Common Mistakes When Serving As Trustee

My last post discussed the pros and cons of institutional trustees vs. family member trustees.  Regardless of whom is serving as trustee, in the course of my law practice there are common themes which repeatedly arise in the area of trust disputes and litigation.  Specifically, it is easy for trustees---especially inexperienced family member trustees---to make mistakes when administering a trust.  Some of these were nicely summarized in a recent article, published in Barron's Penta, entitled "The Five Biggest Ways To Bungle A Trust." 

(1) Not Keeping Good Trust Records---The Arkansas Trust Code, and presumably trust laws in most if not all other states, contain requirements mandating that trustees provide beneficiaries with accountings of trust assets, income, expenditures, etc.  The timing and extent of those accountings can vary based upon certain factors, including whether one is an income beneficiary or a remainder beneficiary.  However, at all times the trustee is to act in the interest of the beneficiaries, which includes maintaining comprehensive and accurate records.  Trustees who do not keep such records act at their own peril, as gaps and inaccuracies in documentation (even if purely innocent) can create an aura of suspicion and sometimes later liability for breach of trust, breach of fiduciary duty, etc. 

(2) Not Diversifying Trust Investments---Another duty which too often goes unfulfilled is the trustee's obligation to properly diversify trust investments.  Just because the trustee might handle their own investment portfolio in a certain manner does not mean that the investments are being properly handled with regard to the beneficiaries of the trust.  For example, if the beneficiary is an elderly person in need of income, having the trust's assets invested in 100% tech stocks is not likely to be deemed a wise investment strategy.  Arkansas has a Prudent Investor Act which must be reviewed and followed, and it is based upon a well-recognized uniform act that is utilized in many other jurisdictions as well. 

(3) Not Distributing Trust Assets Fairly---A trustee owes a fiduciary duty to current beneficiaries, as well as to remainder beneficiaries.  Sometimes this can create problems when a duty to one conflicts with a duty to another.  Also, sometimes in the case of family member trustees, the trustee is herself a beneficiary (e.g., perhaps the father named his daughter as trustee of his trust after his death, but also named her as a beneficiary like his two sons/her two brothers).  Especially when no trustee fee is involved (see below), we have seen cases in which the trustee is tempted to take extra distributions, etc. as purported justification for being saddled with the extra time and work associated with acting as trustee.  This can be dangerous as it can constitute an actual impropriety, or at least suggest an appearance of impropriety.  It is therefore wise to maintain clear and well-documented records of all distribution decisions.

(4) Not Properly Handling The Trustee Fee---The fact is that administering a trust can involve a lot of work.  It can be very profitable, which is precisely why institutional trustees exist.  Families often do not want to see their assets being consumed in part by the fees of an institutional trustee (notwithstanding some of the advantages to using one), and so often a family member is named as trustee.  The family member, however, might have a time-consuming occupation and/or an active family life.  Adding the trustee duties on top of an already-busy schedule can naturally trigger a desire for some sort of compensation associated with the extra work.  Whatever the trustee fee arrangement is (assuming trustee fees are paid at all), similar to asset distributions discussed above it is wise for there to be a well-documented record of how trustee fees will be paid, when they will be paid, and how they will be calculated.

(5) Not Watching Your Back---A trusteeship has been viewed as involving the highest duty owed another under the law.  It entails a tremendous amount of responsibility, and should not be lightly regarded.  Individuals named as trustee in a trust instrument often view it as an honor, which is fine so long as the trustee treats it as such.  However, money has an uncanny way of sometimes causing people---including trustees and beneficiaries---to engage in actions and behavior which they (and others) perhaps never previously conceived.  Occasionally this will result in nasty disputes between trustees and beneficiaries which can ultimately erupt into actual litigation.  A trustee might innocently take on that "oath of office," so to speak, never imagining that they might someday be mired in stressful, expensive disagreements with once-close friends or family members.  On that note, typically the trustee's dispute is not with the person who named them as trustee (i.e., in a revocable trust situation the grantor of the trust can simply remove or change the trustee)---instead, the fight will frequently be with the children or grandchildren of the grantor. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Family Member Trustees vs. Institutional Trustees

When a trust is formed, one of the many decisions that must be made by the "settlor" (the one who forms the trust) is who will serve as trustee.  The settlor may also select multiple trustees ("co-trustees," who serve with each other) and later ("successor") trustees (who may serve after the original trustee can no longer serve [death, disability, etc.] or for some other reason [resignation, removal, etc. of the original trustee]. 

The selection of trustee is an important one because they have a fiduciary obligation to carry out the terms of the trust and the desires of the settlor.  Because the trustee exercises great power and discretion over money and property, the pros and cons of family member trustees vs institutional trustees should be considered.  Trust disputes often relate back to whom, and how, was selected to serve as trustee.  

FAMILY MEMBER TRUSTEES
Family members such as spouses and children are frequently named as trustees, but this selection occasionally results in trouble down the road due to sibling rivalries and the trustee's lack of knowledge and experience.

Advantages of family member trustees include a familiarity with the beneficiaries, and possibly the trust property as well; and a common willingness to serve with little or no compensation.

Disadvantages of family member trustees include an inability or disinclination to carry out the duties of a trustee; favoritism or unfairness toward certain beneficiaries; the need for a successor trustee at the resignation, incapacity, or death of the trustee; the lack of insurance coverage in case of liability; and tax consequences if the trustee is also a beneficiary.

INSTITUTIONAL TRUSTEES
Institutional trustees include such entities as banks and trust companies, which have their pros and cons as well.

Advantages of institutional trustees include expertise and competence at carrying out trustee duties, such as adherence to the prudent investor rule; impartiality with regard to trust property and beneficiaries; avoidance of the problem of successor trustees; the possibility of additional services such as tax reporting or money management; and sufficient insurance coverage in case of liability.

