JULY 16, 2012 VOLUME 19 NUMBER 27
Living trusts are increasingly popular and common. One of the principal attractions for most people who execute living trusts is that they can avoid the complication, cost and oversight of the courts and of lawyers. That usually means the trust signer's family can save money and hassle.
Lack of oversight, of course, can sometimes lead to problems, including abuses. A recent Arizona Court of Appeals decision, though involving a dispute over a relatively small amount of money, can help illustrate the procedural hurdles and complications involved in providing the necessary oversight when trusts do not work out as planned.
Glenda Harrison (not her real name) had created a living trust, naming her daughter Candy and her son Jack as co-trustees. As she became increasingly unable to manage her own finances a guardianship (of the person) and conservatorship (over her estate) were initiated; Jack was appointed as sole guardian and conservator.
Among the reasons Jack was appointed as guardian and conservator was his allegation that Candy and her husband had dealt with the trust improperly. His chief complaint: Candy's husband had loaned Glenda's trust $9,264 but had gotten a note for $16,000, and had secured an interest in Glenda's residence (what we all, inaccurately, call a mortgage) for the higher amount. Though the $9,264 had been repaid, Candy and her husband had not released the mortgage, claiming they were still owed the balance of the $16,000 note. As trustee of Glenda's trust, Jack then brought a lawsuit against Candy and her husband to force them to release the mortgage, and for damages.
Candy insisted that the lawsuit in the trust's name should be consolidated with the guardianship and conservatorship proceeding, which was granted. She did not, however, file a formal answer to the complaint itself, and Jack applied for entry of a default judgment against her and her husband. They then filed an answer, but did not hire an attorney.
About two months later, Jack asked the probate court to order Candy and her husband to transfer Glenda's property to him as conservator, to prepare an accounting for what she had done as trustee, and to return money taken as part of the improper note and mortgage. Jack's attorney scheduled a deposition for Candy, in order to ask her questions and get her responses on the record.
Candy asked that her deposition be put off, and reported that she had been in an auto accident and was under a doctor's care. She included a note from her doctor saying that she should be excused "until further notice." The probate judge agreed and ordered a thirty-day delay of the deposition, but warned Candy that she needed a more precise explanation if she wanted any further delay. She did file a request for another continuance before the new deposition date, but she neither included an updated doctor's report nor set the request for hearing; as a result, she simply failed to attend her deposition.
Jack's attorney filed another request with the probate court, this time seeking an award of attorney's fees, an order that Candy and her husband actually respond and participate in the pending litigation, and payment of the costs associated with the missed deposition and court hearings involving that deposition. Candy filed a written response requesting additional delays, but the court denied the request. Neither she nor her husband showed up at the hearing.
Without any meaningful participation by Candy and her husband, the probate judge had little choice but to grant Jack's attorney's request that they be ordered to turn over everything they had relating to management of the trust and Glenda's care and that they pay costs and attorney's fees as well. After the order was entered, Candy wrote to the court asking for reconsideration, arguing that she had not known her request for delay had been denied until the day of the hearing itself, and that she would need to appear telephonically for future hearings. The court denied this request, pointing out that Candy had "a long history" of seeking delays and failing to file required court pleadings. Judgment was entered against Candy and her husband for the underlying debt, for costs and attorney's fees and for all the relief requested in Jack's complaint and motions.
Candy appealed (interestingly, her husband did not). The Court of Appeals was not persuaded by her arguments, and upheld the probate court's decision and judgment. It also added an award of additional costs and attorney's fees incurred in connection with the appeal itself. Matter of Guardianship and Conservatorship of Horrigan, July 12, 2012.
So what does Glenda's family's dispute tell us about trusts, guardianships and conservatorships? Perhaps not a lot, but it does offer a chance for a few relevant generalizations:
- Signing a living trust does not guarantee that there will be no court involvement in your affairs later. It just makes the precise nature of court proceedings -- when they are necessary -- a little more complicated.
- Those of us dealing with family disputes would probably generally agree that lack of court oversight can sometimes encourage abuses by the very people -- your family -- whom you rely on to protect you. We don't mean to overstate this, but we will speculate that Glenda would have told her lawyer that HER children got along well and were entirely trustworthy. We hear that a lot.
- Relatively small disputes (in Glenda's case, only about $6,000 was involved) can lead to large judgments. The court record does not indicate, but let us guess that the total costs and fees added up to several times the amount originally in dispute.
It might be that there was no way Glenda could have avoided the problems that arose. Perhaps her daughter and son-in-law would have done the same thing regardless of her planning or lack thereof, regardless of her son's involvement, and regardless of court oversight. It is hard to be sure about what might happen. But when we ask: "do you completely trust your daughter (or son, or grandchild, or whomever you propose to name as trustee) to behave responsibly?" please think of Glenda and understand that we are not impugning your loved one's integrity or honesty. We have just seen too many variations on this same story.