Attorney Brett Hebert, with the national law firm, Gordon Rees, recently wrote an article on the firm’s blog regarding the admissibility of certain correspondence in estate litigation cases.
A typical situation we see involves an elderly person who begins to show signs of losing mental capacity. Then an unscrupulous person “enters” the life of the elderly person, begins to take “care” of the elderly person, and begins to “help” the elderly person with their finances and medical care. Then the elderly person’s estate plan (trust, will, power of attorney) “changes” dramatically to the benefit of the unscrupulous person (and to the detriment of former beneficiaries). As a result, the former beneficiaries of the elderly person begin to ask the unscrupulous person about the changes. The unscrupulous person may send correspondence in return. The elderly person may correspond with the former beneficiaries, too.
These communications typically come in the form of emails, texts, and letters. Sometimes, people post on social media about the disputes. There may even be voicemails or handwritten notes. All of these items are potentially relevant to the dispute and subsequent litigation.
If you suspect that a loved one may have been influenced by someone with ulterior motives, retention of any correspondence with that person or with the possible victim could be beneficial to your case.
In a case just decided by the Florida Supreme Court, attorney Dennis Horton was disbarred for mismanaging client funds. This case is profiled in a new episode of The Case Files.
It is a well established principle of trust law that trustees are fiduciaries who owe specific duties to the beneficiaries of a trust. These duties can be grouped into duties of loyalty and duties of care.
But what if a trust has beneficiaries with adverse interests to one another? It is not uncommon for a trust to have two kinds of beneficiaries – a current beneficiary as well as a remainder beneficiary. That is, the current beneficiary may have rights to the income from the trust, and perhaps even discretionary rights to the trust’s assets (also known as the trust principal or corpus); whereas the remainder beneficiary may have rights or equitable interest in what is left in the trust (the remainder) after a period of years or upon the death of the current beneficiary. These adverse interests can test the mettle of most individual or family trustees as both beneficiaries are owed duties of loyalty and care.
The Brady Bunch
Suppose Mike Brady created a trust to take effect at his death. His trust includes the following (summarized) instructions:
At my death, my trustee shall pay to my surviving spouse the net income from my trust for as long as my spouse shall live.
In addition to the net income, my trustee may also pay to my surviving spouse from the trust’s principal, as much as my trustee shall deem necessary to maintain my spouse in [her] accustomed standard of living.
Upon my spouse’s death, my trustee shall distribute my trust to my surviving children (Greg Brady, Peter Brady, and Bobby Brady) in equal shares.
Now supposed that when Mike Brady dies, Carol Brady is appointed to serve as trustee of Mike’s trust. Or, perhaps Mike’s oldest son, Greg, is appointed as trustee. This is not only permitted but done frequently, presumably to avoid paying a professional trustee. The conflicts to the Duty of Loyalty are obvious.
For example, if Carol Brady is trustee, it stands to reason that she would want to maximize current income from the trust while minimizing principal growth. Likewise, if Greg is trustee, he would want to maximize his ultimate share of the trust by investing for growth rather than income. In addition, asking either party to objectively define “accustomed standard of living” puts them both in awkward, if not conflicting positions. Should Alice’s services as a live-in housekeeper continue to be paid after everyone has moved on? Carol could certainly argue that the expense met the accustomed standard of living test, but would Greg require Carol to pay for it herself, or would he deny it saying it wasn’t necessary any longer?
Perhaps when Mike and Carol were in the attorney’s office, their response to these hypothetical situations was typical. “Oh our kids would never argue over this.”
It is possible to be loyal to both beneficiaries even if there are adverse interests. However, doing so requires a great deal of objectivity, scrutiny, and immunity to emotional persuasion. A wise trustee will establish clear expectations and open communication early in the relationship to avoid favoring one beneficiary over the other and risk breaching the duty of loyalty.
In a case that speaks of the importance of choosing a qualified trustee who has proper internal controls and procedures, and who is governed by an appropriate regulatory body, The Ohio Supreme Court suspends two attorneys for one year after they negligently managed an elderly woman’s affairs. Cleveland Metro. Bar Assn. v. Zoller and Mamone (Ohio, No. 2014-1389, Nov. 8, 2016).
The client, a widow of a former mayor of Cleveland and a former justice of the Supreme Court of Ohio, retained the law firm to administer the estate of her late husband. Having come to increasingly rely on the partners in the firm, the client later engaged the firm to manage her money, to pay her bills, and to handle other aspects of her financial and personal life. The client sought to be able to live independently in her own home, to afford around-the-clock care, and to make generous gifts to her family members and charitable causes.
In it’s findings, the court stated:
[The Respondents] assumed the responsibilities of operating and maintaining the special account when they opened the account and agreed to be authorized signatories. But they failed to ensure that the account was a separate, interest-bearing trust account for [Client’s] benefit during the six-year period in which substantial client assets passed through it. They also failed to maintain even a modicum of oversight over the account by failing to accurately record each transaction that affected the account and failing to reconcile the account against the monthly statements issued by the bank. Their abdication of these most basic duties to [client] resulted in more than 30 overdrafts of the account and $1,000 in associated bank fees. Respondents’ failures to act also facilitated the misconduct of their father, [name removed], who not only wrote and signed checks on the special account (even though he was not an authorized signatory) but who also collected excessive and undocumented legal fees from [client]—fees that averaged approximately $55,000 each year for six years, though more than $250,000 of those fees was actually collected in just the first two years of the representation.