Disadvantages of institutional trustees include greater administrative costs; a lack of familiarity with the beneficiaries ; and an inability to administer certain types of trust property, such as real estate. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Recent Articles On Alzheimer's Disease, And Trustee/Beneficiary Relationships

There is not much to this post, primarily because the articles referenced below already thoroughly discuss the issues.  Specifically, both articles shed light upon two common problem areas which can often eventually erupt into estate, trust and probate disputes. 

The first article is from the New York Times and addresses the effect of Alzheimer's Disease and dementia upon an individual's ability to control and account for their finances.  Given our aging population and ever-increasing life expectancy, it's recommended reading for everyone as this concern affects innumerable families in this country. 

The second article is from the Wall Street Journal and touches upon the often-tense relationship between trustees and beneficiaries.   It may especially be interesting and insightful for anyone who already acts as trustee or who may eventually act as a trustee in the future.

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Mediation As An Alternative To Inheritance Litigation

Lawsuits are not the only way to resolve disputes, and arguably are not even the best way.  Litigation can be financially expensive, time-consuming, and emotionally tolling.  Especially in the context of estate, trust and probate litigation, the disputes often involve persons who know each other, including relatives, friends, and business associates.  Accordingly, in addition to the expenditure of money, time and emotions, litigation can sometimes involve harm to the relationships between the litigants. 

Because of the foregoing concerns, different types of alternative dispute resolution have been developed over the years.  One of these methods, in particular, is conducive to the issues arising in inheritance-related disputes.  Specifically, mediation generally involves a third party called a "mediator" who is specially trained to attempt to bring the adverse parties to a compromise and settle their differences.  Unlike the judge or jury, or an arbitrator, a mediator does not resolve the dispute for the parties but instead aims to facilitate a final resolution that the parties reach on their own.  There are many such mediators in Arkansas (e.g., Hamlin Dispute Resolution, ADR, Inc., etc.), and we have successfully used them in the past on behalf of our own clients.  A good article in the New York Times this weekend also discusses mediation in the elder law context. 

A simple fact is that the death of a loved one is already a stressful experience.  If, for example, that person's estate is perceived to not have been distributed in the manner in which that decedent intended (or perhaps in a way in which a would-be recipient originally anticipated it), long-simmering feuds can rise to the surface and minor misunderstandings can erupt into major conflicts.  Occasionally it's too late, but the relationships of the persons involved can frequently be maintained, and their disputes ultimately resolved,  by mediation.  Drawn-out court battles can be avoided or at least minimized, and the money and property in dispute can be preserved instead of exhausted on the litigation process.  Mediation is confidential as opposed to occurring in the public eye, can be scheduled by the parties at their convenience rather than subject to the limited openings in a Court's docket, and takes place in a neutral conference room rather than in an often-intimidating courtroom. 

Not every dispute is ideal or appropriate for mediation, but it can and should be considered as an alternative method of dispute resolution.  

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Stealing From Grandma And Grandpa---Inheritance Theft

A recent lengthy but interesting series of stories (Part I and Part II) on the odd heiress, Huguette Clark, appeared to prompt a good article yesterday from Bob Sullivan, who covers Internet scams and consumer fraud for msnbc.com.  Mr. Sullivan's posting focuses upon allegations and situations involving elder financial abuse, which is a significant portion of my own law practice.  I suggest that you read the article when you have a free moment, as it extensively summarizes a growing issue in this country and is obviously one in which you may very well have an interest if you regularly read or have merely stumbled upon my Blog.  

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Inheritance Hijackers: Who Wants To Steal Your Inheritance And How To Protect It

At the recommendation of a client, I have recently started reading a fascinating book entitled Inheritance Hijackers:  Who Wants To Steal Your Inheritance And How To Protect It (Ovation Books 2009) written by a Florida attorney named Robert C. Adamski.  The book is primarily written for beneficiaries and potential beneficiaries of an inheritance.  Mr. Adamski's book sets forth an extensive discussion of the growing phenomenon which he calls "inheritance theft," and which of course is a primary component of what I do in my own law practice as well (representation of beneficiaries, but also fiduciaries such as trustees andexecutors, in estate, trust and probate litigation).  "Inheritance theft" is defined on page 2 of the book as "the act of diverting assets from the intended recipient to another person[.]" 

While the book is available for sale at Mr. Adamski's own website, Amazon.com, and I'm sure other places, a good overview of the phenomenon can be found below which is directly from a prior post by Mr. Adamski: 

1.  Who steals inheritances?

Inheritance theft is a crime of opportunity committed by those we place our trust in. These are family members, close associates, care givers and others we depend on as we grow older. Inheritance hijacking is always a surprise to the victim, who never expected a trusted family member or friend to betray their trust.

2.  Who are the victims of inheritance hijacking?

There are always two classes of victims. The first is the person who intended to give the inheritance. The second is the person or persons who were the intended recipient of the inheritance. As we age we are all potential victims because we become weaker in our physical and mental ability. We then are forced to rely upon and put our trust in others. This gives the trusted persons the opportunity to hijack our inheritance.

3.  How are inheritances hijacked?

The hijacker's bag of tricks includes undue influence, duress, forgery, theft by an administrator, marriage, and more. Administrators of probate estates and trusts are common hijackers. They have the opportunity and ability to take advantage. Marriage is the 'Silver Bullet" in the world of inheritance theft because it is all but impossible to overturn a marriage which hijacks an estate. Care givers earn the trust of their victims and as a result are often inheritance hijackers. An important element of inheritance theft is the trust which is gained by the hijacker and later betrayed. Without that element of trust it would be very difficult to hijack an inheritance.

4.  How can I determine if my inheritance is at risk?

Take the Inheritance Risk Quiz at www.ProtectYourEstate.Net to determine the risk to the inheritance you intend to give or the inheritance you expect to receive.

