Posts Tagged ‘pourover wills’

Is Dispute Inevitable When Two Children are Named as Co-Trustees?

MAY 18, 2015 VOLUME 22 NUMBER 19

So often our clients assure us that their children are different from other children. Our clients know that their children will fundamentally get along. They are sure that there will be no big problems when they die, and that the children will communicate and cooperate. Fortunately, that turns out to be the case for our clients. But other lawyers’ clients seem to be very different.

Betty Lundquist (not her real name) must have thought her two daughters could work well together, because she named them as successor co-trustees of the revocable living trust she set up. She directed that the daughters (Peggy and Lisa) were to split her estate equally. She also signed a “pour-over” will, directing transfer to her trust of any assets not already properly titled at her death. For whatever reason, she named Lisa as the sole personal representative of her probate estate.

Betty had actually transferred pretty much everything to her trust, and so probably envisioned that there wouldn’t be much need for a probate at all. As she approached death, however, things were already getting tense between Peggy and Lisa. The day before Betty’s death, Peggy and her husband tried to transfer some of her trust accounts into their own name. They got the original will and trust documents from Betty’s accountant, and declined to share them with Lisa. Peggy was living in Betty’s home, and wouldn’t let Lisa even into the home to look at — and inventory — their mother’s belongings.

When Betty died in 2011, Lisa filed an emergency petition with the probate court seeking release of the original will and other documentation. She ultimately was appointed personal representative, and Betty’s will was admitted to probate. Peggy thereafter refused to co-sign trust checks to pay Betty’s bills, or motor vehicle affidavits to transfer car titles.

Eventually the probate proceedings were wrapped up, though the sisters were still not getting along. Finally, Lisa filed a request for payment of her mother’s estate’s expenses — including her attorneys fees for the probate proceedings themselves. Peggy responded by arguing that Lisa should have been disinherited because she filed the probate proceedings at all. Her logic: Betty’s will and trust provided for automatic disinheritance for anyone challenging her estate plan, and Lisa’s filing of a probate proceeding amounted to a challenge of their mother’s plan to avoid probate altogether.

The probate court approved payment of attorneys fees of $8,081.20, and a little more than $7,000 of other costs incurred in administration of the estate. Since the bulk of Betty’s estate was actually in her trust, the probate judge also ordered that the payments would come from the trust to the extent necessary. Peggy appealed both the approval of attorneys fees and the order that the trust should pay the fees.

The Arizona Court of Appeals ruled that the attorneys fees were appropriate and reasonable, and upheld the order. Furthermore, it agreed that the probate court had the authority to order payment from the trust — even though the trust had not been submitted to the court for oversight. According to the appellate court, both the trust’s language and Arizona law provide for payment of the decedent’s expenses — including probate and administrative expenses — from trust assets. Johnson v. Walton, May 14, 2015.

Peggy’s argument (that no probate proceedings were even needed) might have carried more weight if the Court had not been convinced that she actively interfered with the orderly administration of her mother’s estate. In fact, with even a modicum of cooperation Betty’s daughters might well have had a smooth, easy and inexpensive trust administration, and no need for any probate proceedings. That is a common result in similar circumstances — especially when one of the children is put in charge and they behave responsibly and honestly. (Of course, the person in charge need not be one of the children — but that is the choice we see most often.)

Was Betty’s mistake putting her two daughters in joint charge, and assuming they would work together? It’s always hard to figure out exactly what else might be going on when reading a Court of Appeals opinion, but if the joint authority didn’t cause the problem, it certainly did not help prevent the later dispute.

Our usual advice: rather than appointing two (or more) children with equal authority, we suggest you default to a choice of the one person who is most responsible, most widely respected among your beneficiaries, most available and most trustworthy. For clients who tell us that each of those terms applies best to a different child, we suggest that they use some method to make a single selection (coin flips work in extreme cases). Fortunately, though, our clients’ children all get along, all work beautifully together and never have disputes. Just like our own children.

Court Rejects Challenge to Living Trust After Settlor’s Death

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?

Does Your Personal Property Belong to Your Living Trust?

JULY 21, 2014 VOLUME 21 NUMBER 26

When you create a revocable living trust, you usually want to transfer most (maybe even all) of your assets to the trust — especially if one of the reasons for creating the trust is to avoid the probate process. A new deed to your home, a change in titling of your brokerage and bank accounts, perhaps even a new title for your car or cars are often part of the process. But what about your household possessions — furniture, art hanging on the wall, your priceless collection of antique tape dispensers, your stamp and coin collections?

Commonly (but not always) people who establish a living trust might also sign a document purporting to transfer all of their personal property to the trust. Usually this is not much of an issue, since there are no title documents for most of your personal effects, and your intended beneficiaries can just collect, disperse and/or sell the contents of your house.

