Posts Tagged ‘constructive trust’

Murder-Suicide Case Leads to Complex Probate Claim Analysis

APRIL 25, 2016 VOLUME 23 NUMBER 16

It was a horrible, tragic story. In June, 2012, Phoenix resident James Butwin killed his wife and three children, drove the family car to a remote area in the desert, set the car on fire and killed himself. News stories soon revealed that the couple were enmeshed in a divorce, that there was a dispute about whether a prenuptial agreement was valid, and that Mr. Butwin was undergoing treatment for a brain tumor.

Mr. Butwin had an estate, but no surviving family. His mother-in-law filed a probate proceeding for Mrs. Butwin, and that estate sued Mr. Butwin’s estate for “wrongful death” — for the murder of his wife. After a trial, she won an award of over $1 million against Mr. Butwin’s estate. Then she sought to impose a “constructive trust” against his estate’s assets to satisfy that judgment.

Meanwhile, Mr. Butwin’s business associates were studying his books. They discovered that, as manager of several properties they owned, Mr. Butwin had embezzled almost $1 million. They filed a claim against his estate, seeking repayment of $965,000.

Mr. Butwin’s estate was insufficient to satisfy the two million-dollar claims. Who should be paid first? Or should the claimants have their claims reduced proportionally?

An Arizona statute (the so-called “Slayer Statute” at A.R.S. sec. 14-2803) says that a person who “feloniously and intentionally” kills another person automatically forfeits any claim they might have against the victim’s estate. Clearly, Mr. Butwin could not inherit any share of his wife’s estate. But that doesn’t change the fact that some — perhaps most — of their assets were his before the killing. In one subsection, the statute goes further: it allows imposition of a “constructive trust” on the killer’s assets:

K. The decedent’s estate may petition the court to establish a constructive trust on the property or the estate of the killer, effective from the time of the killer’s act that caused the death, in order to secure the payment of all damages and judgments from conduct that, pursuant to subsection F of this section, resulted in criminal conviction of either spouse in which the other spouse or a child was the victim.

But what is a “constructive trust”? It is a legal device employed by the courts to sequester assets that should not have belonged to the record owner in the first place. It is often used, for instance, to seize property purchased with ill-gotten proceeds — even though the property might itself not be available to satisfy debts. If, for instance, a public official were to take bribes, and use the bribe money to purchase a farm, the court might impose a “constructive trust” on the farm to allow the government, as the injured party, to seize the property to recover the bribe money. That’s not an imaginary story — that’s precisely the story behind a leading British case allowing use of a constructive trust.

Arizona’s statute on collecting wrongful death proceeds from a killer in circumstances like Mr. Butwin’s would seem to speak precisely to the claim of his wife’s estate. But there was one problem: Mr. Butwin didn’t live long enough to face criminal prosecution, much less conviction.

That was the basis on which the probate court denied the request for a constructive trust by Mrs. Butwin’s estate (and her mother). Before the Court of Appeals, Mrs. Butwin’s estate argued that requiring a criminal conviction was absurd, since the statute would only apply when the killer himself had died. Besides, the wrongful death action can be maintained even when there is no criminal conviction, since the standard of proof for civil actions is different (and easier to meet).

The Arizona Court of Appeals upheld the probate court decision. It is not absurd, ruled the appellate judges, to apply the statute only where the killer has survived long enough to be convicted and then dies. While that may not be a common circumstance, it certainly could happen — and if the legislature wanted to apply the constructive trust statute to murder-suicide cases like the Butwins’, they could certainly have written the statute in that fashion. Estate of Butwin v. Estate of Butwin, April 19, 2016.

The Court of Appeals decision doesn’t actually resolve the sequence of payments from James Butwin’s estate. It might be possible, for instance, for his business associates to argue that all — or substantially all — of his assets are traceable to the embezzled funds. If that argument is not made, or is not successful, the statutes spell out a sequence of payments to be made when an estate is insufficient. Arizona Revised Statutes section 14-3805 spells out that sequence, which starts with administrative costs (filing fees, lawyer’s fees and the like), then moves on to funeral expenses, federal tax claims, expenses of the decedent’s final illness, state taxes, and then “all other claims.”

