Trusts: Cases

Trustee had discretion to assess defense costs to wayward son (Ga. App.)
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Howard McPherson established an irrevocable trust in 1990. At the time, he had four children, Scott, Lisa, Robin, and Eric. An additional son was born to Howard’s second wife after the trust was established. The trust gave the trustee discretion to provide for his children’s support, maintenance, education and medical needs, taking into consideration any other means of support they or any of them may have to the knowledge of the Trustee. Howard retained power to remove trustees. In 1992, the children were added as co-trustees. By 2004, however, Howard threatened to remove Eric because Eric had placed his girlfriend on the company payroll and had threatened to sue his siblings. Eric did sue them a few months later. In March 2005, Howard removed Eric as a trustee and replaced him with his lawyer. When distributions were made from the trust in 2005, a portion of Eric’s distribution was diverted to sub-trusts for his children and a portion was diverted to pay legal expenses incurred as a result of the litigation against his siblings. “Between August 2005 and December 2008, Scott, Lisa, Robin, and the minor Howard received $ 2,240,000 per stirpes from the trust. Eric received $ 1,553,000 and his two children $ 265,000 each for a per stirpes total of $2,083,000 — precisely $ 157,000 less than his siblings.” In 2006, Eric initiated additional litigation where he argued that the trustee violated his duty by withholding funds used to defend the earlier litigation. He also argued that his father had no right to remove him as a trustee, and Eric demanded an accounting. The trustee could consider the failure of Eric’s first suit as an indication that it lacked merit, which would justify the trustees’ decision to pass these defense costs on to Eric alone. Eric’s other conduct gave his father reasonable cause to remove him as trustee.
McPherson v. McPherson, 2011 Ga. App. LEXIS 8 (1/7/2011)

Trust ineffective where wife did not consent (Cal. App.)
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George and Alice Cable were married in 1947 and remained married until George died in 1987. Although they did not have children together, George had a son from a prior marriage. In 1978, George executed a living trust without Alice’s written consent. The trust provided that if Alice survived, then 75% of the income would be paid to her for life, with the remaining 25% being reinvested. Upon Alice’s death, the trust was to be held until 1995 and then distributed among George’s grandchildren. Prior to his death, George modified the distributions to be made following Alice’s death, leaving $50,000 to each grandchild and then distributing the remainder among various charities. After George died, Alice executed a new Will leaving 20% of her estate to each of George’s grandchildren and the remainder to her brother. By codicil, Alice later made a specific gift of 20% of her estate to the Salvation Army. Following Alice’s death, one of George’s grandchildren argued that the trust was ineffective because the trust was comprised of community property and Alice did not consent to its creation. The charities demurred arguing, among other defenses, that objections to establishment of the trust were time barred. The court of appeals found otherwise, holding that the claim did not arise until Alice’s death.
Estate of Cable, 2010 Cal. App. Unpub. LEXIS 5583 (7/15/2010)

Constructive trust imposed in favor of elderly parents (Miss.)
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Jimmy Joel, a real estate developer, built a home and sold it to a couple with the understanding that if they wanted to sell it, he would re-purchase it for what they paid plus $1,000. When the couple decided to sell, Jimmy encouraged his parents to buy the home. They purchased the home using Jimmy’s lawyer. Although Jimmy contributed nothing toward the purchase price, Jimmy directed the lawyer to prepare the deed giving his parents a life estate and leaving him the remainder interest. When his parents asked about their ability to leave the property equally to their 3 children, or to sell it, Jimmy assured them they had nothing to worry about. Later, after their other son examined the deed with a lawyer, they discovered how a life estate works. Mr. and Mrs. Joel confronted Jimmy, demanding that he deed them a fee simple interest. Jimmy agreed to do so, but died before deeding the house back to his parents. When Mr. and Mrs. Joel confronted Jimmy’s widow, she refused to deed the property back. Mr. and Mrs. Joel filed suit alleging “mistake.” During the course of discovery, they discovered that Jimmy had met secretly with his attorney to dictate the terms of the deed. The complaint was then amended to allege that Jimmy made false statements to his parents. Following a two day trial, the Court imposed a constructive trust. On appeal, that decision was affirmed after finding that Jimmy abused a confidential relationship with his parents.
Joel v. Joel, 2010 Miss. LEXIS 330 (7/1/2010)