But another purpose in executing a living trust is usually to reduce the possibilities for disputes among your family members. Your trust, after all, should include a comprehensive approach to your plans for distributing assets on your death. Even a well-drafted trust document, though, will not resolve all family disagreements.

Consider Cliff Cruz (not his real name). Cliff and his first wife had four children, all grown. After Cliff’s wife died in 2003, he moved to Arizona to be near some of his children — and here he met and married Geraldine.

Cliff and Geraldine took steps to arrange their estate plans. The signed a revocable living trust agreement, providing that on the death of either spouse the trust would be divided into two shares — one belonging outright to the surviving spouse, and one held in trust for the benefit of the surviving spouse but ultimately distributed to the deceased spouse’s children. They explicitly agreed that everything they owned, even those things they each brought into the marriage, would be treated as community property — which meant that each of them would henceforth own a one-half interest in all of their combined assets.

The couple also signed “pourover” wills, each leaving everything they owned to the trust upon death. They signed a deed transferring their home to the trust, along with transfer documents for all their other assets. Just to be thorough, they also signed a document which said that all of their personal property — household effects, furniture, contents of their home, and anything else — also belonged to the trust.

Cliff died three years later. Five days after his death, two of his children went to the couple’s home and removed four safes, all of Cliff’s gun collection and various other items, and took them to their homes. They argued that Cliff had given his children the contents of the safes and the guns during his life — before he even met Geraldine. In the safes: almost $400,000 worth of gold and silver coins.

Geraldine sued, arguing that her step-children had essentially stolen assets belonging to her as trustee and intended to form part of the trust for her benefit. The children responded claiming the prior gift, and arguing that the trust should be modified to reflect their right to the gold coins and guns. After months of legal maneuvering, the case was tried before a jury. Geraldine pointed to the documents and testified that she understood that Cliff had transferred everything to the trust; the children testified that Cliff had purchased all of those items as investments for the children, and had given them to his children (but held on to them for safekeeping) many years before his death.

If you were on the jury, do you know what you would have decided? Before you read on, stop a moment and see if you can make up your mind, or whether you need more information. If you need more information, what do you want to know?

After a three-day trial, the jury returned a verdict that two of Cliff’s four children had, indeed, taken property belonging to Geraldine and the trust. They entered a dollar verdict, rather than ordering return of the items; they therefore did not identify which items they believed were wrongfully taken. But the dollar amount of the judgment, just $15,000, made it hard to figure out what they thought belonged to the trust.

Geraldine appealed, arguing that the judgment made no sense. If the jury believed that trust property was taken by the children, she argued, then the judgment should have been more like $400,000.

The Arizona Court of Appeals disagreed. First, the appellate court noted, if there is any theory on which the jury’s verdict can be upheld, it will normally be confirmed. In this case, the fact that Cliff gave his children the combinations to the safes might have been sufficient proof of his “constructive” delivery of the coins and safe contents to the children prior to his marriage, even though he kept the safes themselves at his home. In that case, the jury verdict would make sense — and so it was affirmed. Covino v. Forrest, July 3, 2014.

What does Cliff’s estate plan tell us about good practice in other cases? For one thing, if you think you have given property to your children — or anyone else — during your life, you should make that clear. That is especially important if you still have some of the gifts in your possession. Especially in second-marriage cases, it would be really helpful if families talked about ownership and expectations early, before the death of a parent simultaneously raises the emotional level and removes an opportunity to simply ask for clarification. And, finally, just signing an assignment of personal property to your trust might not be enough, depending on your individual and family situation — you might be better served by sitting down and writing out your intentions and understanding.

Definitions For Common Estate Planning Terms

FEBRUARY 3, 2014 VOLUME 21 NUMBER 5

Judging from the questions we field online and from clients, there is a lot of confusion about some of the basic terms commonly used in estate planning. We thought maybe we could do a service (and make our own explanations a little easier) by collecting some of the more-common ones — and defining them. Feel free to suggest additional terms or quibble with our definitions:

Will — this is the starting point for estate planning. It is the document by which you declare who will receive your property, and who will be in charge of handling your estate. Note, though, that if you have a “living trust” (see below), your will may actually be the least important document in your estate planning bundle.

Personal representative — this is the person you put in charge of probating your estate. It is an umbrella of a name, encompassing what we used to call executors, executrixes, administrators, administratrixes and other, less-common, terms. If you use one of the old-fashioned terms in your will, that probably won’t be a problem — we’ll just call them your “personal representative” when the time comes. Note that your personal representative has absolutely no authority until you have died and your will has been admitted to probate.

