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

 

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.”

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