Court puts Humpy’s account together again; constructive trust imposed (Ark. App.)
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“Humpy” Druyvestein had two brokerage accounts which were left to different persons. One account was payable on death to the son of Humpy’s deceased brother (Terry) and the other was payable to his surviving wife, Lois. A mistake apparently occurred when Humpy’s broker changed firms and the accounts were moved. Rather than keeping the POD designations as they were, both accounts were made payable to Lois even through the account name and statements remained entitled “H.J. Druyvestein TOD Terry Druyvestein.” The mistake was not discovered until three years after Humpy’s death because Terry was waiting for bonds to mature. Then, when Terry inquired about payment, an official discovered that Lois was listed as the beneficiary. Terry sought imposition of a constructive trust. Although all the evidence supported Terry’s claim, the trial court dismissed his complaint. On appeal, that decision was reversed. Because all of the testimony supported Terry’s claim that the designation of Lois as a beneficiary was mistaken, and because there was objective evidence supporting the testimony, the trial court erred in failing to impose the trust.
Druyvenstein v. Summit Brokerage Services, 2010 Ark. App. 500 (6/16/2010)

Guardian’s petition to revoke trust denied (Ind. App.)
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Donna and Ollie Phillips had no children. They planned to leave their estate to the Riley Hospital for Children and executed reciprocal will to that effect. In 1992, prior to the time she was diagnosed with Alzheimer’s disease, Donna had given Ollie a power of attorney. In 2008, Ollie created a joint trust, signing his name and signing Donna’s name under the power of attorney. The trust named Ollie as initial trustee, Ollie and Donna as grantors and initial beneficiaries, and named a friend, Shoemaker, as successor trustee and remainder beneficiary. The trust was revocable and provided that during Ollie and Donna’s lifetime, it was to be used to provide for their support, maintenance and health. Ollie died in 2008. In 2009, a guardianship proceeding was brought and Hudson, a friend of Donna’s, was appointed as guardian of Donna’s person and estate. Hudson then filed a petition to do estate planning and to revoke the trust. Shoemaker objected. The court denied Hudson’s petition, finding that the trust was the culmination of Ollie and Donna’s true estate plan while they were competent and, as such, was in Donna’s best interests. Shoemaker was awared attorney’s fees and Hudson appealed. On appeal, the court found that Donna and Ollie met with their long-time attorney prior to execution of the trust and stated that they wanted to leave their estate to Shoemaker, who “was like a daughter” to them. The trust was used because Donna arguably lacked capacity to execute a new Will. The attorney met with them several time over a four month period. Further, Donna was the trust beneficiary during her lifetime and there was no evidence that Shoemaker had mismanaged funds or that the trust lacked sufficient assets to provide for Donna’s care. Under these circumstances, any question concerning whether Donna lacked capacity is a question of “weight and credibility” of evidence reserved for the trial court, which supported denial of the petition to revoke the trust.
In re Guardianship of Donna K. Phillips, 2010 Ind. App. LEXIS 789 (5/17/2010)

Court improperly terminated spendthrift trust (Fla. App.)
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Elizabeth Miller established a spendthrift trust for her son, James, and named her other son, Jerry, as trustee. She then transferred one-third of a property worth $1 million to the trust. Another one-third flowed into the trust through her Will. Shortly before Elizabeth died, a creditor took a judgment against James. That creditor sought to access the trust, claiming that the spendthrift trust should be pierced. The trial court agreed after finding that Jerry was essentially rubber stamping decisions James made about the trust assets. The trial court also found that the trustee and beneficiary “merged” as a result of James’ dominion over Jerry. On appeal, the court found that, although this was perhaps the most egregious example it had previously seen, where the spendthrift beneficiary lacks express control, the spendthrift trust does not fail. If it did, then every trust where a beneficiary “pines” to the trustee about his or her wants would be in danger. Also, because there was no change in legal title, there was no merger. The trustee continued to own the trust assets. Accordingly, the judgment below was reversed.
Miller v. Kresser, 2010 Fla. App. LEXIS 6152 (5/5/2010)

