Amendments: So Easy, So Dangerous – Case Summary (Iacono v. Hicken)

 

            In Iacono v. Hicken, the parents of Julie Iacono (“Iacono”) created a trust that named them as the trustees and beneficiaries, leaving the residue at their deaths in equal shares to their four children. The trust contained a provision that made it irrevocable upon either parent’s death.

            In 1998, Iacono’s mother died and the father appointed Iacono as the new co-trustee.  Two years later, in recognition of Iacono’s diligence in caring for him, the father hired an attorney, Keith Weaver, to amend the trust giving his home solely to Iacono, rather than the four children equally.

            In 2001, Iacono’s father passed away.  Shortly thereafter, Iacono’s siblings challenged the validity of the trust amendment, arguing that the trust was irrevocable at the time of the amendment and therefore the amendment was invalid. The siblings brought serious additional claims against Iacono relating to her actions as the trustee.  At that point, Iacono hired an attorney, Bret Hicken, to represent her.

            Ruling on summary judgment, the District Court agreed with the siblings that the amendment giving the home to Iacono was invalid.  In the end, Iacono settled all her sibling’ claims against her and as a result received nothing from her parents’ estate.

            Iacono subsequently brought a legal malpractice action against both attorneys Hicken and Weaver.  Iacono claimed that Weaver committed malpractice when amending the trust.   Iacono and Weaver settled their dispute before trial.  Iacono claimed her probate litigator committed malpractice in the way he represented Iacono against her siblings.  Hicken did not settle.

            At trial, Iacono alleged that Hicken “failed to assert any defenses against summary judgment, failed to conduct discovery of his own, and failed to timely respond and object to Siblings’ discovery request” (¶ 4). Two of Iacono’s witnesses, including the siblings’ former attorney, testified that Hicken’s representation was far below the necessary standard of care and that if Hicken had properly argued the case, Iacono would have had “a good shot at prevailing” (¶ 5).

            The District Court agreed that Hicken had breached a duty owed to Iacono.  Nevertheless, the District Court was not persuaded that Iacono, even with adequate representation, had a good shot at prevailing against her siblings.   The court held that because the substandard representation was not the actual or proximate cause of the damages suffered, Hicken did not commit attorney malpractice.  The Appellate Court upheld the District Court’s decision and Iacono was again left with nothing.   Iacono v. Hicken, 265 P.3d 116 (Utah App. 2011).

By R. Zenock Bishop

 

Estate Attorney Malpractice – Case Summary (Murphy v. Housel)

   

            In 1985, Dominic Badura died. His will named his brothers and sister as the personal representatives (or executors) of his estate. One of the brothers, Mr. Badura, hired a law firm, Housel & Housel (“Housel”), to probate the will in court.  Housel proceeded to make serious mistakes. See Murphy v. Housel & Housel.

            In 1987, Housel filed paperwork valuing the estate at less than $400,000. In 1986, if an estate was worth over $400,000, the estate owed an “estate tax” to the IRS, so valuing the estate at less than $400,000 meant that no estate tax was due.  Subsequently, in late 1987, Housel determined that certain estate assets were not valued as part of the estate.  Therefore, Housel prepared additional paperwork valuing the estate at over $400,000 ($476,000).

            Unfortunately, Housel failed to inform the IRS about the new valuation of the estate.  Therefore, the estate taxes due were not paid to the IRS.

            In 1989, Mr. Badura hired a new attorney to look at the estate (Diane Walsh). Over the next eighteen months, Walsh diligently investigated the Badura estate and determined there was at least another $834,000 in assets that Housel had not accounted for, putting the estate at a total value of over $1.3 million.  Diane Walsh appropriately informed Mr. Badura that he would need to re-open the estate and pay the estate tax along with interest and penalties for not paying the taxes on time.

            In 1993, Diane Walsh ensured the correct tax returns were filed, and in 1995, the IRS informed Mr. Badura that the estate owed $108,000 for the federal estate tax and over $200,000 in interest and penalties. Ouch!

