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. 

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 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.”

 

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.”

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.”