Monthly Archives: May 2013

May 28, 2013

Payment of College Expenses for Beneficiaries – To Pay or Not to Pay?

By Kelly Cooper

Fiduciary clients regularly ask me what expenses can be paid out of a trust.  Generally, this requires an examination of the terms of the trust and the applicable law.  However, even after considering the terms of the trust and applicable law, trustees are often stuck in this grey area trying to determine what expenses may be paid.  As a result, I am always on the lookout for cases that might provide guidance for trustees in exercising their discretion.  Recently, a case from New York caught my eye.  Matter of McDonald, 100 A.D. 1349 (N.Y. App. Div. 4th Dep’t 2012).

In this case, the grandfather created a trust for his twin granddaughters and appointed his daughter (the twins’ mother) to serve as trustee.  As trustee, the mother refused to pay for the twins’ college expenses and to purchase a car for their use.  The twins filed suit and asked the court to remove their mother as trustee and to award attorney fees.

The trial court removed the mother as trustee, bypassed the named successor trustee and appointed an attorney (who was not named in the trust) to serve as successor trustee.  The trial court found that the mother had failed to observe the terms of the trusts and had abused her fiduciary responsibilities and awarded attorney fees to the twins.  The mother appealed and the trial court was unanimously reversed.

In reversing and finding in favor of the trustee, the appellate court cited to Section 50 of the Restatement of Trusts and identified the following factors:

The terms of the trust.  The relevant terms of the trust were stated as follows: “[t]he Trustee shall pay or apply to or for the use of each such living grandchild of mine so much of the income, accumulated income and principal of such share at any time and from time to time as the Trustee deems advisable in [the Trustee’s] sole discretion not subject to judicial review, to provide for such grandchild’s maintenance, support, education, health and welfare, even to the point of exhausting the same.”  The trust also provided for fractional distributions to the twins at ages 30 and 32 and termination of the trust at age 35.

Other resources.  The court noted that one of the twins’ college expenses were paid in full by public benefits and that the other twin had failed to even complete the necessary applications for public college benefits and tuition assistance.  Further, the twins both had New York 529 College Savings accounts and the balances in those accounts were sufficient to pay college expenses.

Friction.  The appellate court noted that there was friction between the mother and her teenaged daughters, but found that mere friction or disharmony between a trustee and a beneficiary is not sufficient grounds to remove a trustee.   The appellate court quoted another New York case, stating, “If it were, an obstreperous malintentioned beneficiary could cause the removal of a competent trustee through no fault on the latter’s part.”

May 20, 2013

Tangible Personal Property Disputes

by Rebecca Klock Schroer

Too many litigants struggle to settle a case or miss a chance to settle entirely because of disputes involving the decedent’s tangible personal property.

We have found that in almost every disputed estate administration, the decedent’s tangible personal property is a topic of contention and involves extreme emotions among family members.  Most often, we see disputes regarding the division, ownership and value of these items.  In some of our cases, the tangible personal property was given away before the decedent died, typically around the time the decedent moved into assisted living or a nursing home.  Accusations then arise relating to whether the decedent had capacity, was subject to undue influence, or even whether the decedent was aware that the property was taken. 

There is one set of facts that seems to cause the most conflict – when the decedent’s will states that his personal property passes to his children instead of his spouse.  This is especially common in situations where the surviving spouse is not the biological parent of the decedent’s children.  The decedent’s spouse will typically make at least two arguments to keep the property.  First, the spouse will argue that the property was a gift from the decedent during the decedent’s life.  Second, there is a statute in Colorado under which a presumption arises that the tangible personal property passes to the surviving spouse as a joint tenant. 

Colo. Rev. Stat. § 15-11-805 raises a presumption that “tangible personal property in the joint possession or control of the decedent and his or her surviving spouse at the time of the decedent’s death is presumed to be owned by the decedent and the decedent’s spouse in joint tenancy with right of survivorship if ownership is not otherwise evidenced by a certificate of title, bill of sale, or other writing.”  The statute lists exceptions, including (1) property acquired by either spouse before the marriage, (2) property acquired by gift or inheritance during the marriage, (3) property used by the decedent spouse in a trade or business in which the surviving spouse has no interest and (4) property held for another.  The spouse’s argument typically hinges on whether the presumption can be overcome, which requires a showing by a preponderance of the evidence that the ownership was something other than joint tenancy with right of survivorship.   