Devisee — that’s what we call each of the people (or organizations) your will names as receiving something.

Heir — if you didn’t have a will, your relatives would take your property in a specified order (see “intestate succession” below). The people who would get something if you hadn’t signed a will are your “heirs.” Note that some people can be both heirs and devisees.

Intestate succession — every state has a rule of intestate succession, and they are mostly pretty similar. The list of relatives is your legislature’s best guess of who most people would want to leave their estates to. Think of it as a sort of a default will — in Arizona, for instance, the principles of intestate succession are set out in Arizona Revised Statutes Title 14, Chapter 2, Article 1, beginning with section 14-2101 (keep clicking on “next document” to scroll through the relevant statutes).

Escheat — that’s the term lawyers use to describe the situation where you leave no close relatives, or all the people named in your will have died before you. Escheat is very, very rare, incidentally. Note that the Arizona statute eschews “escheat” in favor of “unclaimed estate.” There is a different, but related, concept in the statutes, too: if an heir or devisee exists but can’t be found, the property they would receive can be distributed to the state to be held until someone steps forward to claim their share. That is not an unclaimed estate, but an unclaimed asset.

Pourover will — when you create a living trust (see below), you usually mean to avoid having your estate go through probate at all. If everything works just right your will won’t ever be filed, and no probate proceeding will be necessary. Just in case, though, we will probably have you sign a will that leaves everything to your trust — we hope not to use it, but if we have to then the will directs that all of your assets be poured into the trust.

Trust — a trust is a separate entity, governed by its own rules and providing (usually) for who will receive assets or income upon the happening of specified events. Think of a trust as a sort of corporation (though of course it is not, and it is not subject to all of the rules governing corporations). It owns property and has an operating agreement — the trust document itself. There are a lot of different types of trusts, and usually the names are just shorthand ways of describing some of the trust’s characteristics.

Testamentary trust — the first kind of trust, and the oldest, is a trust created in a will. Of course, a testamentary trust will not exist until your estate has been probated, so it is of no use in any attempt to avoid probate. But  you can put a trust provision in your will so that any property going to particular beneficiaries will be managed according to rules you spell out. Testamentary trusts are relatively rare these days, but they still have a place in some estate plans.

Living trust — pretty much any trust that is not a testamentary trust can be called a living trust. The term really just means that the trust exists during the life of the person establishing the trust. If you sign a trust declaration or agreement, and you transfer no assets (or nominal assets) to it but provide that it will receive an insurance payout, or a share of your probate estate, it is still a living trust — it is just an unfunded living trust until assets arrive.

Trustee — this is the person who is in charge of a trust. Usually we say “trustee” for the person who is in charge now, and “successor trustee” for the person who will take over when some event (typically the death, resignation or incapacity of the current trustee) occurs. There can, of course, be co-trustees — multiple trustees with shared authority. Sometimes co-trustee are permitted to act independently, and sometimes they must all act together (or a majority of them must agree). The trust document should spell out which approach will apply, and how everyone will know that the successor trustee or trustees have taken over.

Grantor trust — this is a term mostly used in connection with the federal income tax code, but sometimes used more widely. In tax law, it means that the trust will be ignored for income tax purposes, and the grantor (or grantors) will be treated as owning the assets directly. Most living trusts funded during the life of the person signing the trust will be grantor trusts — but not all of them. Outside of tax settings the term “grantor trust” is often used more loosely, and it can sometimes mean any living trust whose grantor is still alive.

Revocable trust — means exactly what it sounds like. Someone (usually, but not always, the person who established the trust) has the power to revoke the trust. Sometimes that includes the power to designate where trust assets will go, but usually the trust just provides that upon revocation the assets go back to the person who contributed them to the trust.

Irrevocable trust — a trust that is not a revocable trust. Oddly, though, a trust can have “revocable” in its name and be irrevocable — if, for example, Dave and Sally Jones create the “Jones Family Revocable Trust,” it probably becomes irrevocable after Dave and Sally die. Its name doesn’t change, however.

Special needs trust — any trust with provisions for dealing with the actual or potential disability of a beneficiary can be said to be a special needs trust. Usually, but not always, a special needs trust is designed to provide benefits for someone who is on Supplemental Security Income (SSI), Social Security Disability (SSD) or other government programs. Sometimes the money comes from the beneficiary, and sometimes from family members or others wanting to provide for the beneficiary.

There’s more. A lot more, actually. Has this been helpful? Let us know and we’ll add to it in coming weeks. In the meantime, a reminder: ask your estate planning lawyer for help with these concepts. Don’t be embarrassed that they seem complicated — they are complicated.

©2017 Fleming & Curti, PLC