MAY 25, 1998 VOLUME 5, NUMBER 47
Living Trusts are a popular estate planning device. Frequently seniors choose to transfer assets to living trusts to avoid probate court and the problems associated with the probate process, including public disclosure of assets, expenses of administration and the possibility of outside control of personal matters.
In addition, it is often easier to take advantage of simple estate tax reduction methods by using a living trust than by simply executing wills. This is particularly true for married couples, who often transfer assets into a living trust which divides into two shares on the first death. Typically, one of those shares becomes a separate, irrevocable trust, though it often pays all of its income to the surviving spouse for his or her life. Still, in order to gain the maximum estate tax benefit, it is necessary to accept some limitations on the use of some of a couple's assets on the first death.
Of course, most people recognize that a living trust is not a guarantee that courts will be avoided. Even well-made plans sometimes go awry. Take, for example, the estate plan of Robert and Lillian Wilcox, who lived in Prescott, Arizona.
Mr. and Mrs. Wilcox owned a majority of the stock of a development company, Prescott Properties, Inc. In an attempt to minimize estate taxes and avoid probate, they transferred their interest in Prescott Properties into a living trust which provided that it would divide into two shares on the first death. To help ensure the continued survival of the business, they named three business associates as co-trustees (with themselves) over the trust's assets. Then, in mid-1995, Robert Wilcox died. He was replaced as one of the trustees by another business associate.
Less than a year later, Mrs. Wilcox became unhappy with her co-trustees' management of the trust, and decided to amend the trust to make her son trustee. Because there was some ambiguity in the language of the trust (it was not clear whether she retained the power to change trustees), she decided that she would need to go to court to have the amendment ratified.
Not surprisingly, the remaining trustees took exception at Mrs. Wilcox' decision to amend the trust. They objected to the proposed amendment, and settled in to fight her over the issue. In order to prevent them from managing the trust assets in the meantime, she filed a separate court action seeking to enjoin them from taking any action as trustees until resolution of her first lawsuit.
The local court held three days of hearings on Mrs. Wilcox' requests, and ultimately agreed with her. The trust was amended, and the business associates were ordered not to take any action as trustees. They appealed both orders.
The Arizona Court of Appeals agreed with the lower court (and Mrs. Wilcox) on both counts. The appellate court dismissed arguments that the other beneficiaries of the trust (Mrs. Wilcox' children, grandchildren and great-grandchildren) had not gotten sufficient notice of the proceedings, noting that the beneficiaries themselves had not objected. Other technical objections were also brushed aside, and Mrs. Wilcox was permitted to amend the trust and remove the business associates as trustees. Wilcox v. Ebarb, March 26, 1998.
Although Mrs. Wilcox ultimately prevailed, the irony is that she ended up in court twice and paying considerably more in legal fees and public exposure than would have been likely in a typical probate proceeding. Of course, most of that arises from the fact that she changed her mind about who she wanted to administer her (and her husband's) estate, and the same problems might have arisen from the terms of a will if they had not executed a trust. Still, her story serves as a reminder that a living trust is not a panacea.