FEBRUARY 16, 2015 VOLUME 22 NUMBER 7
Jessica Waltham (not her real name) died tragically in 2012, when her home south of Tucson burned down. She left a small estate, three sons and a bubbling dispute over the validity of her living trust.
Jessica had first signed a living trust in 2000. She titled her home, and her bank and investment accounts to the trust. She also signed a “pour-over” will (leaving the rest of her estate to her trust), and powers of attorney.
In that initial round of planning, Jessica’s trust and related documents left everything equally to her three sons. She named one son, Edward, as her successor trustee and agent on her powers of attorney.
Beginning in 2009, though, Jessica began to revise her estate plan. Over the next three years she made several changes; the last change, early in 2012, named Edward’s two sons as the primary beneficiaries of her trust, and largely disinherited all three of her sons. It still named Edward as successor trustee.
After Jessica’s tragic death, her other two sons challenged Edward’s administration of the trust. They demanded an accounting, insisted on seeing the history of documents signed by their mother, and even started a probate proceeding (though all of Jessica’s assets were titled to her trust, and her will left directed that any other assets be distributed to the trust anyway). As the proceedings continued, the two dissident brothers filed a lis pendens claim against Jessica’s house, seeking to prevent any disposition of the property while they argued about the effect of her trust and its amendments.
Edward, acting as successor trustee, moved to dismiss his brother’s court demands, and to administer the trust (with its last amendments) according to the document itself. Ultimately the probate court agreed, and ruled that Jessica’s other sons had not standing to demand an accounting (since they were not trust beneficiaries) and had not raised sufficient evidence of any wrongdoing to require Edward to respond.
The probate judge took one step further, ruling that the filing of a lis pendens was improper. The judge imposed sanctions against the brothers, finding that they had no legitimate reason to claim any interest in the trust’s property — even if they were to be successful in the trust interpretation action, the property unquestionably belonged to the trust. The probate judge may have been moved by other actions taken by the brothers, including filing a change of address form with the Post Office to have their mother’s mail redirected to them, despite the fact that Edward was in charge of managing the trust’s (and their mother’s) property.
The Arizona Court of Appeals, ruling last week in a memorandum opinion, agreed with the probate judge. According to the appellate judges, Jessica’s two sons had no standing to demand an accounting or explanation from Edward as trustee. They had no basis for filing the lis pendens, and were properly sanctioned for doing so (and for refusing to release it when challenged). The judgment against them was upheld, and the Court of Appeals added an additional sanction of attorneys fees and costs against them for the appeal, as well. In Re the Wootan Revocable Living Trust, February 13, 2015.
The family dispute arising out of Jessica’s trust is part of a growing trend in the estate planning arena. As revocable living trusts have become more common and popular, the pace of trust challenges has picked up, as well.
One of the hallmarks of trust administration is that it usually is not supervised or monitored by the courts. Of course disgruntled heirs have the ability to seek court intervention — but the probate courts generally are slow to intervene unless there is a serious challenge by someone who clearly has a right to raise that challenge. Mere belief that something must be wrong is not enough; a challenger must have standing and an articulated reason for seeking court monitoring.
Turn the question around, though. If you were Jessica, and had decided to disinherit your children in favor of some of your grandchildren, what might you have done to reduce the likelihood of a challenge? Would it help to share your plan with the affected children? To explain your intentions in writing, or by a recorded message?
The two primary challenges Jessica’s sons raised were typical: they claimed that she must not have understood what she was doing, and that she must have been persuaded by Edward to make the changes at his request. Both are difficult to prove, and suspicion — even strong suspicion — is not enough. But would Jessica’s lawyer’s notes help show that she perfectly understood what she was doing, and that it was her own wish to make the change?