The statute explicitly rejects payment of any creditor in a given class ahead of other creditors of that class. Since neither the embezzlement claims nor the wrongful death judgment fit into any of the other categories, they will probably both be characterized as “other claims.” That will likely mean that each will receive approximately equal shares of Mr. Butwin’s estate — and that any other claimants will also have their claims reduced to about half of the amount due.

Given the size of the estate, the size and nature of the claims, and the emotional impact of the case, it seems likely that there will be further litigation to resolve the competing claims. We’ll let you know if there is another legal footnote to this tragic, horrible story.

What Survivor Must Do When Trust Mandates Split on First Death

SEPTEMBER 14, 2015 VOLUME 22 NUMBER 33

Once in a while we read an appellate court decision that nicely addresses a subject which isn’t the issue before the court. A recent Arizona Court of Appeals case illustrates this phenomenon nicely.

The legal issue was technical and would appeal only to lawyers — and probably only to appellate lawyers, at that. After the probate court ruled against them, some of the beneficiaries to a trust filed a motion to have the court reconsider its decision. When that also failed they appealed, but alleged that the probate court should have considered an argument similar to but different from the one they actually made. That approach was, unsurprisingly, unsuccessful.

What’s more interesting about the decision, though, is the background of the dispute. It involved a joint revocable trust that mandated division of a married couple’s assets into two equal shares on the death of the first spouse.

A little background might be appropriate here. Joint revocable trusts are fairly common in Arizona, and provisions like those involved in this case are far from unusual. Until recent years, the mandatory division was often a tax-driven decision, in order to minimize estate taxes on a married couple’s assets. Today that is less likely to be the reason for a mandatory trust split, since only very large estates face any tax liability at all and surviving spouses inherit their deceased spouse’s estate tax exemption amount, to the extent that it is unused.

The combined estate in the recent appellate case was apparently modest, and so estate taxes seem unlikely to have been the reason for the mandatory split. What other reason, then, might a married couple have for ordering a split of assets on the first death? Second marriages.

Dale and Mary were married for some years. They each had children from a prior marriage, and they owned their home in Green Valley, Arizona. In order to make sure that their home’s value was split equally between the two families, they created a trust to hold just their residence. That trust included a mandatory split into two shares on the first death, and directed that each half-interest in the trust would pass to one spouse’s children. That way they could assure the division even if the survivor lived for years after the death of the first spouse.

As it happens, Dale died first — in 2005. Mary died four years later. Though she was trustee of the trust holding the residence, she never actually divided the trust in half. She did, however, use the home as security for a loan she took out after her husband’s death.

Four years after Mary died, one of Dale’s children filed an action to compel Mary’s children to account for the administration of the trust, and to perfect the claim to half the house. The probate judge hearing the matter did not order an accounting, but did order half of the home’s value to be distributed to Dale’s children — along with $33,429.33 from Mary’s half, to make up for the fact that her children had used the residence after Mary died. The judge also ordered an offset for the loan Mary took out against the house after Dale’s death.

Mary’s children asked the probate judge to reconsider his decision, which he declined. That set up the actual legal argument in the appellate case, which (as we’ve already noted) as actually less interesting than the mandatory trust split issue. Suffice it to say that the Court of Appeals chose not to upset the probate court’s judgment directing distribution of the trust according to its terms, plus damages for Mary’s (and her children’s) misuse of the trust’s sole asset. In Re Newman-Pauley Residential Trust, August 31, 2015 (an unpublished decision).

Why is the uncompleted split so much more interesting than the actual legal issue in Dale and Mary’s trust case? Precisely because it is so commonplace.

We regularly meet with surviving spouses who have not gotten around to the division of assets mandated by a joint trust document. Sometimes the trust might include provisions that allow the surviving spouse to skip the requirement, or to undo it. But if the trust unequivocally directs such a division and the surviving spouse does not follow that direction, the courts will ultimately order a split to reconstruct what should have happened months, years or sometimes decades before.