            The case does not end there.  Back in 1991, Mr. Badura’s new attorney (Diane Walsh) informed Mr. Badura that he could pursue a legal malpractice claim against Housel.  At that time, Mr. Badura chose not to pursue the claim against Housel.  But after the IRS lowered the boom in 1995, Mr. Badura initiated a lawsuit for legal malpractice against Housel.

            The Housel & Housel law firm asserted that Mr. Badura’s time to file a lawsuit against the firm had expired. (A deadline to bring a lawuit is referred to as a “statute of limitation.”)  The trial court agreed with the Housel firm and Mr. Badura appealed his case.

            The appellate court agreed with the district court.  The court stated that Mr. Badura was informed of his ability to bring a legal malpractice suit in 1991.  But Mr. Badura failed to file a lawsuit until 4 years later.  The statute of limitations was two years for filing the lawsuit. Therefore, time had run out for Mr. Badura to sue the firm for legal malpractice.

            Housel & Housel had clearly committed malpractice, but the Badura family simply waited too long to pursue any claim.

           See our analysis of this case in the blog titled “TWO ATTORNEYS: WOULD YOU CHOOSE RIGHT THE FIRST TIME?

            See Murphy v. Housel & Housel, 955 P.2d 880 (Wyoming 1988)[1].    

By: Kelly Perri

[1] After Mr. Badura filed the lawsuit, Delphine Badura Murphy was substituted as a party to this case. Thus, the name of the case. 

Don’t Waste Dollars Saving Pennies

 

This brief analysis refers to the Utah case Ashworth v. Bullock (2013) referred to in a previous blog titled: “How to Harm Beneficiaries When Transferring Real Estate.” To best appreciate the following analysis, read this previous blog.  (Hover over the title with your cursor and click.)

It is almost always a fatal mistake when a person signs a legal contract without consulting with a good attorney.  Especially in estate planning, a person who avoids a good attorney when selling real estate or transferring other assets invariably ends up harming themselves or the person’s beneficiaries. The costs incurred in avoiding a good attorney far outweigh the emotional and financial costs of finding, retaining, and consulting with a good attorney.

In the Ashworth case, Joseph Bates may have been a person who simply thought that he didn’t need to deal with an attorney when he decided to sell his real estate. Unfortunately, his decision harmed not just his own beneficiaries, but the innocent buyers of the property.

Joseph Bates’s decision to go it on his own resulted in two years of expensive litigation.  Consider also the likely emotional nightmare the Bullocks experience, as they waited during those two years wondering whether they had actually owned the home they thought for 30 years they had purchased; whether they would lose over $80,000 they had paid purchasing the home; whether they would be forced to enter into a rental agreement to live in their home for the remainder of their lives, or whether they would be kicked out.  All the while paying litigators out of their own pocket.

Mr. Bates’s actions also emotionally and financially harmed his own family. Surely his beneficiaries expected a major asset (the real estate) to be part of their inheritance.  But when Mr. Bates died, the beneficiaries were left with a legacy of surprise, uncertainty, frustration, and expensive litigation.

Things turned out right for the Bullocks—the case was decided correctly—but at what cost to everyone! The consequences of Joseph Bates’s decision to avoid paying a good attorney a few hundred dollars: years of emotional pain and untold tens of thousands of dollars in litigation costs.

Do things right.  Find, retain, and consult with a good attorney before transferring your assets.

Ashworth v. Bullock, 304 P.3d 74 (Utah App. 2013)

By Craig E. Hughes

 

Life is Complex and So is Estate Planning – Case Summary (Ashworth v. Bullock)

 

Siblings Joseph Bates and Rosemary Bates Harris owned–as joint tenants–a piece of property and a house on that property. The Bullocks named in the case lived in the house pursuant to a rental agreement with Joseph Bates.

