Originally posted on our sister blog, www.bryancavefiduciarylitigation.com
Last week, the United States Supreme Court issued its opinion in Bullock v. BankChampaign, N.A., which addressed the circumstances in which a breach of fiduciary duty judgment can be discharged in bankruptcy proceedings. Specifically, the Court resolved a deeply fractured Circuit split on the scope of the term “defalcation” within Section 523(a)(4) of the Federal Bankruptcy Code. That Section of the Bankruptcy Code provides that an individual cannot obtain bankruptcy discharge “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” For years, the lower courts had struggled with what, exactly, “defalcation” means. Wonder no longer because the Supreme Court has defined it. (more…)
Effective January 1, 2013, Illinois statute authorizes “decanting” of irrevocable trusts. What is decanting, you ask? Isn’t that something you do with a bottle of wine? Yes, it is, and just like you decant wine from one bottle into a new container to remove sediment and to allow the wine to breathe, when you decant a trust, you pour the trust assets from one trust into another trust, allowing flexibility in the terms of an otherwise irrevocable trust.
Illinois recently enacted a new Section 16.4 of the Trust and Trustees Act, entitled “Distribution of trust principal in further trust” (the “Decanting Statute”). The Decanting Statute allows the trustees of an irrevocable trust (the first trust), acting pursuant to their fiduciary duty (and assuming certain conditions are met), to distribute all or part of the existing trust to a different trust (the second trust).
Decanting When a Trustee Has Absolute Discretion
If the trustees have “absolute discretion” over the first trust, they are given broad discretion over the distribution to the new trust. (more…)
Almost invariably, settlors give their trustees broad powers regarding trust property. Often these broad powers include the power to convey and encumber trust property and the power to loan trust property. But, sometimes, the settlor also gives the trustee specific instructions with respect to specific trust property. In Hamel v. Hamel, the Kansas Supreme Court interpreted a trust instrument that gave the trustee broad general powers, but also specific directions regarding a specific piece of real property, and examined the interplay between the two provisions.
Arthur L. Hamel’s trust instrument gave the trustee broad authorization to control and administer trust property, including “the power to do all acts that might legally be done by an individual in absolute ownership and control of the property” and provided the trustee with “the power to lend money to . . . any beneficiary under [the] Trust . . . as may be agreed upon between my Trustee and such parties, provided, however, that any such loan shall be adequately secured and shall bear a reasonable rate of interest.” The trust also granted to the trustee “any power my Trustee needs to administer my Trust Estate, which is not hereinafter listed.” This same paragraph provided the trustee with “the power respecting property in [the] Trust Estate that an absolute owner of such property would have.”
Part 3 of a 3 part series.
In a trilogy of new cases decided in the last couple of months, the courts in three states have addressed the issue of whether the trustee of a revocable trust has a duty to account to, and can be held liable to, the remainder beneficiaries of the trust, for a period during which the trust was revocable, after the death of the settlor. In reviewing the discussion of the courts in these three decisions, it is clear that, while a trust is revocable, the trustee has a duty only to the settlor, and that even after the death of the settlor when the interests of the remainder beneficiaries has vested, the trustee continues to have no duty to the remainder beneficiaries for any actions taken while the trust was revocable. In Part 1 of this series, we reviewed the case of Pennell v. Alverson and in Part 2 of this series, we reviewed the case of In re Estate of Giraldin; now, we turn to In the Matter of Trust # T-1 of Mary Faye Trimble.
In the latest case in this trilogy, the Iowa Supreme Court, in In the Matter of Trust # T-1 of Mary Faye Trimble, 2013 WL 275637 (Iowa, January 25, 2013), reviewed all the cases on this point, including the Giraldin case previously discussed, to conclude that the trustee had no duty to account to the remainder beneficiaries for the period during which the trust was revocable. (more…)
Part 2 of a 3 part series.
In a trilogy of new cases decided in the last couple of months, the courts in three states have addressed the issue of whether the trustee of a revocable trust has a duty to account to, and can be held liable to, the remainder beneficiaries of the trust after the death of the settlor, for a period during which the trust was revocable. In reviewing the discussion of the courts in these three decisions, it is clear that, while a trust is revocable, the trustee has a duty only to the settlor, and that even after the death of the settlor when the interests of the remainder beneficiaries has vested, the trustee continues to have no duty to the remainder beneficiaries for any actions taken while the trust was revocable. In this series of blogs, we review these cases. In Part 1 of this series, we reviewed the case of Pennell v. Alverson; now, we turn to In re Estate of Giraldin.