5.  How do I protect the inheritance I intend to give or the inheritance I expect to receive?

Self education and proper estate planning are the first steps. But it does not end there. It is vital to understand how inheritances are hijacked and how to guard against inheritance hijacking. The book, INHERITANCE HIJACKERS: Who Wants to Steal Your Inheritance and How to Protect It, was written to help people protect their families from inheritance theft. Learn more about the book at www.ProtectYourEstate.Net

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I have not yet finished Mr. Adamski's book, but can already tell that I will be recommending it to beneficiary-clients, and potential clients, who anticipate possibly receiving inheritances.  The book contains an immense amount of valuable information for a very reasonable price. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Arkansas Court Of Appeals Rules Dying Woman Not Competent To Execute Deed

Sorry for no posts as of late---I've been tied up preparing for, and then engaged in, a lengthy trust litigation case in which the jury, after a 6 day trial in Pulaski County Circuit Court, returned a significant verdict for our clients.  I'm just now trying to catch up on other work, but hope to resume regularly updating this blog again soon. 

One case that I read about since my last blog post demonstrates that although it is difficult to prove the invalidity of a deed, will, trust, etc. by proving that the person signed the will was not competent (whether due to mental illness, undue influence, duress, etc.), occasionally such claims are successful.  For example, in Munzner v. Kushner, 2010 Ark. App. 196 (an appeal from Washington County Circuit Court), the Arkansas Court of Appeals affirmed the trial court's ruling that a deed transferring property was invalid due to the incapacity of the grantor.

Specifically, a mere 36 hours before her death, Mrs. Kehoe executed a deed conveying her home to her brother, Mr. Munzner.  Mrs. Kehoe apparently had to sign the deed with an "X" as she was too weak to finish the signature of her name when she lost her place.  Her daughter, Ms. Kushner, sued asserting the invalidity of the deed.

At trial, Mrs. Kehoe's doctor testified that just prior to her death she had been administered morphine (utilized for severe pain and suffering), a medication that fights anxiety and sedation, a medication which causes confusion, and a powerful narcotic.  The doctor testified that it would be ill-advised to make any life decision while taking any of the medicines and that they would have impaired her ability to make decisions related to her property. 

On the other hand, friends and relatives who spoke to Mrs. Kehoe that day testified that she was competent.  Moreover, Mrs. Kehoe's attorney, who spoke to her about the deed on that day, also stated that she was competent. 

After considering all of the evidence, the trial court ruled that because Mr. Munzner was Mrs. Kehoe's brother and she had a close confidential relationship with him, he had the burden of proving that his sister was competent to make the deed.  This was especially the case in light of the lack of any consideration (exchange of money or property) for the deed.  The trial court then found that Mrs. Kehoe had been too mentally impaired to execute the deed and ordered it set aside.

Mr. Munzner appealed but the Court of Appeals affirmed.  Specifically, the Court held that Mrs. Kehoe's mental impairment was debilitating to the point that she could not function appropriately to execute the deed regardless of whether she may have been exposed or susceptible to any undue influence.

Under Arkansas law, the determination of whether a deed is void because of the mental incapacity of the grantor is generally measured by her mental ability at the time of execution of the deed.  Andres v. Andres, 1 Ark. App. 75, 83, 613 S.W.2d 404, 409 (1981).  If the grantor is mentally competent at the time that the deed at issue is executed, the deed will be deemed valid.  Id.  In this case the Court held that Mrs. Kehoe's mental impairment was so debilitating that she was unable to function in a capacity to execute the deed, due to her medication and due to her medical condition.  Because the trial court placed great weight upon the physician's opinion, and because a trial court generally has great discretion with respect to considering the credibility of the various witnesses who testify at trial, the Court of Appeals did not find that there was sufficient reason to reverse the trial court's ruling.   

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Federal Appeals Court Rules Against Estate Of Pinup Anna Nicole Smith, "Widow" Of Elderly Texas Billionaire

One of the longest-running estate and trust battles on record added another chapter with the Ninth Circuit Court of Appeals' recent ruling in the saga involving Anna Nicole Smith, now deceased, and her estate's attempt to claim a chunk of her former husband's billion-dollar fortune.  Specifically,  Anna Nicole, stripper-turned-Playboy model-turned-pop-celebrity, married elderly oil magnate J. Howard Marshall in the last year of his life.  She later claimed that Marshall promised her over $300 million although there was apparently no written documentation supporting the gift. 

A msnbc.com article from a couple of days ago summarizes the 15-year legal battle and also contains a link to the 68-page ruling: 

"The convoluted dispute over J. Howard Marshall's money has its roots in a Houston strip club where he met Smith. The two were wed in 1994 when he was 89 and she 26. Marshall died the next year and his will left his estate to his son.

Smith challenged the will in a Houston probate court, alleging the billionaire's son illegally coerced his father to exclude the former Playboy model from sharing the estate. She alleged that her husband promised to leave her more than $300 million above the $7 million in cash and gifts showered on her during their 14-month marriage.

While the probate case was pending in Houston, Smith filed for bankruptcy in Los Angeles, alleging in federal court filings that her husband promised her a large share of the estate.

In late 2000, the bankruptcy court awarded Smith $474.75 million, which a federal district judge reduced to $89.5 million in 2002.

Between those two decisions, a jury in the Houston probate court ruled in March 2001 against Smith. The jury found the billionaire was mentally fit and under no duress when he wrote out a will that left everything to his son.

Since then, the two sides have been fighting over which court to obey.

Smith argued that the federal courts were in charge because the bankruptcy court was the first to rule.

Pierce Marshall countered the decision was the jurisdiction of the probate court, because that's where the first legal action was filed and the site of the only full-blown trial."

