Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Tuesday, September 5, 2017

Constructive Trusts Can Catch Wayward Trust Assets

CinderellaThe California Court of Appeals, in a case styled Higgins v. Higgins, invoked the powers of a constructive trust to recover misappropriated assets. Maria Higgins, along with her husband, created the Higgins Family Trust in 1994. By 2007, Maria’s husband had passed and Maria, now 91, was suffering from cognitive decline. In 2009, as Maria continued worsen mentally, she added her step-son, Clive, as a joint account holder to her checking and savings accounts that were held by the trust. Clive was diagnosed with cancer in 2012 and became unable to attend to his stepmother’s finances. To remedy the deficiency, Clive named his wife, Lupe, as an account holder on a set of new created accounts.

After Clive’s death, Lupe placed the accounts in her name. When Maria died, Lupe distributed $10,000 to each of Maria’s eight grandchildren and treated the remaining funds as her own. Clive’s brother, Arthur, who was the successor trustee of the Higgins Family Trust, filed suit to recover the funds. At the trial court level, the judge held that Lupe had the right to do what she wished with the funds since Clive named her a joint account holder. The appellate court disagreed, held that Lupe’s repudiation of the trust was unjust, and ordered a constructive trust.

The Higgins case serves as a reminder to trustees to appropriately title trust accounts in order to make sure trust assets pass to the intended beneficiary.

See Jeffrey S. Gavin, Constructive Trusts Can Catch Wayward Trust Assets, Trust on Trial, May 15, 2017.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

September 5, 2017 in Current Events, Estate Planning - Generally, New Cases, Trusts | Permalink | Comments (0)

Wednesday, August 23, 2017

Article on Catching the Gold at the End of the Rainbow: The Impacts of Retroactive Recognition of Same-Sex Marriage on Community Property Division

RainbowKaitlin E.L. Gates recently published an Article entitled, Catching the Gold at the End of the Rainbow: The Impacts of Retroactive Recognition of Same-Sex Marriage on Community Property Division, 9 Est. Plan. & Community Prop. L.J. 263 (2017). Provided below is an abstract of the Article:

This Comment begins by presenting two hypothetical questions that have become relevant in Texas post-Obergefell. Specific legal questions raised in this Comment include: (1) if a same-sex couple currently living in Texas was legally married in another state pre­-Obergefell, what date should Texas use as the date from when they started accumulating community property; and (2) when does a same-sex couple who met the requirements of a valid common-law marriage in Texas pre-Obergefell begin to acquire community property?  Second, this Comment provides a brief history of same-sex marriage in both the United States and Texas, as well as a background of the recent seminal Unites States Supreme Court case, Obergefell v. Hodges. Third, This Comment discusses marital rights for heterosexual couples in Texas, including the types of marriage the state recognizes. Next, the Comment explains available marriage alternatives for same-sex couples pre-Obergefell, namely civil unions and domestic partnerships. Fifth, this Comment addresses spousal property rights and property division for both opposite-sex and same-sex couples in Texas. Next, the Retroactivity Doctrine is described and applied generally to same-sex marriage in Texas. This comment then revisits hypothetical questions raised in Section II and analyses potential outcomes of the two legal questions. Finally, the Comment suggests amendments to Texas’s statutes that are currently written to reflect a limitation of marriage in the state to opposite-sex couples.

 

August 23, 2017 in Articles, Estate Planning - Generally, New Cases | Permalink | Comments (0)

Tuesday, August 22, 2017

Is F.S. §732.703 Susceptible to a Constitutional Challenge by a Former Spouse Whose Claim for Benefits is Denied?

FreedomIt is common practice for spouses to take out life insurance policies and to then name their partner the beneficiary of the policy. As the majority of marriages now end in divorce, many states had to answer the question of whether the named spouse-beneficiary would still receive the insurance benefits upon the death of the spouse that took out the policy. Some states, Florida for example, answered the question with a hard statutory “no”. This simple answer is coming under fire from Constitutional attack as opponents to such statutes claim that it violates individuals’ freedom to contract. The Supreme Court is scheduled to hear a petition in Sveen v. Melin regarding this exact issue.