Of course these disputes are most common in second-marriage situations, where each spouse has children — often children who were grown when the marriage took place. They also occur in family situations where each spouse is closer to one child or one group of children. Sometimes we see them when the couple operated a family business, and less than all of the children are involved in managing the business after one spouse’s death.

What is the lesson to be taken away from the dispute between Mary’s and Dale’s children? Get legal advice early, and follow it. If Mary had talked with her lawyer shortly after Dale’s death, she might have gotten direction about how to actually make the trust split. Her expectations — and those of her children — might have been set more reasonably, too. That might have saved the later dispute and attendant legal expenses.

Dispute Over Family Home Pits Children Against Stepchildren

OCTOBER 19, 2009  VOLUME 16, NUMBER 58

More than a decade ago we told you about a Utah case involving a widower’s remarriage (see Surviving Spouse Revokes Trust–Children Disinherited from February 2, 1998) . Although the children of the deceased woman and her surviving husband were supposed to receive everything on his later death, the widower revoked his living trust and transferred everything to his new wife. The children were effectively disinherited.

Of course we see that result all the time, as unanticipated shifts in family dynamics follow death and remarriage. When two people with grown families marry, they seldom consider, much less carefully plan, what will happen when the inevitable occurs. Now an interesting case — and, interestingly, again out of Provo, Utah — raises an unusual variant of the same story.

Harold and Edith LeFevre had seven adult children. After Edith died in 1987, Harold married Ellen Stout, who had five grown children of her own. When Harold died in 1993, he had made no estate plan at all. The second Mrs. LeFevre met with her late husband’s children to discuss his estate, and they all agreed that she should live in the family home for the rest of her life. She agreed that she would create a trust that left the home to the children, and that she would handle the probate of Harold’s estate to get the house into the trust.

One month after Harold’s death his widow met with her attorney to plan her own estate. The trust she had him prepare, however, did not resemble the agreement she had entered into with her stepchildren. Instead, the LeFevre family home was left half to her stepchildren and half to her own children.

Ellen then handled the probate of her late husband’s estate, transferring the residence into the trust she had created. Two years later, she amended the trust to disinherit the LeFevre children altogether, leaving the home and all her other assets to her children only.

For nearly a decade Ellen LeFevre lived in the home, becoming increasingly reclusive and withdrawn. Her son encouraged her to cut off communication with her stepchildren, and when she died in 2004 they were not even aware of the fact for some months. After they learned of her death and requested a copy of the trust, they were surprised to learn that they would not receive any portion of their father’s estate.

In a contested proceeding, the probate judge imposed a “constructive” trust, ruling that Ellen LeFevre had agreed to place the home in trust and then had violated that agreement. The Utah Court of Appeals agreed, and ordered that the home be transferred back to the LeFevre children.

According to the appellate judges, Ellen LeFevre had entered into a valid agreement, she had breached the terms of that agreement, and her children had been “unjustly enriched” as a result of her breach. The appellate court did not agree with the children that they should have their attorney’s fees paid by Ellen LeFevre’s estate. In the Matter of the Estate of LeFevre, October 9, 2009.

Unsigned Will Invalid Despite Clear Intentions of Decedent

SEPTEMBER 9, 2002 VOLUME 10, NUMBER 10

Christel McPeak thought she had done her estate planning properly. She had hired an attorney, reviewed drafts of a will, durable power of attorney for financial purposes and health care directive, and she had approved the drafts. Then she went to her lawyer’s office and signed the final documents, just like she was supposed to do. Trouble was, the lawyer forgot to have her sign the will.

Part of the problem may have been that Ms. McPeak’s lawyer was in the habit of having his clients sign multiple original documents. In fact, Ms. McPeak signed four original living wills and designations of her health care agent, and three original financial powers of attorney. Each of those documents was witnessed and notarized, and even the will itself (though unsigned) had witness and notary signatures. All of that signing, and the shuffling of paper to Ms. McPeak, the witnesses and the notary, appeared to have been the only reason that she did not sign her will.