Ultimately the Ninth Circuit Court of Appeals agreed with the estate of Marshall's son (who died in 2006) and against the estate of Anna Nicole (you will recall that she died of an apparent drug overdose at age 39 in 2007).  Specifically, the Court held that the bankruptcy court did not have authority to decide a probate dispute such that its $475.75 million award was a mere advisory opinion.  The Court also concluded that the lower court should have relied upon the probate jury's verdict against Anna Nicole and dismissed the entire case rather than merely reducing the award to almost $90 million. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Arkansas Court Of Appeals Rejects Cousin's Attempt To Set Aside Gifts To The Decedent's "Yardman"

One common thread running throughout this blog since its inception has been the issue of competency, i.e., the ability of a person to make informed decisions.  Conflicts often arise when ill or elderly people are claimed to have made signficant decisions regarding disposition of their property shortly before they died---sometimes the decision will be legitimate, the culmination of some long, thought-out plan that just never was memorialized on paper until shortly before their death---whereas sometimes the "decision" will be illegitimate, the product of undue influence or overreaching by a dishonest relative, family friend, or advisor.  Whatever the facts and circumstances, it can be difficult to prove that the person did not have competency to make the decision that they purportedly made.  A recent Arkansas Court of Appeals decision demonstrates that the outcome of these disputes usually boils down to the specific evidence that was presented to the trial court, and ultimately what evidence that the trial court found to be the most credible. 

For example, on March 3, 2010, the Court of Appeals ruled in the case of Deslauriers v. Marilyn Irene Deslauriers Revocable Trust, 2010 Ark.App. 211.  An appeal from Lonoke County Circuit Court, the appellant (Killeen) attempted to invalidate certain documents (quitclaim deed, revocable trust, will, etc.) executed by her cousin, the deceased, during and after her 2005 stay in a hospital due to a stroke.  As a result of those documents, the appellee (Richard, the deceased's "yardman") received the bulk of the cousin's estate.  Killeen filed suit after the cousin's death to contest the validity of the documents in question, contending that the cousin was not competent to execute them due to her medical condition. 

Under Arkansas law, the party contesting the validity of a will generally has the burden of proving, by a preponderance of the evidence ("more likely than not"), (1) that the decedent lacked mental capacity at the time the will was executed or (2) that the decedent was acting under undue influence.  The Deslauriers Court affirmed the trial court's ruling that the cousin attempting to set aside the documents did not satisfy that burden. 

Killeen presented the testimony of multiple doctors who had treated the deceased around the time of her execution of the documents, and they all testified  that she suffered from dementia and would purportedly be incompetent to sign the documents (though they were admittedly not in attendance at the signing).  Medical records also demonstrated a range of impairment (from mild to severe) at different times during the relevant time period.  Killeen likewise presented the testimony of two non-medical witnesses, one of whom contended that  the deceased was mentally incompetent (in their experience) and both of whom testified that the deceased intended to keep her property "in the family."

Richard presented the testimony of the lawyer whom the cousin used to prepare the documents in question, and he testified that he was very careful to determine whether his client was legally competent to execute the documents.  The attorney also testified that he had been hired to prepare a power of attorney so that Killeen and Richard could be placed in charge of the deceased's business affairs, and that Killeen herself believed the deceased to be an odd person but very competent.  Two other witnesses also testified, in a manner favoring Richard's position, to the extent that they were disinterested employees working at the hospital where the deceased was treated and they observed her as competent when they witnessed her signing of the will.   Richard also offered other evidence in the form of the attorney testifying that he met with the deceased several times after her initial execution of the documents, and in the  form of a doctor who treated the deceased remarking that he was impressed how mentally capable (though not physically capable) she remained after her stroke.

In sum, the trial court concluded that the cousin did not prove incompetency and that the deceased was sufficiently competent at the time that she executed the documents.  The Court of Appeals affirmed, holding that while proof of medical condition around the time of the execution of the documents is relevant and important, ultimately the medical condition at the time of execution is paramount.  The Court seemed to attach particular significance to the testimony of the witnesses who were actually in the room when the decedent signed the documents in question.  Observing that it is possible for a testator to execute a document during a "lucid interval" in a period where they may otherwise be incompetent as a general matter, the case generally demonstrates the difficulty that a party can have in attempting to prove a testator's   incompetency. 

Court Rules Testator Was Not Under Insane Delusions When He Revoked His Will

It has been estimated that well over 1/2 of all Americans do not have a will.  I personally know many attorneys that do not even have a will, even though virtually every Arkansas lawyer passed a bar examination covering wills and trusts and more than likely also took a decedents' estates class in law school.  Whether because of not wanting to confront the inevitable (death), procrastination, or other factors, drafting a will is simply not high on the list of priorities for a large percentage of people. 

A primary reason why people do have a will, however, is to have direction and control as to whom their property will be distributed after their death.  Dying without a will is called dying "intestate," and the intestacy laws of the State of Arkansas set forth a rather strict statutory scheme detailing how a person's property will be divied up (to children, descendants of children, surviving spouse, parents of the decedent, etc.).  If a person does have a will, but then validly revokes it without ever executing a new one, then that person will "die intestate" as well.

That is what happened in the recent appeal of Heirs of F.D. Goza, Jr., et al. v. Estate of William E. Potts, Deceased, CA 09-235 (February 17, 2010).  Specifically, this was a probate case in which the former in-laws of the decedent, Mr. Potts, were attempting to take their shares as beneficiaries of a 1989 will which, the estate asserted, was revoked sometime between 2002 and Mr. Potts' 2006 death.  The appellants, relatives of Mr. Potts' deceased wife, Ms. Goza, argued that Mr. Potts lacked testamentary capacity and was under insane delusions when he revoked his will.  The trial court disagreed, ruled that Mr. Potts died intestate (meaning that Mr. Potts' property amounting to several hundred thousand dollars went to persons other than the appellants), and the Arkansas Court of Appeals affirmed. 