See Donna L. Eng and Scott Konopka, Is F.S. §732.703 Susceptible to a Constitutional Challenge by a Former Spouse Whose Claim for Benefits is Denied?, The Florida Bar Journal, August 7, 2017.

Special thanks to Paul M. Cathcart, Jr. for bringing this article to my attention.

August 22, 2017 in Current Events, Estate Planning - Generally, New Cases | Permalink | Comments (0)

Monday, August 21, 2017

Article on Rachal v. Reitz and the Efficacy and Implementation of Mandatory Arbitration Provisions in Trusts

ArbSteven D. Baker recently published an Article entitled, Rachal v. Reitz and the Efficacy and Implementation of Mandatory Arbitration Provisions in Trusts, 9 Est. Plan. & Community Prop. L.J. 191 (2017). Provided below is an abstract of the Article:

With the recent decision in Rachal v. Reitz, the Supreme Court of Texas enforced a trust provision requiring binding arbitration of disputes between a trustee and a beneficiary, joining Florida and Arizona in explicitly recognizing the validity of such clauses. Settlors and testators who seek to minimize the delays and costs of potential conflict between beneficiaries will enjoy the favorable decision. But while the Rachal court answered, at least in part, the question of whether the settlor of a Texas trust can impose arbitration on the trustee and beneficiaries, the conscientious estate planning practitioner must also consider whether a client should do so in its will and trust instruments.

Accordingly, the first part of this article discusses the advantages and disadvantages of arbitration—a vehicle for avoiding litigation developed for the commercial world—in the realm of settling trust controversies. The second part of this article considers the impact of the Rachal opinion, as well as statutes in other jurisdictions that have recognized the use of such provisions. The third part addresses the particular limitations of mandatory arbitration in the context of resolving trust disputes. And the last part discusses the implementation of trust arbitration, both in terms of the summarizing the procedures set forth in the Texas Arbitration Act (TAA) and the drafting of the clause itself.

August 21, 2017 in Articles, Estate Administration, Estate Planning - Generally, New Cases, Professional Responsibility, Trusts | Permalink | Comments (0)

Thursday, August 17, 2017

Definitions in Shareholder Agreements Matter When Transferring Family-Owned Business Stock

DictionaryOwners and shareholders of a family-owned corporation will often enter into contractual arrangements limiting to whom an owner may transfer their shares. Many times, these agreements provide the company or other shareholders the right of first refusal if a shareholder desires to sell their ownership stake in the company. If the language in the contract is unclear, there is potential for possible challenges to a transfer of stock.

A current case in which this was the predominant issue is Saccani v. Saccani. This California Court of Appeal decision saw two nephews challenge their uncle’s right to exercise an option to purchase their father’s stock from a trust upon his death. For the nephews, a court decision in their favor would have forced their uncle to return the stock to the corporation, granting them a one-half interest in the company instead of the one-third interest they held. The question for the court was whether the language in the contract, specifically language dealing with the term “transfer”, was defined broadly enough to allow for a transfer of stock through the exercise of an option to purchase. The court noted that the definition of the term “transfer” was very liberally defined in the original agreement and interpreted it to allow the purchase. While the uncle was the victor in both the trial and appellate courts, this case serves as a reminder that definitions are extremely important when parties draft a shareholder agreement.