Legal expenses caused by legal malpractice are recoverable (Mo. App.)
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John and Kathryn Collier moved from their farm in 1999, establishing a trust to hold their assets. Shortly after the trust was established, Kathryn resigned (and then died) and their daughter, Rhonda, stepped in as co-trustee with John. The original trust had been drafted to give one son, Rodney, a life interest, then to his children if he had any, otherwise to Rhonda. The apparent purpose was to by-pass Rodney’s then wife. However, Rodney divorced so in 2002, John sought to revise the trust to convey Rodney’s share in fee simple. The attorney making the trust revisions failed to get Rhonda’s signature on any of the trust revisions or transfer documents. After John’s death, a dispute arose concerning whether the 2002 changes were valid since Rhonda had not signed any of the documents as co-trustee. The law firm was brought into that litigation as a co-defendant on a malpractice claim. When the family litigation was settled, the family then turned on the law firm defendants. The law firm sought, and was granted, summary judgment on the theory that the family legal expenses could not be recouped as a matter of law. Other claims were dismissed. On appeal, and without deciding whether there was a breach of duty, the court of appeals reversed finding that the victim of legal malpractice can recover legal expenses caused by the alleged malpractice. The legal malpractice claim was collateral to the family litigation and, therefore, if any legal expenses were caused by negligence, then they would be recoverable. The case was remanded to determine whether there was a breach of duty.
Collier v. Manring, 2010 Mo. App, LEXIS 570 (5/4/2010)

Court Orders Distribution Consistent With Trust Terms (MI App)
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Petitioners were beneficiaries of decedent’s (Elmer’s) Trust. Elmer had a trust providing for his wife and also establishing a family trust. However, the family trust was ignored and after Elmer’s death, all trust assets were transferred to his wife’s (Dorothy’s) trust account. After Dorothy’s death, the assets were distributed to respondents consistent with Dorothy’s trust, which favored respondents. Petitioners brought suit against the Trustee Bank and respondents; they argued that the Bank improperly funded a separate martial trust fund with Elmer’s assets instead of funding Elmer’s family trust first. According to petitioners, the trust required the trustee to fund the family trust before funding the marital trust. The trial court agreed and imposed a constructive trust on the assets that should have been placed in the family trust. In affirming, the Court of Appeals held that the plain language of the Trust controlled and that the family trust must be funded up to the point where estate tax would begin to be incurred before the marital trust is funded.
In re Elmer M. Dobson Trust, 2010 Mich. App. LEXIS 96 (January 19, 2010)

Irrevocable voting trust violated public policy and was void (NE)
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Prior to his death, James placed the family business stock in a voting trust. He did this because his wife, Donna, had an argument with key employees and James was concerned about the continuity of the business. During his life-time, James was the sole voting trustee. After James died, Donna sought to void the trust so she could vote the corporate shares. Under Nebraska law, a voting trust must be limited to a period of ten years or less. Because the intent of the Voting Trust was to ensure that the wife never exercise shareholder voting rights, it could have remained in effect for a period exceeding 10 years, making it void as against the public policy. The court rejected an argument that the trust constituted an irrevocable proxy; when the interest with which a proxy is coupled is extinguished, so is the proxy. The Successor Trustee had no interest rising to the level required for an irrevocable proxy and therefore any proxy was extinguished upon James’ death.
Bamford v. Bamford Inc., 279 Neb.259, 2010 Neb. LEXIS 9 (January 22, 2010)

Burden of proof shifts where fiduciary relationship exists (NY App.)
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Plaintiff sought a declaration that the decedent’s Living Trust was in full force. They also sought a declaration that all subsequent appointments, amendments and affidavits were ineffective because defendant used fraud, duress and undue influence upon decedent to make those changes. The jury rendered a special verdict in favor of plaintiff, finding that decedent was in a weakened physical and mental condition during the time period that he made the changes and that defendant failed to prove that no undue influence was perpetrated upon decedent. As plaintiff made a showing of decedent’s weakened condition which included symptoms of Alzheimer’s, his reliance on defendant and defendant’s admitted position of trust and confidence regarding decedent’s care and finances, the burden shifted to defendant to come forward with clear proof that the execution of the various documents was fair, well understood and free from fraud, deception or undue influence. The defendant failed to do so, and the Court denied defendant’s appeal to set aside the verdict.
Oakes v. Muka, 2010 NY Slip Op 416; 2010 N.Y. App. Div. LEXIS 405 (January 21, 2010)

