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In an unpublished opinion, the California Court of Appeals ruled that Carol did not breach her duty to Elizabeth by failing to segregate her trust distributions into a separate,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:
- 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).
- 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.
- 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.