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

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.”

Trustee Fees and the Terrestrial Kingdom of God

 

            This brief analysis refers to the case Smith v Kirkland (2017).  This case is summarized in a previous blog titled: “TRUSTEES: CHOOSE WISELY–CASE SUMMARY (SMITH V. KIRKLAND).”  To best appreciate the following analysis, read this previous blog.  (Hover over the title with your cursor and click.)

            The Kirkland case is a perfect example of a Trust that was drafted with almost incredible blindness to a host of perfectly foreseeable surprises. While the full ironies in the case are only best appreciated by a person steeped in the culture of fringe Utah religious groups, the straightforward legal issues presented in the case are still a lesson for everyone interested in creating an estate plan that actually works.

            Initially, it should be noted that paying a professional trustee $50 per hour to administer a trust is not unreasonable at all; such a rate is not in left-field; in fact, such a fee is on the lower end of the spectrum.  Professional trustees–especially trustees who are also attorneys or CPAs–charge five to six times this amount in performing the complex accounting, administrative, and legal work of managing a trust.

            Professional trustees who are not attorneys or CPAs may charge $50 to $100 per hour in the end, but when legal or accounting issues arise in administering a trust—and such issues arise constantly—the professional trustee must retain the attorney or CPA at their higher rates to address those issues.

            The point is that professional trustees—and related attorneys and CPAs—are charging an average of five or six times $50 per hour.

            Further, diligent and honest professional trustees are worth every dollar they ask. Professionals can do in one hour what it takes a non-professional family trustee ten hours to do.  Professionals do not make costly mistakes.  Professionals account to beneficiaries.  Professionals minimize and contain conflicts.

            Now, with all this in mind, if Mr. Kirkland still insisted on naming amateur trustees to manage his “Kingdom of God Trust,” he should have at least indicated in his trust a clear hourly rate his trustees would be paid (say $25 per hour, to increase each year by say 3%) instead of using the boilerplate and ambiguous phrase “reasonable compensation.”

            But there are much more serious problems with the Kingdom of God Trust than ambiguous compensation terms.  These problems include poor choice of trustees; failure to appreciate the role of good trustees; poor beneficiary notification provisions; poor accounting requirements; and poor amendment provisions.

            Like all other cases summarized in this blog, the conflict in this case could have been avoided altogether if the documents had been drafted by an obsessive, paranoid, competent attorney. But perhaps Mr. Kirkland was just too smart to retain an attorney. And if he did retain an attorney, where was this attorney mentally when he prepared the “Terrestrial Kingdom of God Trust”?

            By Craig E. Hughes

            Click here to see Smith v Kirkland (2017), 2017 UT App 16.

            Click here to see our summary of this case in the blog titled: “TRUSTEES: CHOOSE WISELY–CASE SUMMARY (SMITH V. KIRKLAND).”

 

Trustees: Choose Wisely – Case Summary (Smith v. Kirkland)

 

             In 1993, Steven E. Kirkland created a Trust which he called the “Terrestrial Kingdom of God Trust.” Unfortunately, Mr. Kirkland’s poorly-drafted Trust has only been fodder for a fight in outer-darkness hell, as his named beneficiaries and trustees continue to fight each other after more than eleven years in the Utah courts. Smith v Kirkland (2017)

            Mr. Kirkland named numerous relatives in his Trust as beneficiaries . He named other individuals as trustees, including Valden Cram and Penn Smith.

            The Trust was clear that Trustees were to “serve without pay, but it allowed the Trustees to appoint one person as manager who was to be paid ‘reasonable compensation.”  The clever Trustees then amended the Trust “to include four paid positions, including a manager and an assistant manager who would each be paid $50 an hour.”  They then named themselves as manager and assistant manager. The Trust expressly disallowed any such amendments.

            These good Trustee/managers then proceeded to engage in numerous activities without informing the beneficiaries, all the while paying themselves $50 per hour. When the beneficiaries discovered what was happening, they sued.  After eleven (11) years of legal battles, the appellate court ruled that the Trustees and managers had not proved that $50 per hour was “reasonable compensation.”

            The appellate court remanded (returned) the case to the district court to determine whether $50 per hour was reasonable compensation.  And so the case goes on, as these good brothers and sisters in the Lord fight a decidedly telestial battle.

          By Alicia Knight Cunningham  

          Click here to see Smith v Kirkland (2017), 2017 UT App 16.

          Click here to see our analysis of this case in the blog titled: “TRUSTEE FEES AND THE TERRESTRIAL KINGDOM OF GOD.”

Interview Your Potential Estate Planning Attorney

 

          I had a client come in two days ago.  He has a special-needs son.  He is a retired military officer and professor at a military academy.  A no-nonsense guy.

          Right off the top, he politely excused himself, said he hoped he would not offend me, but that he had a list of questions for me about special needs trusts (SNTs).