See Michael P. Connolly, Definitions in Shareholder Agreements Matter When Transferring Family-Owned Business Stock, The National Law Review, August 8, 2017.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

August 17, 2017 in Estate Planning - Generally, New Cases, Trusts | Permalink | Comments (0)

Friday, August 11, 2017

Corpus Christi Court Upholds Undue Influence Verdict

CorpusA Corpus Christi Court of Appeals upheld a lower court’s jury verdict denying probate of a will based on allegations of undue influence. To show undue influence, a plaintiff must prove three elements: “(1) the existence and exertion of an influence; (2) that subverted or overpowered the testator’s mind at the time he executed the instrument; (3) so that the testator executed an instrument he would not otherwise have executed but for that influence.” In Estate of Jose M. Rodriguez, the jury found that the decedent’s daughter was the sole beneficiary of the will, that she wrote checks on his account until they bounced, chose the lawyer that drafted the will, and that the testator disinherited seven of this other children in favor of his daughter; one of the children is confined to a wheelchair. While no piece of evidence, on its own, is usually enough to justify a finding of undue influence, the aggregate of these factors was enough for the jury to find the daughter exercised undue influence over her father.

See J. Michael Young, Corpus Christi Court Upholds Undue Influence Verdict, Texas Probate Litigation, August 1, 2017.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

August 11, 2017 in Estate Planning - Generally, New Cases, Wills | Permalink | Comments (0)

Monday, August 7, 2017

Unsigned Will? No problem!

MichiganNearly every jurisdiction in these United States has almost universally held, for a historically significant period of time, that an unsigned will is no good in probate. Whether the will is holographic or attested, the testator must, with some very stringent exceptions, place his John Hancock somewhere on the document. In a recent case out of Michigan, In re Estate of Attia, a Michigan appellate court overturned the probate court’s decision granting summary disposition regarding an unsigned will. The probate court dismissed an original petition holding that an unsigned will was not admissible into probate as a matter of law; so far, pretty unsurprising.

Where the appellate court diverges tangentially from the norm was its reasoning and statutory consideration that led it to hold that Michigan statute MCL 700.2503 worked as an exception to MCL 700.2502. MCL 700.2502 sets out the standard requirements for a will: it must be in writing, signed by the testator, and witnessed and signed by two other individuals.

The appellate court held that the language in MCL 700.2503 was intended by the legislature to be an exception to the general requirement that a will must be signed: “Accordingly, a will does not need to be signed in order to be admitted to probate under MCL 700.2503, as long as the proponent of the document in question establishes by clear and convincing evidence that the decedent intended the document to be a will. To hold otherwise would render MCL 700.2503 inapplicable to the testamentary formalities in MCL 700.2502, which is contrary to the plain language of the statute.”

Although the statutory language seems to allude only to “a document or writing added upon a document,” the court did see this as a barrier to their final holding. So, for now, a will without a signature can be introduced into probate in Michigan.

See Attia v. Hassan (In re Estate of Attia), 2016 Mich. App. LEXIS 2075 (Mich. Ct. App. Nov. 10, 2016).

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

August 7, 2017 in Current Events, Estate Planning - Generally, New Cases, Wills | Permalink | Comments (0)

Tuesday, July 25, 2017

Another Death Bed Limited Partnership Formation Fails to Accomplish Its Objectives

Snoopy-irs-cartoon[1]Decedent Nancy Powell, after the Tax Court’s holding in Estate of Nancy H. Powell, now represents another taxpayer who failed to achieve estate tax savings through the creation and funding of a limited partnership. Nancy Powell’s son, Jeffrey, acting with a power of attorney, formed a limited partnership—NHP Enterprises, LP—in August of 2008. He then transferred $10 million worth of cash and securities into the limited partnership. Nancy Powell retained a 99% interest as a limited partner with Jeffrey Powell receiving the remaining 1% interest. The partnership agreement allowed Nancy Powell to determine the timing and amount of distributions. The agreement also allowed her to dissolve the partnership with the consent of her son.

After forming the limited partnership, Jeffrey Powell transferred the 99% interest held by his mother into a charitable lead annuity trust (CLAT). The court held that this gift to the CLAT amounted to the relinquishment of the decedent’s power to dissolve the partnership and control asset disposition. Because the transfer occurred within three years of Powell’s death, an application of Internal Revenue Code (IRC) Section 2035(a) pulled the full value of the previously transferred assets back into the gross estate.