In 1976, Joseph Bates and the Bullocks entered into a written agreement whereby the Bullocks would pay $84,000 or $200.00 a month until the year 2013 to purchase the home. The Bullocks did not know that Joseph’s sister Rosemary held an interest in the property as a joint tenant.

Rosemary Harris died about seven months after the agreement was signed between the Bullocks and her brother Joseph Bates. The Bullocks stayed on the property and made their payments for over 30 years. They also contributed to the property taxes and made significant improvements to the property.

Joseph Bates died in 2010, and his personal representative, Sam Ashworth, assumed that the property and home were part of Joseph’s estate. Ashworth asked a property manager to contact the Bullocks to obtain a written rental agreement. The Bullocks refused, claiming they were purchasing the house, not renting.

Ashworth argued that the agreement between Joseph Bates and the Bullocks was not valid because the other joint tenant who owned the property–Rosemary Bates Harris–had not signed the agreement to sell the house.

The trial court and appellate court ruled in favor of the Bullocks. First, the courts found that at the date the agreement was signed, the sales agreement was in fact an invalid contract under Utah law (statute of frauds), because the other joint tenant had not signed the sales agreement. Second, the courts found that when Rosemary died, her full interest in the property transferred to the other surviving joint tenant, her brother Joseph Bates. Third, the courts found that once Joseph Bates had full ownership rights in the property, the sales agreement ripened into a fully enforceable contract.

As Judge McHugh of the Appellate Court wrote:

“Nothing occurred between Bates’s execution of the Writing and his acquisition of fee title in the property to prevent it from ripening into a contract. By the terms of the Writing and the parties’ practices, Bates was not expected to convey title to the property until 2013, when the Bullocks would have paid in full. Before he was required to transfer title, Harris’s interest passed to Bates, thereby giving him sole ownership of the Property. Although the contract was unenforceable when originally signed, Bates’s acquisition of full title revived it because Harris’s signature was no longer necessary to satisfy the statute of frauds and the Writing had not been repudiated,” McHugh wrote.

The Court stated that Joseph Bates formally agreed to sell the property, and the Bullocks had faithfully fulfilled the terms of the sales agreement for 30 years. Joseph Bates fully owned the property when it counted: at the final payment made by the Bullocks. Any ruling against the Bates would perpetrate fraud, not prevent it, the Court concluded.

Ashworth v. Bullock, 304 P.3d 74 (Utah App. 2013)

By Alicia Knight Cunningham

See our blog analyzing this case: “Smart Planners–Don’t Waste Dollars Saving Pennies.”

Divorce, Inheritances, and Estate Planning

 

            This brief analysis refers to the case Smith v Smith that is discussed in our previous blog titled “Divorced Husband Demands Portion of Ex-Wife’s Inheritance.” To best appreciate the following analysis, read this previous blog.  (Hover over the title with your cursor and click.)

            The problem in Smith was not the husband.  The real problem was the attorney who drafted the Smith Family Trust.

            First, the attorney drafted a broad provision in the Trust regarding new bank accounts established by either spouse. In suggesting that new bank accounts would be part of the marital estate, this broad provision was itself poorly-drafted.  Second, the attorney then drafted specific provisions regarding a spouse’s potential inheritance.  These two provisions were not carefully coordinated.  This lack of clear coordinated provisions led directly to the lawsuit.

            Worst of all were the attorney’s three additional failures:

  1. The attorney it seems may have failed to take the full time needed to interview his clients, determine the extent of the wife’s potential inheritance, and truly appreciate the desires of the wife to keep that inheritance separate.  Or the attorney failed to do this careful work in annual or regular follow-up interviews with the clients.
  2. The attorney then failed it seems to fully appreciate that under Utah law, a traditional inheritance, like the one the wife received from her mother, is considered separate property.
  3. The attorney then fatally failed to carefully draft a provision in the Smith Family Trust (or a later amendment after follow-up interviews), (1) clarifying beyond dispute that the wife’s inheritance would be her separate property in the event of a divorce, and (2) clarifying beyond dispute what the wife needed to do to preserve her inheritance as a separate asset, and (3) clarifying beyond dispute under what conditions the separate inheritance would lose its status as separate property and be considered marital property. References to the law in the provisions would have helped.