          I was thrilled by the prospect of a potential client who actually had a list of questions for me—who actually wanted to interview me for the job of helping him and his son.  Seriously.  I knew this was a client who was intelligent, someone I could work with.  This was a client who would appreciate the host of surprises that could occur and would do everything necessary to prevent them from occurring.

          His first question had to do with “Crummey” powers in a special needs trust. It was a pleasure to look him in the eyes and immediately explain the case of “Crummey v. Commissioner” and the use of Crummey powers in an SNT.  The questions went on from there.

          I am certain that if this man had not been comfortable with my answers to every question he had, he would have graciously indicated he needed to think about his situation and would have walked out—never to return. Instead he wrote out a retainer check.

          To all of you looking for a good attorney. There is no reason for you to be intimidated in the least by another human being who calls himself an attorney.  You are the one hiring the attorney.  Be prepared to put that potential attorney to the test.  No matter how highly recommended the attorney is, interview him or her with questions.  If an attorney cannot answer your questions in a way you can easily understand, or dismisses your questions in any way, or if you are simply uncomfortable, then politely excuse yourself and do not go back.

By Craig E. Hughes

Trusts–Not Trustees–Are Legal Owners

 

          The term “legal owner” is often used in the law to refer to a trustee: “one recognized by law as the owner of something; especially one who holds legal title to property for the benefit of another.” (See Black’s Law Dictionary, legal owner, trust ownership). This may make sense to an attorney reading legal dictionaries. But the definition is a classic tautology (a fault of style and circular logic). The definition essentially says that a legal owner is one who holds legal title: “a legal owner is a legal owner.”

          Putting aside faults in logic and style, to refer to a “trustee” as the “legal owner” is unfortunate in terms of plain common sense, because it gives a layperson the sense that a trustee owns something (even legally owns something) that he in fact does not own. Common sense and common sense use of language says that a trustee’s rights are more appropriately termed legal management rights or legal fiduciary rights—not legal ownership rights.

          A trustee is more like a member of a board of directors, not a shareholder with ownership rights—thus the term “legal owner” to refer to a trustee is problematic (from a common sense point of view). Again, trustees are directors, not owners. A trustee (like a director, or an agent in a power of attorney) has legal rights to manage (sell, purchase, convey) property, but only in compliance with trust provisions. A director in a corporation, or an agent in a power of attorney, does not legally own property. And neither does a trustee in a trust legally own property-from every common sense and most legal definitions of the terms own and ownership.

          Further, the very term “trustees” only has significance in relation to the trust. Without the trust, the trustee is just a 70% bag of water–another human being or an entity. Finally, the trustees can die, resign, or be removed, and the Full Owner (See Black’s) can be long-deceased, and the actual “legal owner” of the assets lives on. It is the Trust, created by law and embodied in a document, that should be referred to as the legal owner of Trust assets or property.

          Based on common sense, we define a client’s trust (not the trustees) as the legal owner of the client’s trust assets.

By Craig E. Hughes

Ambiguous Deadlines Destroy Estate Plans

 

          One of the worst probate cases I litigated many years ago centered around the following sloppy provision in a trust: “distribute my assets as soon as possible.” The primary asset was Mom’s home.

          The dictator trustee administering Mom’s trust interpreted the phrase “as soon as possible” to mean at least four years after Mom’s death. The dictator would have delayed even longer than four years if we had not taken over the case three years after Mom’s death and persuaded a court to order his removal and appoint a professional fiduciary.

          Fast forward. Things have not changed. A client met with us just yesterday to ensure that no surprises would disrupt her plans.

          In reading the client’s trust, I came across the following provision: “prior to dividing the trust assets into separate shares, my trustee shall sell in a commercially reasonable manner all real property owned by the trust, and the net sale proceeds shall be included in the assets which are allocated to the separate shares.”

          Like the sloppy provision in that case many years ago, this sloppy provision also had no deadline. There was no deadline imposed on the trustee as to when the properties must be sold. A dictator trustee could take years to sell the properties, supplying a host of excuses: the market is bad, or it would be wiser to rent the properties, or yada yada, blah, blah.

          This provision is sloppy not only because it fails to give deadlines. The provision is sloppy because it does not define what to do if the market is in fact down; it does not address the possibility of renting the properties under various circumstances (again, for example, if the market is down); it does not address whether the properties should be sold as is, or whether the properties should be fixed up and to what extent. And exactly what does the fancy phrase “commercially reasonable” mean?

          Instead, this provision is just sloppy, minimal legaleze meant to impress a gullible client. The provision is another typical mistake by a document-mill estate planning attorney. This attorney was not thinking at all about the host of surprises that could blow this provision apart, create unnecessary conflicts, and put everyone into litigation.

          Be wise. That means cautiously interviewing document-mill attorneys referred to you in pre-paid legal plans. It means being careful about retaining a network attorney advertised on radio by internet will and trust companies. Be wise. Retain an attorney who is carefully paranoid and obsessive about every conceivable surprise that could disrupt your planning.

By Craig E. Hughes