The Court in the Pennell case agreed that, to the extent that the remainder beneficiaries were raising issues concerning breaches of fiduciary duty to Cleo during her lifetime, the remainder beneficiaries have standing to pursue those claims.
This distinction was picked up and further refined in December of 2012 by the California Supreme Court in In re Estate of Giraldin, 150 Cal. Rptr. 3d, 290 P.3d 199 (Cal.2012), reversing the result in the decision of the Court of Appeals (199 Cal.App.4th 577 (2011). In that case, Bill Giraldin created a revocable trust in early 2002 and designated his son, Tim, to serve as the trustee. The trust provided that Bill was the only beneficiary during his lifetime, and in the event of Bill’s incapacity, the trustee was to make liberal distributions for Bill’s needs, and that “the rights of remainder beneficiaries shall be of no importance.” The trust also contained a provision that during Bill’s lifetime, “the trustee shall have no duty to provide any information regarding the trust to anyone other than [Bill].” (more…)
Part 1 of a 3 part series.
In a trilogy of new cases decided in the last couple of months, the courts in three states have addressed the issue of whether the trustee of a revocable trust has a duty to account to, and can be held liable to, the remainder beneficiaries of the trust after the death of the settlor, for a period during which the trust was revocable. In reviewing the discussion of the courts in these three decisions, it is clear that, while a trust is revocable, the trustee has a duty only to the settlor, and that even after the death of the settlor when the interests of the remainder beneficiaries has vested, the trustee continues to have no duty to the remainder beneficiaries for any actions taken while the trust was revocable. In this series of blogs, we will review these cases.
In the first of these three cases to be decided, in September of 2012, the Arizona Court, in Pennell v. Alverson, 2012 WL 4088679 (Ariz.App. Div 1, September 18, 2012) interpreted the revocable trust created by Cleo Hubbard (the “Cleo Trust”) during her lifetime under Michigan law, and held that Angella Alverson, one of Cleo’s daughters, as a co-Trustee and ultimately a sole Trustee, did not owe any fiduciary duty during Cleo’s lifetime to the remainder beneficiaries. In this family dispute brought by Angella’s sister and her children and one of Angella’s grandsons, the Court first found that under Michigan law, the duties of the trustee and the rights of the beneficiaries are governed solely by the terms of the trust. (more…)
What to do when you have no friends or family to whom to leave your estate? Why not do what Ray Fulk of Illinois did? Fulk had no family to which he wanted to leave his estate, so he executed a Will leaving $5,000 to his favorite charity, and the rest of his nearly $1,000,000 estate to his two favorite actors, Kevin Brophy (perhaps most famously known for his role in the 1977 television show, Lucan) and Peter Barton (who spent five years on The Young and the Restless in the 80s and 90s and starred in Linda Blair’s 1981 movie, Hell Night), whom he had never met. (more…)
It is no secret that when it comes to inheriting money, people have been known to dream up some creative schemes to get rich. Recently, however, an Illinois Appellate Court nixed the idea that marrying a man and persuading him to adopt—at the age of 94—your 50-plus year-old children could be a successful means to that end.
In November, the court in Dixon v. Weitekamp-Diller held that to allow the four adult adoptees, at least one of whom was a grandmother, to inherit under several trusts created to benefit descendants of the settlor would be to give judicial approval to an act of “subterfuge.” Where an adult adoption is undertaken solely to make the adoptee an heir or a beneficiary of a trust, the court ruled, the adoptee will not be permitted to inherit.
At issue in the case were three trusts created by ancestors of William Hughes Diller, Jr. (“Hughes”). Under the terms of each trust, upon the death of Hughes, the trust corpus was to be distributed, in part, to Hughes’ children. If Hughes died without any children, the shares of the trusts for his children would instead be distributed to the children of his two sisters. Hughes had no biological children of his own. At his death, his only purported children were the four daughters of Barbara Weitekamp (“Barbara”), who Hughes married in 2004, when he was 87 years old and she was 71 years old. In 2010, at the age of 94, Hughes adopted Barbara’s daughter Judith, then 55 years old. The next year, he adopted Barbara’s three other daughters, Brenda, Margaret, and Susan, all of whom were also in their 50s. At the time of the latter three adoptions, Hughes was in an assisted living facility. He died just two months after those adoptions were completed.