Ms. McPeak’s unsigned will would have left her estate to her niece, Bonnie Allen, and others. If she died without a will, her estate would pass according the Florida’s law of “intestate succession,” and her half-sister Margarete Dalke would receive a share. That set up a will contest between Ms. Allen and Ms. Dalk, and required the probate court to determine whether Ms. McPeak had a properly executed will.

English and American law has for centuries required that wills be properly signed and witnessed by the appropriate number (usually two) of witnesses. Ms. McPeak’s will, even though witnessed, did not meet that basic requirement. Ms. Allen argued, however, that by attesting to her “signature” Ms. McPeak approved the will, and it was clear that her oversight was just that. Even if the her name typed on the will form was not an adequate signature, Ms. Allen argued, it was clear that the will reflected Ms. McPeak’s wishes, and the court could order that its terms be carried out by imposing a “constructive trust” on the assets and ordering that they be distributed in accordance with the will.

The probate court agreed with Ms. Allen’s arguments and ordered that the estate be distributed in accordance with Ms. McPeak’s “will.” Her half-sister appealed, and the Florida Supreme Court reversed the probate court’s determination and ordered that Ms. McPeak had died without leaving any will. Even though her intentions may have been clear, Ms. McPeak did not properly sign her will. Allen v. Dalk, August 29, 2002.

Arizona also requires strict compliance with the requirements for execution of a will. Except for “holographic” wills (those in the testator’s handwriting and signed by the testator), all wills must be witnessed by two individuals. Failure to comply, even accidentally, makes a will invalid.

Agreement To Convey Half Interest In Home May Be Valid

JUNE 21, 1999 VOLUME 6, NUMBER 51

Sylvia Ann Patterson and Dennis Strickland began seeing each other socially in 1963. After Ms. Patterson’s divorce in 1969, their relationship continued to intensify, until Ms. Patterson moved into Mr. Strickland’s mobile home in 1975. That year, Mr. Strickland bought a new home in Charlotte, North Carolina, and the couple moved in together.

The new home was purchased in Mr. Strickland’s name alone, and made the down payment of over $8,000. He also signed the note for the balance of the purchase price, over $30,000.00, and obligated himself to make monthly payments of $256 for ten years to pay the note off. From the beginning, however, Ms. Patterson made payments to Mr. Strickland of $160 per month.

After the balance of the home had been paid off, Ms. Patterson continued to make her monthly payments to Mr. Strickland. She began to note that the payments were for “rent” on the description line of her checks.

In 1990, over a quarter century after the couple first began their relationship, Ms. Patterson became suspicious about the possibility that her niece was seeing Mr. Strickland. When she confronted them about her fears, Mr. Strickland broke off his relationship with Ms. Patterson and moved out of the house. Five years later, he married Ms. Patterson’s niece, and asked Ms. Patterson to vacate the residence.

Ms. Patterson responded by filing suit against Mr. Strickland. She alleged that there had been an agreement between the two of them, and that her payments had been her share of the contribution to purchase of the home. Now, she argued, she owned a half interest in the home. She did not oppose the sale of the residence, but sought half the proceeds from that sale.

Ms. Patterson relied on several legal theories for her claim. She first argued that the court should impose a trust on the property, based on the couple’s alleged agreement to purchase the home as a couple and her contribution to the mortgage payments. This kind of trust, a so-called “resulting trust,” would require Mr. Strickland to convey a one-half interest in the property to Ms. Patterson.

Her second argument also addressed a special kind of trust. A “constructive trust” could be imposed if Ms. Patterson could show that the parties had a “confidential relationship” and that Mr. Strickland had abused that relationship.

Finally, Ms. Patterson argued that she and Mr. Strickland had entered into a contract to purchase the property together, and that he should be compelled to complete the terms of the contract. She acknowledged that the contract was not in writing.

At trial, the judge dismissed all of Ms. Patterson’s claims except the allegation of breach of contract. A jury decided that there was a contract between the parties, and the judge therefore ordered that Ms. Patterson was a half-owner of the property. Both parties appealed.