The court’s willingness to apply this section to a scenario in which a decedent only holds a partnership interest makes any retention of any held interest a precarious proposition. It is likely this case will be appealed.

See Another Death Bed Limited Partnership Formation Fails to Accomplish Its Objectives, Lexology, July 18, 2017.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

July 25, 2017 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, New Cases, Trusts | Permalink | Comments (0)

Friday, July 7, 2017

Article on Tomorrow's Inheritance: The Frontiers of Estate Planning Formalism

HortonhearsawhoDavid Horton recently published an Article entitled, Tomorrow's Inheritance: The Frontiers of Estate Planning Formalism, 58 B.C. L. Rev. 539 (2017). Provided below is an abstract of the Article:

The rules that govern the creation of an estate plan are in flux. Courts once demanded strict adherence to the Wills Act. Yet, this legacy of hyper-vigilance is waning, as the Uniform Probate Code, the Restatement (Third) of Property, and ten states have adopted the harmless error rule. Meanwhile, trusts, which need not comply with the Wills Act, have eclipsed wills as the dominant method of posthumous wealth transmission. This Article explores three budding topics that threaten to further complicate this area. First, there are anecdotal accounts of decedents trying to make electronic wills. In both strict compliance and harmless error jurisdictions, e-wills raise thorny issues about the meaning of “signed” and “writing” in the Wills Act, and when, if ever, courts should be able to overlook violations of the statute. Second, despite the received wisdom that trusts are less formal than wills, a rising number of settlors are failing to observe the arcane principles that govern the transfer of property into a trust. Third, most state legislatures have adopted or are currently considering statutes that give fiduciaries access to the contents of a decedent’s email, text messaging, and social media accounts. But the precise steps necessary to convey these cutting-edge forms of property after death is unclear. This Article tries to help courts and policymakers regulate these matters by offering a fresh perspective on the purpose of mechanical, bright-line principles in the realm of estate planning. As conventionally framed, this debate revolves around what the Article calls the “intent paradigm”: the idea that execution doctrines should be gauged primarily by whether they facilitate or frustrate the wishes of individual decedents. Conversely, this Article explores a different virtue of formalism: its ability to prevent decedents from imposing spillover costs. This Article demonstrates how some unyielding principles limit the burden on courts, survivors, trustees, the trustee’s creditors, purchasers of trust property, and other third parties. It then explains how recognizing this anti-externality function can pay dividends in wills law, trust law, and emerging niches such as the inheritability of digital assets.

July 7, 2017 in Articles, Current Events, Estate Planning - Generally, New Cases, New Legislation, Technology, Trusts, Wills | Permalink | Comments (0)

Thursday, June 29, 2017

Thouron Estates

Bad lawyerJudge Mark L. Tunnell, in a 212-page-long opinion, wrestles with the issue of the appropriateness of attorney, accountant, and executor fees. There are two sizable estates considered in the opinion. The Estate of Sir John Rupert Hunt Thouron had a value of $46 million. His son, John Julius Thouron, had an estate valued at $13 million. Regarding the son’s estate, Executor Charles Norris was surcharged $753,000. The firm of Lamb McErlane PC was ordered to disgorge $135,882. In the estate of Sir John Thouron, Executor Charles Norris was surcharged a total $5,672,999. Lamb McErlane was ordered to disgorge $4,351,310 in fees, and Norris and the Lamb firm were jointly surcharged $557,001.

See Patti S. Spencer, Thouron Estates - READ ALL ABOUT IT!, Spencer Law Firm, June 21, 2017.

Special thanks to Patti S. Spencer for bringing this article to my attention.

June 29, 2017 in Current Events, Estate Administration, Estate Planning - Generally, New Cases, Professional Responsibility | Permalink | Comments (1)