In our experience, there are several things that estate planners can do to help avoid tangible personal property disputes:

  • The decedent can help reduce conflict by including as much of his or her wishes in writing as possible, perhaps in the form of a detailed personal property memorandum.
  • The decedent could designate someone with authority to make a decision if there is a dispute, and give that person the power to sell the tangible personal property and divide the proceeds if the dispute cannot be resolved.
  • The decedent could provide in his or her estate plan that the parties must participate in mediation before filing any pleadings with the court having jurisdiction over the matter.  The parties can agree to mediation even if the decedent failed to anticipate that they might disagree over the disposition of tangible personal property.
  • The decedent could include a specific process for dealing with these disputes, such as a lottery system.
  • Even if the estate planning documents fail to address the issue, it is best for parties to keep the tangible personal property disputes out of the courtroom if possible because (1) these issues are usually not cost efficient to litigate and (2) Judges generally have little patience for these disputes.   Accordingly, if a conflict arises, the parties could agree to submit the dispute to a third person for a binding decision, such as a special master, judge pro tem or arbitrator.

May 13, 2013

I’ll Be the Judge of That

by C. Jean Stewart

I’ve been in San Antonio, Texas attending the Spring Conference of the National College of Probate Judges this week, catching up with old friends and learning about new trends and concerns among probate courts from Alabama to Oregon to Maine.  This has been an outstanding program in a very special setting.  Our thanks to Judge Mike Wood from Harris County Probate Court No. 2 (Houston) and Judge Ponda Caldwell from Spartanburg County Probate Court (Spartanburg, South Carolina) who assembled a group of outstanding judges and speakers to lead our conference. 

Probate judges and their probate court administrators continue to be restricted by severe budget cuts; nevertheless, we all share common concerns about probate court procedures in trust and estate litigation, abuse and financial exploitation of the vulnerable and elderly, and recent developments throughout the country in all areas of the law that impact probate cases.

Joanne Woodruff, Elder Fraud Prosecutor in the Bexar County District Attorney’s Office inspired and challenged us with the many accomplishments of her office in gaining convictions and significant sentences against con operators, opportunistic neighbors, greedy relatives, unscrupulous caregivers, and others bent on improperly taking funds from vulnerable elderly citizens.  Joanne’s position (her office includes an advocate assistant) has been made possible by a grant from the Texas governor’s office but her substantial track record (nearly 100% success) clearly arises from the passion and expertise she brings to her work.  Many judges expressed a desire to replicate programs like Joanne’s that would provide every community with a fearless and committed prosecutor to stem the tide of financial exploitation of the elderly.

Stanley Johanson, the James A. Elkins Chair in Law at the University of Texas School of Law, is one of our favorite lecturers in probate law and procedure.  He raised multiple issues of interest to probate judges under the new federal estate and gift tax laws and introduced multiple ways in which estate planning and changes to estate plans will impact probate judges in the years to come.  He even offered a little advice for probate judges thinking about their own estate plans. 

We were heartened to hear from several of our speakers that the Uniform Adult Guardianship and Protective Procedures Jurisdiction Act (UAGPPA) has now been adopted in 37 states (presently on the New York Governor’s desk for signature).  Perhaps no single uniform act has done more to insure the safety and security of vulnerable citizens in our mobile society by giving real legislative substance to the concept of “home state” and reducing the risks of conflicting court orders originating from multiple states than this uniform law created, in part, with the participation of NCPJ members.  The 13 states that have not adopted UAGPPJA will be the focus of the many groups committed to bringing an end to interstate support and involvement in disputes over physical control and custody of the incapacitated elderly.

No conference of probate judges is complete without a presentation on the special evidentiary rules – Dead Man’s statute e.g., that accompany probate court litigation.  Frank N. Ikard, Jr., a prominent Texas fiduciary litigator gave us his perspectives on many of these unique and complex rules.  Frank elaborated on the duties of a fiduciary to disclose complete, detailed records of the trust/estate account because (1) the records belong to the beneficiary who owns equitable title to the trust/estate account and (2) the fiduciary has an unquestioned duty to keep the beneficiary(ies) informed about the beneficiary’s property.  Frank refers to this as “equitable discovery” and lauds its virtues compared to the civil rules of discovery; most importantly, he has enjoyed great success in applying his analysis in his local practice in Texas.

