Posts Tagged ‘adoption’

Trustee Is Not Required To Create Special Needs Sub-Trust

DECEMBER 27, 2010 VOLUME 17 NUMBER 40
Kenneth Boyd established a revocable living trust in 2002. He named his daughter Carol Boyd as trustee, and directed that the trust be divided, upon his death, into three shares. One share each was to go to Carol, to Kenneth’s mother Elizabeth Boyd, and to Carol’s son Ben Scott. So far nothing is remarkable or unusual about Mr. Boyd’s trust arrangements.

Elizabeth Boyd entered a nursing home in November, 2007. Kenneth Boyd died a month later. When it came time to divide the trust estate among the three beneficiaries, Carol Boyd simply wrote checks to each one, and sent Elizabeth Boyd’s share to her in care of the agent under her durable power of attorney.

The agent refused to cash the checks. Putting the money into an account in Elizabeth Boyd’s name, she argued, would simply make her ineligible for Medicaid assistance with her nursing home costs, and assure that a third of Kenneth Boyd’s estate would go to nursing home care for Elizabeth. If Elizabeth Boyd’s share could stay in trust, it could benefit her during her life, allow her to remain eligible for Medicaid, and assure that there would be something to pass on to her heirs on her later death.

It seemed obvious to Elizabeth Boyd’s attorney-in-fact that the continued trust would be in her best interest. Language in the trust could be construed to permit Carol Boyd to do just that — to turn the distribution from the trust into a “third-party” special needs trust. Elizabeth, through her attorney-in-fact, ultimately filed suit in California, asking the court to compel Carol to continue to hold the funds in trust for Elizabeth but not distribute any proceeds outright to her.

Carol Boyd pointed to the language of the trust, which gave her the power to do what was asked but did not direct her to do so. She insisted that her father would have wanted his money to support his mother until her death (or until the money ran out), and she declined to establish a special needs trust. So the legal question became whether Carol had an obligation to do so.

In an unpublished opinion, the California Court of Appeals ruled that Carol did not breach her duty to Elizabeth by failing to segregate her trust distributions into a separate, third-party special needs trust. It was not completely clear to the appellate judges whether such an action would even be effective; in any event, the opinion makes clear that Kenneth Boyd’s trust gave Carol the power, but not the duty, to modify the distribution terms. Boyd v. Boyd, December 16, 2010.

As is so often the case, there were a number of complicating issues in the Boyd case. They help point up the importance of communicating clearly with the lawyer who prepares your estate planning documents, and keeping those documents updated. Among the complications:

  1. Kenneth Boyd’s trust actually left a larger share to his brother, James, who was scheduled to receive 40% of the remaining funds on Kenneth’s death. James, however, died just a year before Kenneth did, and the trust did not provide that his share would pass either to his surviving wife or his step-daughter. Despite the fact that James’ marriage was of long standing, he had never adopted his step-daughter — if he had, she would have taken his share of the trust as his child. Since he died without any legal “issue,” his share lapsed and was divided equally among the other three beneficiaries (Carol, Elizabeth and Ben).
  2. Carol Boyd was actually the adopted daughter of Kenneth Boyd. That makes no legal difference, and probably was explained to the lawyer who drafted the trust at the time. But the adoption had been completed when Carol was 32 years old, and she had never met Kenneth’s mother Elizabeth, his brother James or his wife.
  3. Kenneth and Carol lived in California. Elizabeth, James and his wife lived in New York. Consequently, the California courts had jurisdiction over the trust interpretation — but they had to consider the effect on New York Medicaid eligibility and trust law. Interstate proceedings often create additional confusion and difficulty.

It is extremely hard to know what Kenneth actually would have wanted in the facts as they developed. That is why estate planning lawyers go through the almost ghoulish routine of asking clients to imagine unusual sequences of family deaths and disability. The reality is that Kenneth Boyd died just a year after his brother’s death, and a month after his mother entered the nursing home (and qualified for Medicaid). If he had discussed the family situation with his lawyer during the year after his brother died, he might have made changes in his trust language. At least he might have clarified his wishes, so that the issue would not have to be decided by court proceedings.

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Adoption By Grandparents Set Aside Years Later As Fraudulent

JANUARY 13, 2003 VOLUME 10, NUMBER 28

As American families become more mobile and previously unusual family relationships become more common, grandparents are increasingly likely to be involved in raising their grandchildren. This has led to an increase in the legal problems faced by seniors, especially when family members become less cooperative with one another. The unusual legal problem faced by Gerhard and Nanett Wunderlich of Arkansas provides one example of what can go wrong.