The North Carolina Court of Appeals sent the matter back for another trial. The appellate judges decided that the contract claim was barred by the Statute of Frauds, which requires that contracts involving real property be reduced to writing. On the other hand, reasoned the Court of Appeals, Ms. Patterson should be given a chance to prove her allegations that Mr. Strickland had an equitable obligation to her, and that he breached his duty to her by failing to transfer the property into joint names. Patterson v. Strickland, June 15, 1999.

Father’s Promise To Establish Trust Enforceable After Death

JANUARY 18, 1999 VOLUME 6, NUMBER 29

Jack and Frankie Bemis were divorced in Nevada in 1972. At the time, Jack was expecting a distribution from a California trust within the year. As part of the divorce settlement, he agreed (and was ordered) to set up a $25,000 trust for the benefit of the couple’s two children with part of the proceeds. The children, Kevin and Scott, were then 13 and 12, respectively; the trust was supposed to be distributed to the boys when Kevin reached age 25.

In an effort to encourage a good father-son relationship, Frankie never mentioned the terms of the divorce settlement to her sons. Jack provided no financial assistance to his sons, and did not set up the trust as he had promised. When Kevin turned 25, in 1984, no funds were distributed to either son.

When Jack died in 1995, his estate plan left nothing to Kevin or Scott. Nearly a quarter of a century after his promise to set up a trust for his sons, they first learned (from their mother) of the agreement and their father’s failure to comply with its terms.

Shortly after Jack’s death, Kevin and Scott filed a claim against his estate. They argued that they should be paid the original $25,000 plus the interest that would have accrued if the trust had been established.

Jack’s estate objected to payment of the claim, and the question was referred to the Nevada probate court. After reviewing the claim, that court determined that Kevin and Scott were years too late; the statute of limitations barred them from asserting the claim at this late date.

The Nevada statute of limitations requires that any claim based on a contract (as Kevin and Scott’s was) must be brought within six years of the breach. Whether the date of breach was 1973 (when the trust was supposed to be set up) or 1984 (when the trust was supposed to be distributed to Kevin and Scott), the probate court ruled that it had long expired when Jack died in 1995.

Kevin and Scott appealed. The Nevada Supreme Court reversed the probate court on the statute of limitations issue. Noting that Kevin and Scott claimed to be unaware of the agreement to establish a trust until after their father’s death, the justices ruled that the statute of limitations would not begin to run until they knew (or should have known) of their father’s breach of contract.

Since Kevin and Scott were still minors when Jack first violated the terms of the contract, the statute of limitations would not have applied to them at that point in any event. They should not be expected, said the court, to have looked up their parents’ divorce decree once they turned eighteen; unless someone told them of the trust promise, there was no other way for them to have learned of Jack’s violation of the decree. To the probate court’s assertion that they should have gone to the courthouse to review their parent’s divorce decree, the Supreme Court responded that “we can think of no policy to be served by imposing such an obligation on the children of divorce.”

The Supreme Court ruling is not the end of the lawsuit for Kevin and Scott. The court’s order simply refers the matter back to the probate court; Kevin and Scott must now show that their failure to learn about the divorce decree was reasonable. If they can show that there was no reason they should have known of the trust promise, they will have laid the groundwork for imposition of a “constructive trust” against their father’s assets. They would then be entitled to the original $25,000 plus interest from 1973. Bemis v. Estate of Bemis, November 25, 1998.

Court Voids Joint Tenancy Transfer To Effect Will

NOVEMBER 13, 1995 VOLUME 3, NUMBER 20

Lloyd Hines, a New York farmer, had no children. His Will left the family farmhouse (where he had lived with his brother for many years) to his niece Sandra Johnson. The rest of his estate he left to his nephew Arne Lih.

In 1991, Mr. Hines became concerned about Medicaid eligibility for possible nursing home care. Someone apparently told him that he should place someone else’s name on his residence to prevent it being taken by the State after his death, and so he asked his attorney to place the farmhouse in joint tenancy with his nephew, Arne Lih. At the time, he also made it clear to his attorney that he did not wish to change his Will.

Mr. Hines apparently did not understand that the joint tenancy meant the farmhouse would pass to Mr. Lih despite his Will, and Mr. Hines’ attorney did not explain this result to him. When Mr. Hines died two months later his niece sued to invalidate the transfer.