Res judicata precludes claim against trustee (Tenn. App.)
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Jerry Hicks was injured while serving in the military. In 1968, his father was appointed as conservator, followed by a series of other conservators with most of them being banks. Hicks died in 2006, leaving an estate valued at $780,561. When the bank filed its final accounting, seeking discharge, certain family members objected. Their objections were overruled. The chancery court found that the bank was guardian of property, not guardian of the person; that disbursements were reasonable, and that the bank did nothing improper with regard to Hick’s property. That decision was not appealed. Later, plaintiffs (then serving as administrators of Hicks’s estate) filed suit alleging that the bank failed to spend sufficient money on Hicks while serving as guardian and, as a result, Hicks experienced pain and suffering and diminished quality of life. The action was dismissed. On appeal, the Court rejected plaintiffs’ attempts to distinguish the prior ruling; the same issues were litigated, to wit, whether the bank acted appropriately in spending Hicks’ funds. Plaintiffs’ claim that their personal injury action could not have been brought in chancery court due to jurisdictional limitations was rejected since the chancery court has concurrent jurisdiction, or in the absence of such jurisdiction, power to transfer the claim to the appropriate court.
Miller v. Regions Bank, 2009 Tenn. App. LEXIS 780, Appeal No. M2008-01709-COA-R3-CV (11/20/2009)

Beneficiary had standing to sue third party for undue influence (Cal. App.)
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Arthur Gilbert died in 1991, leaving his wife, Lenora, as trustee of his testamentary trust. By 1997, Lenora’s health declined and Barbara Johnston began assisting Lenora with the trust administration. Tammy King, one of the trust beneficiaries alleged that Barbara’s assistance amounted to undue influence. Among the transactions under review, a property valued at $423,000 was transferred out of the trust and another was used to secure a loan that ultimately went into default. When Lenora’s health declined further, even though she was not a trustee, Barbara’s name was placed on lease agreements and collected rent payments on behalf of the trust. After Lenora’s death, Barbara continued to collect rent payments for the trust. The trial court found that Barbara did exercise undue influence, but found that Tammy had no standing as beneficiary to bring the suit. The trial court failed to address her claim that Barbara, by acting as trustee, was a trustee de son tort. On appeal, the trial court was reversed. Initially, the court found the authority less than clear concerning whether Tammy, as beneficiary, could maintain a claim against Barbara; ordinarily that action belongs to the successor trustee. Here, however, the successor trustee had not been appointed when Tammy originally filed the suit and adding him would have delayed the trial. In determining whether the naming of a successor trustee extinguished Tammy’s claim, the court found that it did not. A beneficiary may maintain an action against and recover from a third party who has assisted a former trustee in committing a breach of trust even where a successor trustee has been appointed. The court found that the trial court also erred in failing to consider Tammy’s claim that Barbara acted as a trustee de son tort and should be held liable for failing to protect or recover the trust property.
King v. Johnston, 2009 Cal. App. LEXIS 1796, Appeal No. D054136 (11/9/2009)

Trust design illustrates material purpose, prevents termination by consent (OH)
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Nellie Lint died in 1972, leaving $50,000 in trust, each, for her two granddaughters. The trust provided for payment of $250 per month with no termination provision. In 2003, each granddaughter filed a petition seeking judicial termination of the trusts so they could invest the principal toward their retirement. They argued the trusts should be terminated under Ohio’s trust code, analogous to § 411 of the Uniform Trust Code, which allows termination of a trust with consent of all beneficiaries if continuance of the trust is not necessary to serve a material purpose of the trust. Their petitions were denied after the court found that a material purpose of the trust was that “neither Appellant would get the trust balance outright, but to bestow the benefit on the farthest generation possible.” The trusts were, however, reformed to conform with the rule against perpetuities. On appeal the court affirmed, finding that the design of the trust illustrates the material purpose of the trust and the design showed that Mrs. Lint intended to provide a secure income for her granddaughters and their issue for as long as the corpus remained. The design was comparable to an annuity and continuance of the trust was necessary to achieve Mrs. Lint’s material purpose in creating the trusts.
Vaughn v. Huntington Nat’l Bank Trust Div., 2009 Ohio 598 (February 10, 2009)