The facts and circumstances surrounding Mr. Potts' revocation were interesting to say the least, and involved Mr. Potts marking "void" over each paragraph, writing "bastard" and "get nothing" on the will, applying Liquid Paper over the names of the beneficiaries, and later shredding the document in front of witnesses.  There were tales of alleged affairs and "wife stealing," temper tantrums, and other curious claims, but in the end the Court held that "the evidence clearly showed that Bill was an irascible, angry, suspicious, controlling, profane, and difficult man for most of his adult life; however, we cannot say that the trial court erred in refusing to find that he labored under insane delusions."   

The lesson learned from this case is that not only must a testator have the capacity to execute a will (the ability to understand the effects if executed), the testator much also have the same capacity to later revoke that will after it has been executed.  As the Court held, "complete sanity in a medical sense is not essential to testamentary capacity, provided power to think rationally exists."  Given the steep standard for proving lack of capacity by a testator, contesting a will (or, in this case, a will revocation) can be a difficult task in the absence of very persuasive evidence.    

Court Rules Handwritten Note Found By Deceased's Mother Did Not Result In Change Of IRA Beneficiary

As previously discussed on this Blog, a common fact scenario in estate, trust and probate lawsuits involves an eleventh-hour change in a dying person's final wishes regarding their property.  Quite often the last-minute decision appears legitimate, although occasionally there is an aura of suspicious facts and circumstances surrounding the event which arises to the level of an "inheritance theft."  Frequently the change in question is expressed in the form of a handwritten note, and courts are commonly called upon to rule whether or not such "wishes" will actually be  enforced.

On January 27, 2010, the Arkansas Court of Appeals addressed a somewhat similar situation in the case of Nunneman v. Estate of Donald T. Grubbs, et al, Case No. 2010 Ark.App. 75.  Specifically, Mr. Grubbs had named Ms. Nunnenman as beneficiary of his IRA, and a few days before his death evidently called a lawyer to his hospital bed and executed a will, leaving all of his property to his mother, Ms. Grubbs.  She then asked the Court to freeze certain IRA monies contending that she had discovered a 2005 note in Mr. Grubbs' bible which stated:  "My Will.  I Donnie Grubbs want all of my estate All IRA and any SBC Telco and all other assets and worldly goods to go to my Mother Shervena Grubbs.  Being of sound mind.  Donnie Grubbs."  Ms. Grubbs alleged that she had found the note in the presence of a coworker, but that witness claimed that she had not known of the note's existence before the trial. 

After considering the evidence, the trial court ruled that the handwritten note should have the effect of changing the IRA beneficiary.  Ms. Nunnenman appealed and the Arkansas Court of Appeals reversed the trial court, ruling that it was clear error to find an effective change of the IRA beneficiary.  Specifically, the Court pointed to the conflicts in the testimony regarding the discovery of the note and also focused upon the fact that the very person who discovered the note was the same person who would end up benefitting from its discovery.  The Court also opined that it was significant that while Mr. Grubbs had undertaken steps to call a lawyer to come to his bedside, he had not taken similar measures to change his IRA beneficiary. 

In sum, this case is a good example of the heavy burden that a party has when attempting to prove a change in property disposition by means of a handwritten document.  As a general matter the Court will need to be presented with a strong showing of evidence before favorably considering such a request. 

UPDATED: Dispute Erupts Over Wealth Of Deceased Billionaire Shopping Mall Developer

Pretty much anyone who has lived in Central Arkansas over the last few decades has been aware of if not actually visited University Mall in Little Rock's midtown area.  While it used to be the hot spot for shopping many moons ago, in more recent years it became better known for its empty stores and the litigation that resulted from disputes over the mall's management.  The mall closed in 2007, demolition began in 2008, and a brand new mixed-use development appears imminent for the property in the next year or two.  

Anyone familiar with University Mall is also undoubtedly aware of its close proximity to Park Plaza Mall.  Ever since moving to Arkansas back in 1992, I never understood why University was built almost literally next door to Park Plaza (built a few years earlier in 1959), yet another enclosed shopping mall.  But I guess that's why I'm a mere lawyer and the folks who make the big bucks are mall magnates like Melvin Simon. 

Specifically, University Mall was developed by Melvin Simon & Associates, an Indianapolis-based real estate development and management company which later became known as Simon Property Group.  I mention this because Simon Property Group is evidently the largest public U.S. real estate company, and shopping mall development made the company's namesake---Mr. Simon---a very wealthy man.  He and his brother, who also co-founded the company, eventually purchased the Indiana Pacers franchise of the National Basketball Association. 

According to a recent post on the Florida Probate & Trust Litigation Blog,  the Wall Street Journal writes that a wealth war has begun over the terms of Mr. Simon's will.  Apparently, Mr. Simon's wife was only supposed to receive approximately one-third of his fortune and, after some changes were evidently made to his will a few months before his death, she now stands to receive about one-half.  Considering that his wealth has been estimated at $1-2 billion depending upon the fluctuating stock price of his company, even minor changes in his will could amount to a major redistribution of wealth.  Notably, the changes cut out Mr. Simon's three children from his first marriage.  

At least one of those children is now suing Mrs. Simon, their stepmother, contending that she unduly influenced Mr. Simon and persuaded him to change his will to reduce the children's inheritances.  The lawsuit also alleges that Mr. Simon had dementia and needed assistance signing the document, to which Mrs. Simon has now apparently responded that while he did in fact have Parkinson's Disease and needed help with his signature, he voluntarily signed a new will and trust of his own free will.  This will be a wealth war worth watching in the next few months. 

