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…)
Maintaining property in a family for generations to come can be tricky. As the parties in Hoefer v. Musser found out, the intention of a decedent speaks volumes and can overcome procedural deficiencies such as an improper recording of a warranty deed. In Hoefer, the Missouri Court of Appeals (Southern Division) recently held in favor of a decedent’s wishes to keep a farm in his family for “generations and generations.” See Hoefer v. Musser, No. SD 32576, 2013 WL 6800823 (Mo. App. S.D. Dec. 23, 2013).
In Hoefer, the decedent’s nephew (Hoefer) was appointed as successor trustee to decedent’s irrevocable trust—the “Vineyard Dwain Hoefer Trust,” created during Hoefer’s lifetime. Musser, the decedent’s niece, was appointed as personal representative to Hoefer’s estate. The trust’s only asset was the decedent’s farm, which he intended to keep in his family for as long as possible by granting the farm to Hoefer until his death, then to Matthew Hoefer until his death, then to Matthew Hoefer’s living children or lawful heirs.
After executing the trust documents and warranty deed transferring ownership of the farm to the trust, the decedent’s attorney gave him the original copies of the documents and instructed him to record both the trust and warranty deed. Approximately three months after execution of the trust, Musser called Hoefer to indicate that the trust had not yet been recorded. Hoefer recorded the trust shortly thereafter.
Following Hoefer’s recording of the trust, the farm house burned down–resulting in a total loss of the property. Less than a year after the farm’s destruction, Hoefer, with the decedent’s permission, built a house on the farm. Not long after Hoefer built the house on the farm, the decedent passed away. Musser, in her capacity as personal representative of the decedent’s estate, instituted a probate action and listed the farm land as an asset of the estate.
Hoefer moved to quiet title, or in the alternative, unjust enrichment for the cost of the improvements done on the farm. Hoefer argued that the decedent had let him build the home on the farm because it was Hoefer’s property. Musser argued that the decedent never recorded the warranty deed, and therefore the transfer of the farm as an asset to the trust never occurred.
After a bench trial, the trial court ruled in favor of Hoefer, finding that the intentions of the decedent pointed his desire to keep the farm in his family. Hoefer provided evidence and witness testimony regarding the decedent’s actions and intentions. For example, witnesses testified that decedent had offered the farm to other members of his family and even Musser herself, who all declined, before the decedent granted the property to Hoefer.
Although the decedent’s intentions were a substantial focus of the trial court’s ruling, the crux of the case came down to a procedural aspect: the decedent’s failure to record the warranty deed transferring the farm to the trust. Musser presented evidence that although she was present for the execution of the trust, she did not see the warranty deed in the papers given to the decedent for him to record. Furthermore, the original warranty deed had been given to the decedent with instructions on how to record, and was presumed to have been lost in the fire that destroyed the farm. The parties did not contest that the warranty deed had in fact, never been recorded.
After the trial court ruled in Hoefer’s favor, Musser appealed, arguing that the farm was never properly transferred to the trust in that the deed delivering title to the trust was not accepted by the grantee nor recorded. The Missouri Court of appeals was bound to uphold the trial court’s ruling unless there existed no substantial evidence to support judgment, the judgment was against the weight of the evidence, or the trial court erroneously declared or applied the law.
A deed must be delivered for it to operate as a transfer of ownership of land because the delivery gives the instrument force and effect. Rhodes v. Hunt, 913 S.W.2d 894, 900 (Mo. App. S.D. 1995). Here, the burden of showing that the deed was not delivered was upon Musser, as the party contesting its delivery. The Missouri Court of Appeals looked at case law precedent holding that although recording creates a presumption of delivery, it does not operate as delivery of the deed. In fact, delivery may be made even though the grantor remained in possession of the deed. O’Mohundro v. Mattingly, 353 S.W.2D 786, 792 (Mo. 1962).
The court also looked to precedent that held that the failure to record a deed conveying title to property to a trust does not affect the validity of the trust. Newtom v. Winsatt, 791 S.2.2d 823, 829 (Mo.App.S.D. 1990). Under Newton, the Court found substantial evidence for the trial court to find an effective delivery and acceptance of the warranty deed.
Finding that it was undisputed that the decedent intended to keep the farm in his family, and that he intended to convey the farm by warranty deed to the trust, the Court of Appeals upheld the trial court’s decision. In doing so, the Court deferred to the trial court’s credibility determinations, and the weight given by the trial court to witness testimony.
Although certain technical requirements were lacking in Hoefer’s case, the overwhelming evidence of decedent’s intentions to maintain the farm in his family for “generations and generations” ultimately prevailed.
Originally posted on bryancavefiduciarylitigation.com
When a trust instrument sets a time for termination of the trust, it terminates, right? Well, maybe not. According to the Kansas Court of Appeals in Lindholm v. Melland (2014 WL 278774) (unpublished), under certain circumstances a trust may continue in existence beyond a termination event. What happened here to keep the Francis G. Melland Trust going over a decade after it was supposed to terminate?
Francis G. Melland created an irrevocable trust for the benefit of his children, Hugh, Theodore, and Jenny. Francis’ wife, Sandra, was the original trustee, but she was later replaced by Hugh. By the terms of the trust instrument, the trust was to terminate when the youngest beneficiary reached the age of 40. That happened in 2002. But, in 2002, the trust was neither dissolved nor its assets distributed. Then, Hugh became the successor trustee in 2005 – three years after the trust was supposed to have terminated. And, the trust continued to function and enter into business dealings after 2002. (more…)