An Indiana Court of Appeals opinion underscores the importance of accountings in trust administration, but also raises questions about why families place siblings in adversarial positions to begin with.
According to an article posted by the Indianapolis law firm of Faebre Baker Daniels, the original case involved three siblings, Scott, Jeff and Stacey – and arose after Scott and Jeff began to question some of Stacey’s actions as trustee of their respective trusts – specifically, her handling of the trusts’ joint ownership of multiple parcels of real property. Shortly after the siblings executed a mediated settlement agreement and partitioned the properties, Scott sued Stacey, as trustee of his trust, alleging she failed to provide an accounting and had misused trust assets. Scott also alleged misappropriation of $107,000 of trust assets, which were characterized as trust expenses – which were in fact legal fees Stacey had incurred “years before the most recent trust-related litigation,” apparently with other family members.
One of the duties of a trustee (known as fiduciary duties) is to keep trust property separate and to maintain – and make available to trust beneficiaries – adequate records, which Stacey admitted she had failed to do. Unfortunately for Scott, he did not bring his complaint until after the two-year statute of limitations had expired, and the trial court found Stacey did not commit a breach of trust as to the accountings.
Scott also demanded reimbursement for his attorney’s fees for bringing the complaint against Stacey, which after being denied by the trial court was reversed by the Indiana Court of Appeals and Stacey was ordered to pay Scott’s legal fees.
While the crux of the case deals with a trustee’s responsibility to maintain adequate records and provide them to a trust’s beneficiaries, the real story in this case is the human one – that of a family of siblings now divided – at least partly – because one was put into an adversarial position with the others. I wonder if the trustee fee savings was worth it?
In the Matter of DREXEL ANDREW BRADSHAW, Attorney Drexel Andrew Bradshaw was charged with five counts of misconduct related to his position as the successor trustee of a client’s trust and his involvement with a construction company that repaired the client’s home. The case demonstrates the liability exposure that fiduciaries have and the extent to which they have to defend their actions, even if those actions were appropriate and in good faith.
To summarize, Bradshaw became the court-appointed conservator and trustee of a trust for an elderly client ruled incapable of managing her financial affairs. The client lived in an older home in San Francisco that needed significant repairs for the client’s living ability and care. Bradshaw hired a construction company that he had helped the owner of the company start by providing legal services and initial funding loans. To pay for the repairs, Bradshaw petitioned the court to allow him to obtain a reverse mortgage (followed by a 2nd one two years later).
The [California] Office of Chief Trial Counsel of the State Bar (OCTC) charged Bradshaw with four counts related to his handling of the trust:
engaging in a scheme to defraud the trust,
breaching his fiduciary duties to his client and the trust beneficiaries,
misappropriation of trust funds, and
making several misrepresentations to the probate court and other government agencies.
The hearing judge found Bradshaw culpable of three of the charges (with the exception of misappropriation) and recommended that he be disbarred. Both Bradshaw and the OCTC appealed.
The appeals court found in Bradshaw’s favor and dismissed the case for “lack of clear and convincing proof.” In its ruling the appeals court stated:
Upon our independent review of the record (Cal. Rules of Court, rule 9.12), we do not find clear and convincing evidence to support culpability as to the charged misconduct. We reject OCTC’s premise that Bradshaw wanted to start a construction company and used his position as trustee to start his “corrupt” enterprise. Bradshaw served as the successor trustee for a client years after his firm drafted the client’s trust and estate plan, and only after the first two successor trustees were unable to serve. He managed the trust according to its stated purposes and terms in a reasonable and proper manner, including engaging a certified specialist in probate and trust law to assist him in his duties. Further, he adhered to his client’s clearly expressed desires to be cared for in her San Francisco home, and that the equity in the home be used to accomplish that goal. To that end, Bradshaw used the trust assets, which consisted mostly of the home’s $1.6 million equity, to provide his client with quality nursing care and for necessary repairs to ensure her safety in the home…
Wealth and Honor is a website dedicated to helping families navigate the financial challenges of age transitions. The site now has a YouTube Channel to host “edutainment” videos featuring non-legal commentary on actual court cases involving will disputes, elder financial abuse, estate litigation, fiduciary liability, and other issues of aging, death, and wealth.
Court transcripts are condensed into a factual summary with popular sitcom characters providing faces to the actual characters of the case, followed by a non-legal commentary of lessons to learn and missteps to avoid.
https://youtu.be/6gBLpiWQX9c
The Case Files Trailer
The first episode covers the case of Lintz vs Lintz, a 2014 case decided in the California Appeals Court, that includes claims of breach of fiduciary duty, elder financial abuse, undue influence, among other claims. Viewers are encouraged to first watch a presentation of commonly used terms before watching the case episodes.
For a full text of the court transcript, click here.