Mr. and Mrs. Wunderlich’s daughter Rebecca was married to Roy Duncan for two years. “W.W.” (the court describes her only by her initials) was born to the couple six weeks before they separated. In the divorce Mr. Duncan was ordered to pay $200/month in child support; Rebecca and W.W. moved in with the Wunderlichs.

As happens too often, Mr. Duncan failed to make his child support payments. Since Rebecca was receiving welfare the state Office of Child Support Enforcement sued him for unpaid child support. Mr. Duncan responded by filing a petition to enforce visitation with his daughter, whom he had never seen, and Rebecca and her parents became very concerned about the possibility that he might become involved in his daughter’s life.

Mr. and Mrs. Wunderlich proposed that they could adopt W.W., thereby cutting off Mr. Duncan’s parental rights. Although Rebecca later insisted that she was reluctant to go along with this plan, she agreed after her mother assured her that the adoption would be on paper only, and that she would continue to be W.W.’s real mother. Mr. Duncan signed the paperwork giving up any rights in return for a waiver of the child support claim against him, and Rebecca and W.W. continued to live with her parents.

Then Rebecca married Joe Alexander, and W.W. went to live with the newlyweds. When she and her parents quarreled about money, Mr. and Mrs. Wunderlich forcibly took W.W. back into their home and refused to allow the new Mrs. Alexander to visit her daughter.

Rebecca Alexander filed a petition to set aside the adoption, saying that it had been a fraud in the first place. Her parents pointed out that state law permits challenges to adoptions only in the first year after they are finalized.

By a 5-4 vote the Arkansas Court of Appeals decided that it was permissible to void the adoption and return W.W. to her mother’s care and custody. The Wunderlichs had never actually “taken custody” of W.W. in the first place, decided the appellate court, so the one-year limitation should not apply. Wunderlich v. Alexander, December 18, 2002.

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“Equitable” Adoption Denied In Absence of Evidence of Intent

MARCH 4, 2002 VOLUME 9, NUMBER 36

Terrold Bean was only one year old when he went to live with Arthur Ford and his wife in California. The Fords took in foster children for San Francisco, and Mr. Bean was one of the ten children they accepted over the years. As it turned out, he was the child they kept for the longest time.

Although Mr. Bean lived with the Fords (and their birth daughter Mary Catherine) for the rest of his childhood, and continued to call them “mom” and “dad,” the Fords never actually got around to adopting him. There was some indication that there were problems with his birth mother’s involvement, or concerns about whether filing an adoption proceeding might not lead to him being removed from their home. Whatever the reason, even after his mother’s parental rights were terminated (Mr. Bean was then four) no adoption was undertaken.

In 1973, when Mr. Bean was 18, his foster mother died. He continued to live with Mr. Ford and Mary Catherine until he was married, and maintained close contact for the next twenty five years.

When Mary Catherine, his “sister,” died in 1999, Mr. Bean took over responsibility for care of Mr. Ford. He supervised Mr. Ford’s stay in a nursing home and arranged for a conservator to be appointed to manage his affairs. But when Mr. Ford died in May, 2000, he left no surviving children and no will naming Mr. Bean.

Under California law (as would be the case in Arizona) Mr. Ford’s entire estate would pass to his closest relatives—a niece and nephew who had not seen him for fifteen years and didn’t even know that either he or Mary Catherine had died until a lawyer contacted them.

Mr. Bean filed a claim in the probate court, arguing that he was really Mr. Ford’s son even though no adoption had been formalized. He relied on the common law doctrine of “equitable” adoption, which recognizes that sometimes the failure to complete the legal proceedings should not prevent inheritance by someone who has in fact been raised as if they had actually been adopted. After hearing the evidence, however, the probate court ruled against Mr. Bean and he appealed.

The California Court of Appeals agreed that Mr. Bean had not established the requirements for an equitable adoption. The appellate court noted that there was no evidence that Mr. and Mrs. Ford ever intended to adopt Mr. Bean. The judges also ruled that Mr. Bean had the burden of showing that intention (and the other elements of equitable adoption) by clear and convincing evidence. In the absence of any adoption (and with no will) Mr. Ford’s estate passed to his nephew and niece. Estate of Ford, February 21, 2002.

Arizona also recognizes the possibility of equitable adoption. In Arizona the parent must have promised to adopt the child, while California decisions only speak of an “intent” to adopt. Still, Arizona courts have on three occasions (most recently in 1972) approved inheritances utilizing the equitable adoption concept.

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