Bryan Cave St. Louis partner, Douglas Stanley, and associate, Jarriot Rook, authored an article in the recently-published spring issue of the St. Louis Bar Journal, concerning the key issues to consider in nonjudicial settlement of fiduciary disputes.
Because powers of attorney are often used as an elder care planning tool, they are also often used by the attorney-in-fact to manage the estate planning and finances of the principal. The creation of a trust can be an important estate planning tool, so, if the principal wants to authorize his or her agent to create a trust, that authorization should be specifically granted in the power of attorney. Not surprisingly, there is increasing litigation over the scope of powerconveyed to an agent through a power of attorney, including litigation regarding the agent’s authority to create a trust for the principal. In Dishman v. Dougherty, Kentucky was one of the latest states to have an appellate court weigh in.
Setting aside a very complex factual and procedural history that are recounted in detail in the opinion, one of the take-aways from the opinion was that this paragraph in a power of attorney did not authorize the attorney-in-fact to create a trust (particularly when considered in conjunction with the terms of an antenuptial agreement between the husband/principal and the wife/co-trustee/attorney-in-fact):
[Granting the power to] [c]onvey any real or personal property to the Trustee of any trust agreement between me and said Trustee and entered into either before or after the date of this instrument . . .
The appellate court held that “in order for an attorney-in-fact to create a trust pursuant to a POA, this authority must be expressly provided for in the instrument if it contains a specific provision related to trusts.” Here, the power of attorney only permitted the attorney-in-fact toconvey property into a trust rather than permitting the power to create a trust. As a result, a trust purportedly created by the attorney-in-fact was void ab initio.
Estate planners and prospective principals should consider discussing the power to create a trust as one of the specific powers granted to an attorney-in-fact. In addition, trustees accepting a trust purportedly created using a power of attorney should consider, as part of their due diligence in accepting the relationship, a thorough analysis of whether the the power of attorney actually permitted the creation of the trust.
There is much confusion about what a trust protector can and cannot do with respect to a trust for which the trust protector is serving. First and foremost, the trust protector’s powers provided by state statute are often limited to the powers authorized in the trust instrument, as reflected by the Court in Schwartz v. Wellin, 2014 WL 1572767 (D.S.C., April 17, 2014).
Keith Wellin created the Wellin Family 2009 Irrevocable Trust (“Trust”), a dynasty trust for the benefit of his three children and their respective lineal descendants, with his children and the South Dakota Trust Company as the Trustees. After creating this Trust, Milton sold his interest in the Friendship Partners LP (“FLP”) to the Trust, taking back a promissory note for $50 Million. Apparently in 2013, a dispute arose between Keith and his children, when his daughter, Cynthia, as manager of the LLC that was the general partner of the FLP, proposed to sell all of the assets of the FLP, liquidate the FLP, set aside $50 Million to pay the promissory note and distribute the remaining $95 Million to the three children.
In order to prevent such actions, Keith appointed Schwartz as the Trust Protector. The same day, Schwartz amended the Trust to give the trust protector “the power to represent the Trust with respect to any litigation brought by or against the Trust if any Trustee is a party to such litigation”, and “to prosecute or defend such litigation for the protection of trust assets” (“Litigation Provision”). Schwartz also immediately removed the corporate trustee, and the individual Trustees completed the sales and distributions as proposed. The individual Trustees believed their actions were justified to avoid a $40 Million tax liability that would be incurred when Keith turned off the Trust’s grantor trust status. (more…)
Originally posted on BryanCaveFiduciaryLitigation.com
A recent case from Connecticut, Tyler v. Tyler, involved a claim to modify a trust based on undue influence. Few details are provided in the opinion about the requested modification but it is a curious claim. If undue influence is exerted over the grantor, then isn’t the contested trust or amendment invalid? Why or how should a trust that is the product of undue influence be modified to reflect the true intent of the grantor? (more…)
Apparently, this life lesson was not learned, or if learned, was forgotten, by Roy Greenbaum, the Personal Representative in Estate of Tanenblatt v. Comm’r. The issue in this case concerned the valuation of a 16.667% interest in an LLC included in the Diane Tanenblatt’s gross estate. (more…)
On occasion, a case arises that causes wonder and amazement that children would complain that mom is receiving funds from a trust that either should be distributed to them or should be preserved for them. The Missouri case, O’Riley v. U.S. Bank, N.A., is just such a case.
The Trust was created on the death of Donald O’Riley in 1982 for the benefit of his wife, Arlene, and their two sons, Terrance and Gerald. In 2010, the sons filed this action against the Trustee for breach of its duty of impartiality in refusing to make distributions to them and favoring their mother, instead. The trial court entered judgment for the Trustee that it had not breached its duty of impartiality and the appellate court affirmed. (more…)
When it comes to estate planning and disposition of assets upon death, a business owner should pay careful mind to the type of business he or she owns and update his or her estate planning documents if the form of the business changes. InEngland v. Simmons, the Georgia Supreme Court had to determine a testator’s intent when he left his “personal assets” to his brother and sister and left his “business interests” in his sole proprietorship to his brother, sister, and two longtime employees.
Traditional Fine Art was the sole proprietorship of Robert Carl Haege. Therefore, it had no legal existence separate and apart from Haege himself. For these reasons, a trial court determined that all property associated with Traditional Fine Art should go to Haege’s brother and sister as “personal assets” – all property associated with the business was merely Haege’s personal property and, therefore, there was nothing to pass under the “business interests” clause. (more…)
Originally posted on bryancavefiduciarylitigation.com
It is uncommon to see modern trusts that require distribution of all income but preclude distribution of any principal to a beneficiary. Since the characterization of income and principal can be subject to multiple interpretations, precluding any distribution of principal often can lead to legal disputes. In Favour v. Favour (not for publication), the Arizona Court of Appeals disagreed with an Arizona superior court’s ruling that “the income beneficiary of [a] Martial Trust is entitled only to the annual ‘distributable net income (“DNI”)… reported on the federal income tax return, and no more than that.” The Will also specified that it was intended to qualify as “qualified terminable interest property” (“QTIP”) for which an election could be made under Section 2056(b)(7). (more…)
Originally posted on bryancavefiduciarylitigation.com
Knowing when to initiate guardianship proceedings for a loved one can be a difficult and personal decision. When it comes to substance abuse, those proceedings can enter a grayer area than proceedings involving dementia, injury, or developmental disability. At what point is an addict or alcoholic incapacitated? What happens during moments of sobriety? In In re Guardianship of Esterly (unpublished), the Court of Appeals of Minnesota dealt with some of these difficult questions. (more…)