At Friday evening’s spring banquet, NCPJ gave our annual Judge Isabella Horton Grant Guardianship Award to Erica Wood of the American Bar Association Commission on Law and Aging.  The Isabella Award was established to honor the memory of the late Judge Isabella Grant, for many years the highly respected and innovative presiding judge of the San Francisco Probate Court. The Award, sponsored by The Rutter Group of California and administered by NCPJ, recognizes and encourages achievements in the field of guardianships of minors and adults.  Erica Wood is particularly suited for this award because she has dedicated over 30 years to the improvement and adoption nationally of appropriate rules and procedures for guardianship proceedings involving our most vulnerable citizens. We congratulate and applaud Erica’s outstanding accomplishments.   

We leave San Antonio to return to many diverse states, inspired and confirmed in our views about the unique and particularly human aspects of probate jurisdiction and looking forward to meeting in Nashville for the fall conference in November (meet us at Sheraton Music City November 13-16) and then in Vail, Colorado next May at the Four Season’s Hotel (May 15-18).

May 6, 2013

Mediator’s Moment – Before You Mediate

By C. Jean Stewart

After serving for 16 years as the Presiding Judge of the Denver Probate Court, I resigned in 2011 to start a private practice providing neutral services to litigants and lawyers who confront conflicts around wealth transfer, fiduciary liability, estate and trust litigation and family dynamics.  My practice here at Holland & Hart’s Fiduciary Solutions practice group includes mediation services.  Some of my experiences in mediation remind me that all processes are only as good as the preparation of the participants. 

I intend to provide a few of these observations in this and future posts as an aid to lawyers and their clients in asking for, preparing for and participating in mediation.  One observation relates to the so-called “style” of the mediator.  In my scheduling letter preliminary to a mediation engagement I advise the parties and their counsel that I have had experience in both evaluative and interest-based mediation.  I think the best mediators can adapt to the facts and circumstances of individual cases in approaching the mediation process and apply one or both styles as appropriate.

Interest-based mediation in its purest form seeks to address the needs of each side, maximizes the range of solutions available and strives to allow everyone to emerge from the mediation with a settlement that is satisfying and meets felt needs.  Evaluative mediation involves largely an economic analysis that assigns values to litigation positions, evaluates risks of loss and potential for victory and helps the litigants and their lawyers arrive at a number or a non-economic resolution that closely matches the risk assessment analysis.  Both approaches have legitimacy, both can result in satisfying and lasting settlements, and both should be in your chosen mediator’s repertoire.

Another area of comparison among mediators is the predisposition to use the assembly versus caucus methods.  Some mediators insist that parties should always meet face to face to enjoy (?) the benefits of conflict resolution up close and personal.  Some mediators just as assiduously insist that parties should always meet with the mediator apart from each other and the mediator “runs interference” between their separate caucus rooms (settlement conference style).  Some lawyers find one or the other method more comfortable and pick the format based on what works best for them, not what the individuals want or need.  If you are thinking of selecting a mediator who cannot work comfortably in both formats, ask around. 

Attorneys can do a great deal to assist their clients prepare for and participate in meaningful and productive mediation.  One thing I have identified as particularly helpful is an attorney’s ability to write a good pre-mediation statement.  For many mediators, the mediation statement prepared by and presented by counsel will be the mediator’s first introduction to the project.  Attorneys who approach the work as if it was a legal brief will put both the mediator and their own client at a disadvantage.  When I advise counsel to “tell me what this case is about” I do not mean that I want to hear about the Rule 12(b) motion that was erroneously ruled on by the court and will almost certainly be reversed on appeal, about the discovery abuses that have delayed the trial setting and will undoubtedly attract sanctions, or about the . . .  — I want to hear the story.  An attorney who hopes to successfully represent a client in mediation needs to understand and be able to relate the story at the heart of their client’s lawsuit.  A well-written narrative can set the stage for a mediator who often knows little or nothing about the litigation that is pending or unfolding and provide the foundation for a successful and efficient mediation session.