It is not clear whether the court believed the adoption of four adults at Hughes’ advanced age of 94 was alone sufficient to find that the adoptions were acts of “subterfuge.” (more…)
When someone passes away, usually their next of kin, agent or fiduciary will begin to compile a list of the decedent’s assets. Rarely will such a list include the decedent’s frequent flyer miles. However, depending upon how many miles have been accrued during the decedent’s life, frequent flyer miles can be worth hundreds, maybe even thousands, of dollars. In such cases, heirs or beneficiaries of the decedent’s estate may wish to benefit from the value the decedent has amassed in frequent flyer miles.
Most airlines allow for mileage transfer among the living, but it is usually an expensive task to accomplish, often accompanied by fees and yearly limits. The transferability of frequent flyer miles upon death is no more simple. Susan Stellin, the author of a New York Times article entitled “The Afterlife of Your Frequent Flyer Miles,” stated “I asked six airlines if they allow transfers of frequent flyer miles after a member’s death and got a straight answer from only four.”
Most airline loyalty program policies claim that points accumulated are the property of the issuing company, giving them complete discretion as to how they are handled in the case of death. For example, United’s Mileage Plus policy states: “[a]ccrued mileage and certificates do not constitute property of the member. Neither accrued mileage nor certificates are transferable (i) upon death, (ii) as part of a domestic relations matter, or (iii) otherwise by operation of law.” Southwest Airlines has a strict policy that they do not transfer RapidRewards points once a member dies.
Such policy provisions, therefore, appear to provide that miles cannot be bequeathed to, or inherited from, another person. Nevertheless, the formal policy found in an airline’s terms and conditions can vary considerably from what the airline’s customer service center will offer. Policies differ from practices, so begin by calling the program’s service center to determine whether the miles can in fact be transferred or inherited.
For example, the terms and conditions of American’s Aadvantage program and Delta’s SkyMiles program provide that accrued mileage and award certificates are not transferrable at death. Both airlines’ customer service departments, however, provide exception procedures. According to its website, American Airlines has the discretion to credit accrued mileage to persons specifically identified in court-approved wills upon receipt of documentation satisfactory to American Airlines and upon payment of any applicable fees. Delta also allows for the Administrator or Executor of the Member’s Estate to request, via affidavit accompanied by a death certificate, to reinstate and transfer the Miles from the deceased Member’s account to one or more members’ accounts.
Getting Around Transferring Miles
In most cases, it is not the miles, but the award tickets the miles can purchase, that are important. Fortunately, it is not difficult to have an award ticket issued in the name of a friend or family member. Susan Stellin also suggests that “[o]ne way you can make things easier on your heirs is to leave a list of your frequent flier account numbers and passwords.” Doing this allows your loved ones to use your miles to issue tickets to themselves without having the hassle of fees and paperwork.
Updating Your Will
Last, do not leave it to the airlines’ “sole discretion” to honor your wishes. People who have significant frequent flier miles should consider designating who gets their miles in a Will. Questions have been raised concerning the taxability of frequent flyer miles, but according to Announcement 2002-18, the IRS has not pursued a tax enforcement program with respect to promotional benefits such a frequent flyer miles. Therefore, there is likely no negative consequence to adding frequent flyer miles to your estate plan.
Boilerplate trust drafting, debts secured by non-trust assets, a second marriage with children by a first marriage, a bad economy, and a trust with different beneficiaries than the estate beneficiary, combined to spawn “over 7 years of litigation in three states – Florida, Illinois and Minnesota”, culminating in the recent Minnesota Supreme Court decision, In the Matter of the Pamela Andreas Stisser Grantor Trust, 818 N.W.2d 495 (MN, 8/1/2012).
In this case, Pamela Stisser (the “Decedent”) married Vernon Stisser in 1983. The Decedent provided in her Will that all of her property in her own name, consisting of her roughly $3 Million Schwab brokerage account, pass to Vernon on her death, and she provided in the Pamela Andreas Stisser Grantor Trust (the “Trust”), the Decedent’s revocable trust, that her trust property, valued at approximately $9.1 Million, would be distributed equally to her three children from her first marriage and Vernon’s four children from his first marriage. Vernon was designated to serve as her Personal Representative and Decedent’s brother was the Trustee. (more…)