            This lack of careful work on the part of the Smith’s attorney directly created ambiguity.  And ambiguity is the enemy of good estate planning.  In this cesspool of ambiguity, the husband and his probate litigator were happily enabled to create a litigation mess.  Clarity would have gone a long way in containing the husband and his probate attorney—in perhaps even shutting down the conflict before the case was ever filed in the courts.

            By Alicia Knight Cunningham

            Click here to see Smith v Smith (2017) UT App 40.

            Click here to see our summary of this this case in the blog titled: “Divorced Husband Demands Ex-Wife’s Inheritance.”

 

Divorce and Estate Planning – Case Summary (Smith v. Smith)

 

            What happens when a wife receives a large inheritance from her Mom and then files for divorce from her husband? In the case of Smith v Smith, the husband sued and tried to take half of his ex-wife’s inheritance.

            Sharon and Keith Smith were married in 1979. During their marriage, Sharon often received money from her Mom who had extra income from the family farm which she chose to share with her children.

            In 2006, Sharon and Keith established the Smith Family Trust. The Trust indicated that if there was any property owned by both, it would be shared equally, including joint bank accounts and any new accounts that might be opened in the future.

            When Sharon=s mother died in 2012, Sharon received a large inheritance check. Sharon took the inheritance funds, opened up two new bank accounts in her own name, and deposited the funds in the new accounts. In 2013, Sharon filed for a divorce.

            During the divorce, Keith argued that half of the inheritance should be his because their trust indicated that money deposited into bank accounts, including new accounts, should be joint or shared property. Sharon argued that the trust specifically addressed her inheritance from her mother and declared it hers alone.

            The Utah Court of Appeals ruled that under Utah law, a traditional inheritance, like the one Sharon received from her Mom, is considered separate property, meaning that Sharon did not have to share it with Keith just because they were married. Further, the Court carefully analyzed the language in the Smith Family Trust and found that specific provisions in the Trust regarding a spouse=s potential inheritance prevailed over broad provisions in the Trust regarding new accounts.

            The Court concluded that just because Sharon deposited her inheritance into a bank account did not make it any less her inheritance. Sharon=s inheritance was her separate and exclusive property and the trust documents did not compel her to share the money simply because she deposited the money into a new financial account. See Smith v. Smith, 2017 UT App 40.

            By Alicia Knight Cunningham

            Click here to see Smith v Smith (2017) UT App 40.

            Click here to see our analysis of this case in the blog titled: “Divorce, Inheritances, and Estate Planning.”

 

Failures Regarding Undue Influence

 

This brief analysis refers to the case of Ellsworth v Huffstatler (2016) that is discussed in our previous blog titled “Coins and the Offended Widow.” To best appreciate the following analysis, read this previous blog.  (Hover over the title with your cursor and click.)

Ellsworth teaches us at least two important lessons about estate planning.

Undue Influence is Extraordinarily Difficult to Prove. The Ellsworth court got it exactly right. To prove undue influence, you practically need a video of someone putting a gun to the head of a benefactor and forcing them to sign some document. That is undue influence: a gun-to-the-head standard. Courts are very reluctant to accept accusations by a self-interested party that a benefactor was unduly influenced to disinherit them.

With that said, is there any question in the mind of any rational person reading Ellsworth that Barbara Ellsworth was influenced by her daughter Terry? No. The evidence cited strongly suggests Terry was a strong influence in her mother’s life. But did Terry unduly influence her mother? This is a question that is almost impossible to answer definitively, especially in the law.