Seemingly sudden changes to wills and trusts shortly before someone dies are one of the most common disputes arising in estate, trust and probate litigation.  As the Baby Boomer generation begins to retire and ultimately pass away, there will no doubt be millions more similar disputes in the decades to come. 

UPDATE:  The following link contains the latest update (as of 2/11/10) from the Wall Street Journal.

Removal Of An Executor (Personal Representative) From An Estate Under Arkansas Law

As previously discussed on this Blog, an executor, also known as a personal representative, is a person who is charged with the responsibility of administering an estate after another person has passed away.  They will typically do things like collect and inventory the deceased's assets, manage the property, pay the debts, and distribute property according to any will or the intestacy laws (setting forth distribution priorities for those dying without a will).

However, conflicts will sometimes arise between the executor of the estate and the beneficiaries of that estate, the latter of whom are generally supposed to receive bequests or property from the estate.  Perhaps the executor is alleged to be operating under a conflict of interest, is improperly personally benefitting from the property of the estate, or is simply not carrying out their duties.  In Arkansas, there is a specific statute that governs these conflicts and sets forth the grounds for when an executor can be removed from his or her office.  For anyone who currently is or ever anticipates administering an estate in Arkansas, or who is or ever will be the beneficiary of an estate,  it is worth getting familiar with the removal statute.

Specifically, under the Arkansas Probate Code of 1949, Ark. Code Ann. § 28-1-101 et seq., the Court appoints and issues letters testamentary to a personal representative to manage and preserve the property and rights of the decedent until distribution according to the testamentary document or appropriate intestate statute. Ark. Code Ann. § 28-48-102. It is well-established that "[t]he personal representative occupies a fiduciary position toward the heirs, and it is his duty to act toward them, as the beneficiaries of the trust administered by him, with the utmost good faith." Price v. Price, 253 Ark. 1124, 1137, 491 S.W2d 793, 801 (1973). The personal representative generally continues in that office unless removed due to one or more of the grounds set forth in Ark. Code Ann. § 28-48-105.

Ark. Code Ann. §28-48-105(a) (emphasis added) provides that:

(a)(1) When the personal representative becomes mentally incompetent, disqualified, unsuitable, or incapable of discharging his or her trust, has mismanaged the estate, has failed to perform any duty imposed by law or by any lawful order of the court, or has ceased to be a resident of the state without filing the authorization of an agent to accept service as provided in § 28-48-101(b)(6), then the court may remove him or her.

(2) The court on its own motion may, or on the petition of an interested person shall, order the personal representative to appear and show cause why he or she should not be removed.

With this in mind, Ark. Code Ann. §28-48-107(a) (emphasis added) provides that "[w]hen a personal representative dies, is removed by the court, or resigns and the resignation is accepted by the court, the court may, and, if he or she was the sole or last surviving personal representative and the administration is not completed, the court shall, appoint another personal representative in his place upon the motion or petition of an interested person."

Separate and distinct from the statutory grounds for removal of a personal representative, multiple Arkansas cases also shed light on this issue. For example, in Robinson v. Winston, 64 Ark.App. 170, 175-76, 984 S.W.2d 38, 40-41 (1998), the evidence was deemed sufficient to warrant removal of the personal representative due to her attitude toward a person interested in the estate that created a reasonable doubt as to whether she would act honorably, fairly, and dispassionately in her trust, and because the tension and her continuance in the office would likely render administration of the estate difficult, inefficient, or unduly protracted. See also Matter of Guardianship of Vesa, 319 Ark. 574, 579-82, 892 S.W2d 491, 494-95 (1995) ("unsuitability" of ward’s sibling to serve as guardian of the estate, justifying removal on probate court’s own motion and appointment of neutral successor, was established by evidence of family friction among ward’s siblings which adversely affected administration of estate).

Likewise, in Guess v. Going, 62 Ark. App. 19, 23-25, 966 S.W2d 930, 932-33 (1998), testimony of the personal representative that "mother’s love" precluded her from challenging a land sale agreement that was extremely favorable to her daughter, even though the terms of the agreement made it unlikely that the heirs of the estate could ever benefit from what would have been the estate’s largest asset, established a conflict of interest making the executrix unsuitable and warranting her removal. See also Price v. Price, 258 Ark. 363, 378, 527 S.W.2d 322, 332-33 (1975) (wherein a personal representative who had persistently acted in furtherance of her own interests in a manner to deprive her step-children of any benefits from their rights of the father’s property, and who had been recalcitrant about compliance with her fiduciary responsibilities and directions of the court, was deemed unsuitable for discharge of the trust involved in acting as personal representative of the estate such that removal was appropriate).

In sum, those administering estates in the State of Arkansas must take their duties seriously so as to avoid placing themselves in a situation in which their actions and inactions could be questioned.  Similarly, beneficiaries of an estate should be vigilant in monitoring the conduct of the executor to ensure that they are properly doing their job.  In the appropriate case, Arkansas courts have not hesitated to remove executors where the facts and circumstances warrant it.

UPDATED: Practical Help For Estate Administrators (Executors) & Trust Administrators (Trustees)

One of my very first posts on this blog generally discussed the legal duties of trustees under Arkansas law.  While that post summarized some of the more abstact legal principles at issue, a much more common question posed to me and other attorneys at dinner parties and elsewhere is what are the practical duties of trustees (and, similarly, the practical duties of estate executors, a.k.a. personal representatives). 

With this in mind, a couple of days before Christmas while doing some last-minute book shopping at Barnes & Noble for some friends, I happened to come across one of the best little books that I have seen on the subject.   Specifically, I was somewhat surprised to discover that "Estate & Trust Administration For Dummies" is a great resource for lay persons charged with the responsibility of serving as trustee for a trust or executor for an estate.  Even though I am historically the not-so-proud purchaser of multiple "Dummies" books on various mundane topics which I am too embarrassed to detail here, I must admit that I did not expect much substance when I first cracked open this text on the sparsely-populated "Law" aisle at B&N.  However, much to my surprise there was a tremendous amount of solid, easily understandable information there that---if utilized---should help any trustee or executor more ably and easily perform their duties and reduce the likelihood of future estate, trust or probate litigation. 

