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In an unpublished opinion, the California Court of Appeals ruled that Carol did not breach her duty to Elizabeth by failing to segregate her trust distributions into a separate,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.
JULY 26, 2010 VOLUME 17, NUMBER 23
Imagine a couple, each married for the second time. Perhaps each has children from a first marriage. Perhaps the couple has been married for years — even decades. They think of all the children as “their” children, even though they fully understand that the other spouse’s children are stepchildren.
One of the spouses — let us say the husband — dies. He leaves his interest in the family home, together with all the couple’s accumulated wealth, to his widow; his will specifies that on the second death all of the children share the estate equally. His children remain in contact with their stepmother for the next decade, though that contact lessens over time. When she dies, what happens to the home, the bank accounts and the remaining wealth?
This scenario plays out again and again. Most often, the deceased husband’s will is irrelevant. If the property all passed to the wife without restrictions, she is free to change her will, to transfer the property into trust, to spend it or even to give it away. But that is not always the case.
Ralph and Elaine Lawson married in 1971. They owned 12 acres of Iowa land as “joint tenants with right of survivorship.” They had three children between them: Ralph’s son and daughter Roger and Le Ann, and Elaine’s son Lonnie. Just to complicate things further, Ralph later adopted Lonnie.
In 1987 Ralph and Elaine signed identical wills. Each left everything to the other. On the second death, the wills provided that fifty percent of the combined estate would go to Lonnie, twenty percent each to Roger and Le Ann, and ten percent to the couple’s church. The wills contained an unusual provision: each included language that indicated the couple had agreed “that neither will change our will” without the other’s consent.
Ralph died first. The property passed to Elaine automatically because of the joint tenancy title, so Ralph’s will was not filed with the Iowa probate courts.
A few years later Elaine changed her estate plan. First she transferred the acreage to her son Lonnie, reserving a life estate for herself. Then she signed a new will, leaving the same proportions of her estate to Lonnie (50%), Roger (20%) and Le Ann (20%), but changing the church which would receive the remaining 10%. Shortly after that, Elaine died.
Roger and Le Ann sued to enforce the terms of their father’s and stepmother’s original wills. They alleged that the wills amounted to a contract, that Elaine’s transfer of the property to Lonnie violated that contract, and that the court should impose a trust upon the property to secure its return to the original beneficiaries. The trial judge reviewed the two wills and agreed with Roger and Le Ann.
The Iowa Court of Appeals upheld that ruling, ordering the imposition of a trust on the 12 acres. The language of Ralph’s and Elaine’s wills made it clear, according to the appellate judges, that their intent was to prevent the survivor from changing the estate plan by a new will or by transferring property during lifetime.
Lonnie argued, unsuccessfully, that the reciprocal wills should not prevent transfers of the acreage because it did not come into Elaine’s estate by virtue of Ralph’s will. The court dismissed that objection, noting that the language of the wills was broad enough to encompass any estate planning technique, whether it might be a will, a gift, or a living trust. The appellate judges also rejected Lonnie’s argument that his parents’ wills should not have been admitted to the court proceeding; the wills were not being admitted to probate, said the judges, but were being admitted to prove a contract. Consequently, the standards and requirements for admission were those governing contract documents rather than wills. Cunningham v. Lawson, July 14, 2010.
Would Arizona courts reach the same result? It is not completely clear, since the law of reciprocal wills (sometimes called mutual or contractual wills) is not well developed. What is clear in Arizona law is that reciprocal wills can be enforceable; what is less clear is whether they might prevent lifetime transfers of property by the surviving spouse.
One reason that the law is less than clear is that truly reciprocal wills are uncommon. Arizona’s probate code makes clear that the mere fact that wills are identical does not mean they embody a contract not to change the terms; in order to make the agreement binding it must be expressly stated in the wills or in a contractual document. Because that is uncommon, there is little law interpreting such terms.
What is more clear is that the question we hear so often is usually easy to answer. “Does my stepmother [or stepfather] have the right to leave the house she inherited from my dad [or mom] to her kids from her prior marriage?” Absent a clear contract not to change the will, or a trust provision prohibiting the transfer, the answer is likely to be: “I’m sorry, but yes.”
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.