One can easily understand why someone could believe that Terry was poisoning the mind of her mother. But the evidence suggested that despite this poisoning, Barbara still knew what she was doing and wanted to do it (disinherit her husband’s children). Barbara was influenced, likely even strongly influenced by Terry, but legally there was no evidence Barbara was forced to do what she did. Her own willpower was not forcibly overwhelmed to disinherit Elmer’s children. In a strictly legal interpretation of the term, the court interpreted the law exactly right. And the law on this point is that undue influence is extraordinarily difficult to prove.

The Real Problem Was the Attorney. The real problem in Ellsworth is never mentioned in the case at all. The real problem was the attorney who drafted the original 1991 Ellsworth trust.

One of the numerous problems with the 1991 attorney is that he probably did not have any experience in probate litigation. That is, the 1991 attorney was unfamiliar with how easy it is for a benefactor to be unduly influenced in reality, and how difficult it is to prove undue influence legally.

An attorney who understands these brutal facts, and who is honest and diligent, can in fact prevent the surprises of undue influence. But this requires more than ordinary communication with clients—and their beneficiaries. This requires thoughtful anticipation of the surprises, and careful documents.

The attorney who prepared the 1991 trust for Elmer and Barbara Ellsworth could only have been a typical document-mill attorney who had no concept of undue-influence and how it could undermine the Ellsworth’s estate planning. The attorney’s failure to anticipate and prevent this common surprise utimately resulted in expensive, protracted litigation.

Does anyone rationally imagine that Elmer Ellsworth wanted his own children completely disinherited after his death? Shame on the lazy, document-mill attorney who did not competently ensure the desires of both Elmer and Barbara Ellsworth were honored–despite what surprises may occur.

An Unwise Father, Greedy Wife, and Bad Attorney

 

          This brief analysis refers to the case of Ellsworth v Huffstatler (2016) that is discussed in our previous blog summarizing this case, titled “SECOND MARRIAGES: PLANNING A DISASTER–CASE SUMMARY (ELLSWORTH V. HUFFSTATLER).” To best appreciate the following analysis, read this previous blog summarizing the case.  (Hover over the title with your cursor and click.)

          Ellsworth teaches us at three important lessons about estate planning.

Kaboom: Second Marriages and Adult Children From First Marriages.

          The Ellsworth case is one of a thousand cases proving that a second spouse and children from a first marriage arealmost always a lethal combination.

          A second wife does not want the adult children of her husband’s first marriage dictating to her what is going to happen to the assets of her husband/their dad. This is exactly what Elmer Ellsworth’s son Mark attempted to do (no matter how calmly or rationally he may have attempted to do it).

          Further, children from a first marriage definitely do not want to be dealing with their parent’s second spouse who very rarely loves them as much as she loves her own children.

The First Problem Was Mr. Ellsworth

          The first and primary problem was Mr. Ellsworth, a man who failed deeply to comprehend the challenges that awaited his second wife and children.  He was likely similar to every other man who cannot comprehend that his second wife is most likely to have serious conflicts with his children from his first marriage–no matter how well they seem to get along while he is alive.

          Mr. Ellsworth simply failed in his fundamental duty to do his estate planning correctly. 

The Final Problem Was the Attorney.

          Perhaps the most serious problem in Ellsworth is never mentioned in the case at all. This serious problem was the attorney who drafted the original 1991 Ellsworth trust. The 1991 attorney blew it. The attorney’s incompetence in 1991 led straight to the courts 12 to 15 years later.

          It is possible to prepare a trust in second marriage situations that both protects the second, surviving spouse and the children from the first marriage. But such a trust requires more than ordinary communication with clients—and their children. Such a trust requires thoughtful anticipation of surprises, and careful drafting. Such a trust requires everything a document-mill attorney is not inclined to do.

          The attorney who prepared the 1991 trust for Elmer and Barbara Ellsworth could only have been a typical document-mill attorney who had no concept of second-marriage surprises—or any interest in preventing such surprises. The attorney’s failure to anticipate and prevent common surprises that occur in second marriages ultimately resulted in expensive, protracted litigation.