So, if you're a current or future fiduciary and have a bookstore gift card that you need to burn through, consider heading over to the probably-vacant leather chairs next to the Law section at B&N and checking out this book.  Considering the expense of this type of litigation, it might be the best 15 bucks that you'll ever spend. 

In closing, thanks for checking out the "Wealth Wars" blog over the first 3-4 months of its existence.  I wish you a happy and prosperous 2010.     

UPDATE:  The Arkansas Bar Association's website also has a free publication that may come in handy as well:  Handbook For Personal Representatives In Arkansas.  It is more of a very broad overview than anything else, but is still helpful since it is Arkansas-specific. 

New Book And Television Series Coming Out About Estate, Trust & Probate Battles

The estate, trust, and probate disputes and lawsuits that one reads about in the newspapers and which we commonly see in our law practice can seem like a television or movie drama.  Common threads running through these battles frequently include prominent characters in the community, tales of large sums of money flying around, allegations of complex conspiracies, questions regarding how a person died, disputes about the execution of certain documents, and claims of fraud and other wrongdoing.  In fact, these are probably the same human elements and reasons why I tend to find this area of law so interesting.  Perhaps it is also the reason why a new book and television series are coming out relating to these estate, trust and probate battles. 

Specifically, two Michigan lawyers, Andrew and Danielle Mayoras (who also author the Probate Lawyer Blog) have written Trial & Heirs:  Famous Fortune Fights which is described as a book containing "juicy details on famous cases."  While giving the reader "a front row seat in the courtroom," the authors also seek to "replay the scenarios and point out what went wrong, the winners and losers, and what you can learn from it."  The book is available for purchase at the above link.   

Also, the December 2, 2009 entry on the Wills, Trusts & Estates Prof Blog reports that a Canadian-based TV production company is shooting a new documentary series entitled "The Will," which will apparently reveal "the true life stories of complex and surprising disputes that have arisen surrounding a will, estate or trust."  The link summarizes how to participate in the series or submit a case that you think they should profile, and states that "they are looking for dramatic, unusual stories with numerous twists and turns, secrets and real emotion."  Most estate, trust and probate battles that we have handled seem to meet that criteria, but apparently one condition for being profiled in the TV series is that the cases must have reached a final decision or settlement in order to be considered.

Avoiding Estate, Trust & Probate Litigation

Since one of my areas of practice is estate, trust & probate litigation, it is obviously not in my economic self-interest to counsel against getting involved in this type of litigation in the first place.  However, first and foremost is a lawyer's duty to his or her client, which while sometimes involves filing or defending a lawsuit can also mean trying to avoid that lawsuit altogether.  After all, Abraham Lincoln once advised:  "Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser---in fees, expenses and waste of time."  That is still generally solid advice, although sometimes the fight just cannot be avoided.

That said, U.S. News published a good little article over the Thanksgiving holiday entitled "8 Tips To Avoid Nasty Estate Surprises" which provides some good pointers for avoiding estate, trust & probate litigation.  In summary:

1.  Pick aa reputable, experienced lawyer who has not performed any work for any of the other beneficiaries.  Basically, you want an attorney who knows what they are doing in this area, who does not have a conflict of interest, and who will be representing your interests (only). 

2.  Pick an administrator who can get along with the family, maybe even a professional fiduciary (like a bank trust department) if no one else could practically fill this role.  This is a biggie---oftentimes when one beneficiary is chosen to act as executor or trustee it can cause consternation with respect to the other beneficiaries. 

3.  Talk about your intentions with family members before any will or trust is drafted, in order to preclude surprises and fights after death and making everyone aware of your plans and desires.  Open, honest communication can go a long way toward heading off battles over the family fortune. 

4.  Consider your state's laws and create trusts if necessary to bypass probate if it is particularly burdensome under applicable state law.  Again, our law firm engages in estate, trust & probate litigation---not estate planning---however we can refer you to some reputable attorneys in this area if needed.

5.  Update the will or trust often so that challenges are less likely.  One of the best ways to avoid litigation is to occasionally update your documents---under facts and circumstances (lots of objective, detached witnesses, etc.) demonstrating the absence of fraud and undue influence from others---so that it can be demonstrated you were polishing your estate and trust objectives up until the end your life.

6.  Be sure to title your assets properly so that the assets pass through or outside of probate as you originally intended.  Too many folks spend a lot of money creating fancy trusts and then never do the relatively simple work of actually transferring assets into the trust. 

7.  Think about including a no-contest clause tied to testamentary gifts of a degree sufficient to discourage legal disputes.  To help avoid post-death disputes it is worth possibly including a penalty clause that essentially poses a risk of losing their piece of the pie for any beneficiary who challenges the instrument  in question after your death. 

8.  Consider allowing some discretion with respect to distribution of assets so that beneficiaries can agree to a distribution that best meets their own needs and desires.  There is no one-size-fits-all strategy and of course none of us have a crystal ball, so sometimes providing for some flexibility is often a good practical solution. 

While not a fool-proof plan to avoid estate, trust & probate litigation, the foregoing reflects some good first steps to staying out of the courts with respect to the family fortune.  As we are in the heart of the Thanksgiving and Christmas seasons, I extend my best wishes to you with hopes for a fuss-free next few weeks.