The New York court found that Mr. Lih had impliedly promised, while assisting Mr. Hines with his planning, that he would honor the provisions of Mr. Hines’ Will. Although there was no explicit promise to do so, the fact that Mr. Lih was actively assisting Mr. Hines with his affairs and arrangements created a “confidential relationship” which permitted the court to invalidate the joint tenancy.

The actual mechanism by which the deed was invalidated in this case was what is known as a “constructive trust.” Essentially, the court ruled that Mr. Lih was in fact a trustee over the property, which he held for the benefit of Ms. Johnson, and he was ordered to transfer the property to her.Johnson v. Lih, N.Y. Sup. Ct. App. Div., June 29, 1995.

Arizona law contains similar provisions. On the same facts, the result should be expected to be the same.

Congressional Reform Proposals Advance

As Congress debates how to balance the budget, adopt the “Contract with America” and reform welfare, various legislative proposals dealing with Medicare, Medicaid, the Older Americans Act and related issues have steadily advanced through the process. For more information about the specific proposals, see Elder Law Issues, Vol. 3, Issue 16.

Public opinion polling consistently shows that the American public disapproves of efforts to drastically limit Medicaid benefits or to dramatically reshape Medicare. Less well known to the public is the effort to repeal the 1987 Nursing Home Reform Act, a principal source of protection for the quality of nursing home care. Repeal of that Act (ironically, in the very year that regulations were finally made effective) has become a part of both the Senate and House Republican proposals.

The National Citizen’s Coalition for Nursing Home Reform has now published an analysis of the 1987 law, the changes in nursing home care attributable to that Act, the resultant savings in medical costs, and the likely effect of repeal.

Recent Court Cases

AUGUST 15, 1994 VOLUME 2, NUMBER 6

Some recent court cases of note to those caring for or working with elders:

Call Button Inaccessible

Virginia Wunstell was admitted to Norman Health Care Center in Louisiana after several falls at the hospital where she had been treated. She suffered from dizziness and was near death.

Ms. Wunstell complained to at least three people that she could not reach her call button. Norman personnel advised her not to move without assistance and suggested restraints, which she refused. Within a few weeks of her admission, Ms. Wunstell was discovered on the floor of her room with a broken hip; she died six days later.

Gwendolyn Russell, Ms. Wunstell’s daughter, brought suit against Norman Health Care Center for wrongful death. The jury awarded Ms. Russell $46,000 in damages.

The Louisiana Court of Appeals ruled that the jury award was neither excessive nor inadequate. The Court specifically noted that Ms. Russell had been devoted to her mother, and that her mother had been in great pain. On the other hand, the Court pointed out that Ms. Wunstell was already near death, that she had refused restraints, and that she had been admonished not to move without assistance. Russell v. Kossover, Louisiana Court of Appeals, March 15, 1994.

Transfer of Home Voided

Danny Miller held a power of attorney for his grandfather, George Miller. In 1988, George Miller entered a nursing home. Danny Miller, using his power of attorney, executed a deed transferring his grandfather’s home to himself and his wife Tonia in July, 1989. George Miller did not know of or approve the transfer. Danny Miller later explained the transfer as a means of protecting the property from his father (George’s son) Bill Miller, an alcoholic who would often go to George’s home and cause trouble.

When George Miller recovered and sought to return to his home, Tonia Miller (who was by this time in the process of divorcing Danny Miller) refused to reconvey the home to George. He sued, seeking the imposition of a “constructive trust.” (A constructive trust is a legal device by which the Court can compel the holder of property to reconvey it to its legal owner).

The Court ordered that the property be returned to George Miller. Tonia Miller appealed.

The Missouri Court of Appeals agreed with the trial court. The appellate court ruled that, because George relied on Danny to take care of all his business affairs, there was a relationship of confidence between the two. Furthermore, the law governing powers of attorney required Danny to act in good faith, to seek and follow George’s instructions, and to avoid self-dealing. For all these reasons, the transfer must be set aside and the property returned to George Miller. Miller v. Miller, Missouri Court of Appeals, March 22, 1994.

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