          While the court ruled correctly, does anyone rationally imagine that Elmer Ellsworth wanted his own children completely disinherited after his death? Shame on him for retaining an incompetent attorney, and shame on the lazy and incompetent attorney who did not honestly ensure that the desires of both Elmer and Barbara Ellsworth were honored.

          See our summary of this case in the blog titled “SECOND MARRIAGES: PLANNING A DISASTER–CASE SUMMARY (ELLSWORTH V. HUFFSTATLER).”

By: Craig E. Hughes  

        See Ellsworth v Huffstatler, 385 P.3d 737 (Utah App. 2016).

 

Second Marriages: Planning a Disaster – Case Summary (Ellsworth v. Huffstatler)

 

          Second marriages and children from first marriages always pose a serious challenge in estate planning.  The Ellsworth case proves this point. Ellsworth v Huffstatler (2016).

          When Elmer Ellsworth and Barbara May married around 1991, they each had children from their first marriages. Together, Elmer and Barbara created a trust. The Trust indicated that upon the death of the second spouse, their children would each receive an inheritance. Elmer also executed a will which left all of his “personal property” to Barbara.  Unfortunately, the will said that the term “personal property” would be “hereinafter defined,” but it was not.

          When Elmer died twelve years later in 2003, his children were of course interested that their inheritance be preserved.  They were not only interested in division of the major assets, but in division of Elmer’s collection of gold and silver coins, part of Elmer’s “personal property.” Barbara held onto the coins until they were eventually placed in a bank safety deposit box.

          Elmer’s children were patient until about 2012, when Barbara suffered a fall, and her physical and mental health declined. During this time, Barbara relied a great deal on her daughter, Terry, who helped her mother with medical visits to the doctor and also took her mother to see Barbara’s estate planning attorney who suggested Barbara sign an updated general power of attorney authorizing Terry to act for Barbara in her personal affairs.

          Elmer’s son, Mark, was concerned regarding Barbara’s declining health and reliance on Terry. Mark asked that Barbara resign as the trustee of the 1991 trust, and appoint a member of Elmer’s family and Barbara’s family as co-trustees.

          This hurt Barbara’s feelings because she wanted to continue to make decisions on her own. Before visiting her estate planning attorney again in 2013, Barbara visited her doctor, to confirm that she was competent to make decisions. The doctor said that Barbara suffered from confusion but overall could be an active participant in her own care.

          Barbara then met with her estate planning attorney. She requested and signed new estate planning documents.  In this planning and signing of new documents, Barbara ensured the coins would be disposed of pursuant to the terms of her new trust, the 2013 trust.  In the new trust, Barbara named her children as the only beneficiaries of the entire Ellsworth estate. Barbara passed away a few months later. At the time of her death, she was suffering from advanced dementia.

          Elmer’s children sued. They accused Terry of exercising undue influence over her mother to disinherit them, Elmer’s children. Elmer’s children sought half of the estate as well as the coins because Elmer’s will never defined “Personal Property” and therefore his children, as heirs, should receive the coins because they could not be wrapped up in the generic term “Personal Property.”

          The court decided that the term “Personal Property” was a common, legal term and did not need to be specifically defined, no matter what his will said. The court also decided that Terry did not overpower her mother to the extent of taking away her willpower to do what she wanted in her estate planning, which is required before a court will find undue influence. The court found that the estate plan reflected Barbara’s own wishes and hurt feelings and not efforts by Terry to exert controlling influence and force Barbara to disinherit Elmer’s children andturn over everything to Barbara’s side of the family.

          See Ellsworth v Huffstatler, 385 P.3d 737 (Utah App. 2016).

By Alicia Knight Cunningham

          See our analysis of this case in our blog titled: “AN UNWISE FATHER, GREEDY WIFE, AND BAD ATTORNEY.”