkansas (e.g., Hamlin Dispute Resolution, ADR, Inc., etc.), and we have successfully used them in the past on behalf of our own clients.  A good article in the New York Times this weekend also discusses mediation in the elder law context. 

 

A simple fact is that the death of a loved one is already a stressful experience.  If, for example, that person’s estate is perceived to not have been distributed in the manner in which that decedent intended (or perhaps in a way in which a would-be recipient originally anticipated it), long-simmering feuds can rise to the surface and minor misunderstandings can erupt into major conflicts.  Occasionally it’s too late, but the relationships of the persons involved can frequently be maintained, and their disputes ultimately resolved,  by mediation.  Drawn-out court battles can be avoided or at least minimized, and the money and property in dispute can be preserved instead of exhausted on the litigation process.  Mediation is confidential as opposed to occurring in the public eye, can be scheduled by the parties at their convenience rather than subject to the limited openings in a Court’s docket, and takes place in a neutral conference room rather than in an often-intimidating courtroom. 

 

Not every dispute is ideal or appropriate for mediation, but it can and should be considered as an alternative method of dispute resolution.  

 

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.

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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.

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