Geez, why didn’t I hire a lawyer? (OH)
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Nellie Roy appealed pro se from a judgment dismissing her complaint with prejudice and removing her as trustee of her uncle’s trust. Ezra Westcott Washington died on May 7, 1970. His Will, probated the same month, created a trust. Nellie was the second trustee after the first was removed. After “much litigation,” Nellie was removed in favor of her brother, James. In 1997, James was removed for failing to file required fiduciary accounts and failing to abide by orders of the court. Nellie was then re-appointed as trustee. In 2004, Nellie filed a complaint against her brother, who responded with a motion to remove Nellie as trustee. A hearing was held in January 2007 where the probate court dismissed Nellie’s complaint and granted James’ motion to remove her as trustee. On appeal, Nellie’s first assignment of error alleged “racial discrimination by ignoring filings seeking to indite [sic] conspirators for illegal consent to waiver of contents of estate documents presented.” She requested that the appellate court provide her with monetary relief in the amount of $2,500,000 and “implement criminal charges against the defendants.” In overruling her assignment of error, the court noted Nellie’s misconception of the role of an appellate court, which is to review and affirm, modify or reverse the judgment or final order of a trial court. Nellie’s second assignment of error, that she was removed as trustee without cause, was also overruled. The probate court found that Nellie “had been steadfast in her refusal to sell, or cooperate in attempts to sell, trust property encumbered with tax liens later lost to foreclosure or any other trust property currently being operated at a loss.” The probate court also found that her recent filings were vexatious and difficult to comprehend. Since she failed to file a transcript of the hearing, the appellate court presumed the regularity of the proceedings below.
Trust of Washington v. Washington, 2009 Ohio 560 (February 9, 2009)

Intervention of a trustee does not prevent application of usual rules of construction (GA)
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Margaret, who died in 2003, was survived by her husband, Kenneth, and by children from a prior marriage. Her will established a credit shelter trust, naming Kenneth and one of her sons, Bradford, as co-trustees. Kenneth, as executor, transferred 75% of a lake house property to the credit shelter trust and 25% to a residuary trust. When Kenneth found a buyer for the lake house, Bradford refused to execute the closing documents. Bradford’s argument was that Margaret’s Will carved the lake house out of the credit shelter trust and gave his an option to receive it 7.5 years after her death. The trial court held that this express provision in Margaret’s Will limited Kenneth’s general right under the Will to direct the sale of “any home.” Affirming the trial court’s decision, the Supreme Court applied the rule of construction that an estate granted in plain and unequivocal language in one item of a will cannot be lessened or cut down by a subsequent item, unless the language therein is as clear, plain, and unequivocal as that in the former item. Further, the intervention of a trust does not change the rule.
Rice v. Pager, SO8A0909, Supreme Court of Georgia (June 30, 2008)

Trust provision limiting right to marry was void as against public policy (IL)
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Prior to their death, Max and Erla established trusts which included the following provision: “A descendant of mine other than a child of mine who marries outside the Jewish faith (unless the spouse of such descendant has converted or converts within one year of the marriage to the Jewish faith) and his or her descendants shall be deemed to be deceased for all purposes of this instrument as of the date of such marriage.” Only one of their grandchildren was married to a person of Jewish faith. After one of the grandchildren initiated litigation alleging improprieties and the misappropriation of millions, the defendants countered with the “Jewish clause.” Under the clause, they argued that the plaintiff was deemed to have predeceased Max and had no interest in the estate. Therefore, the plaintiff’s claims should be dismissed. The court was then asked to determine whether “the Jewish clause” was enforceable. The Court of Appeals affirmed the trial court, holding that the “Jewish clause was unenforceable because it “seriously interferes with and limits ths right of individuals to marry a person of their own choosing.”
In re Estate of Feinberg, 1-06-2823, CTA Illinois (June 30, 2008)