Michael Jackson's Father Making Push For Allowance And Say-So In Deceased Son's Estate

At my house we just started giving allowances to our kids so long as they do certain chores around the house, and hopefully the experiment will teach them a number of lessons including personal responsibility, teamwork, the value of hard work, budgeting, saving, etc.  Each of our children will receive one dollar (per year of their age) per week, i.e., our 7 year old will receive $7 per week so long as he does his chores every day (and is docked a buck if he doesn't get them done).  I am hopeful that this will work, but the jury is still out as they have not yet caught on, for example, to the requisite bedmaking every morning.

That allowance, of course, is a mere pittance to the allowance that Michael Jackson's father is claiming from his son's estate.  I wrote about Michael's death a few weeks ago, and sure enough it appears that there are some post-funeral disputes with respect to who will benefit from the assets in his estate.  Specifically, an article today reveals that the gloved one's controversial father, Joe Jackson, recently filed a 60-page motion seeking a $15,000 monthly allowance to help cover his expenses.  Apparently Mr. Jackson's only income other than his son's assistance has been a $1,700 monthly Social Security check.  His alleged monthly expenses evidently include $1,200 for rent for his Las Vegas home (his wife of 50 years lives north of Los Angeles), $2,500 for eating out, $1,000 for entertainment, gifts and vacations; $2,000 for air travel; and $3,000 on hotels.  That actually does not sound too unreasonable considering Vegas prices, separate and distinct from the issue of whether Mr. Jackson should receive a dime to begin with . . .  

Anyway, a judge has ruled that Mr. Jackson can pursue his motion to receive a family allowance from the estate because he claimed his son had long been supporting him, but simultaneously ruled that he will not inherit any of his famous son's assets because he was not named in the will.  Mr. Jackson was deemed not to have standing to pursue his litigation, and therefore also will not be able to challenge the appointment of the executors chosen by the singer to handle the administration of his estate.  There is some indication from the article that an appeal may be forthcoming, but given the well-publicized strained relationship that Michael and Joe Jackson have had in the past it seems unlikely that an appellate court would overrule the trial judge's factual findings as to Michael's intent in drafting his will.

Legendary College Football Coach's Son Sues Stepmom Over Trust Obligations

We're in the heart of the 2009 college football season and the Arkansas Razorbacks are having a better year than last year under second-year Coach Bobby Petrino (thank goodness), although losing against the Florida Gators a couple of weeks ago still stings.  Transfer Ryan Mallett had a fantastic game yesterday against the South Carolina Gamecocks, and it is interesting that his former coach at Michigan, Rich Rodriguez, is having a fairly mediocre year in his second year leading the Wolverines. 

This serves as a nice little segue into my latest blog post about a story involving legendary Michigan Coach Bo Schembechler.  Before passing away in 2006, according to the university's website he coached the Wolverines for 21 seasons and had a winning percentage of .796 overall and .850 in the Big Ten Conference.  Although he was never able to win a national championship while at Michigan, he took the Wolverines to 17 bowl games and won 13 conference titles. 

Given his success as a college football coach, and given the money that head football coaches make at major Division I universities, there is no doubt that Coach Schembechler accumulated some substantial assets over the years.  It appears that there is now a family dispute with respect to those assets, as a recent article discusses how Schembechler's son has sued his stepmother (his father's third wife) in Ohio federal court over her alleged failure to provide quarterly statements about the trust under which he is evidently a beneficiary. 

This is one of the most common types of disputes in trust litigation, because one of the very reasons that people form trusts is because of confidentiality concerns, and yet at the same time the beneficiaries of that trust desire and to some extent are entitled to certain information about the trust (depending upon each state's laws).  It will be interesting to see whether this particular conflict evolves into a larger dispute over trust administration and assets or is resolved quickly once the accounting issue is straightened out.

Modern Recordkeeping Fraught With Potential For Abuse When Individuals Die

An interesting article on msnbc.com from a few days ago sheds light on how modern day estate planning probably needs to catch up with the practicalities of modern day life.  Specifically, the article's author discusses how, years ago, when an individual died the survivors typically conducted a search of the house, papers, safety deposit box, etc. in order to determine and collect information and records regarding the assets and liabilities of the estate.  However, these days much of that type of information is not stored in "hard copy" form but rather on a computer, typically protected by a password and known only to the person who just passed away.  One never knows when they will breathe their last breath, of course, and often the decedent never shares their password with another family member, friend, or trusted legal or financial advisor.

As a lawyer who does not engage in estate planning but instead represents clients in estate, trust and probate litigation matters, I believe that the increasing use of digital record keeping is fraught with potential abuse.  Specifically, while most fiduciaries are honest and trustworthy, I have worked on many lawsuits in which shady estate and trust administrators are alleged to have destroyed, concealed, or otherwise failed to produce documents to beneficiaries.  When such records are never even printed out but rather are kept only in digital form, the beneficiaries' discovery of such matters can seemingly be made even more difficult if not impossible.  After all, in some ways it can be easier to manipulate digital data than a hard copy.  So, while computers can no doubt increase the efficiency and accuracy of diligent decedents and honest estate and trust administrators, it basically comes down (as it always does) to a universal truth---people who are inclined to cheat can probably find a way to do it.   

Questions About Notarized Document Result In Reversal Of Trial Court's Ruling

More times than I can count since I started practicing law, I have been involved in lawsuits in which the authenticity of a signature on a document was a primary disputed issue in the case.  Whether our law firm was representing the plaintiff who was suspicious of a signed document, or instead representing the defendant who was insisting upon the validity of a signed document, many of these situations entailed questions over how and/or when a notary public witnessed a person's signature.  The types of documents involved (e.g., wills, trusts, deeds, contracts, etc.) is as varied as the types of alleged misconduct (e.g., never actually witnessing the signature, backdating a document, failing to properly identify a signer, willfully stating as true a material fact known to be false, etc.).  Make no mistake---there are laws governing notaries and their actions, but for some reason often many notaries can get somewhat loosey-goosey regarding their obligation to strictly follow the letter of the law.

In any event, on October 22, 2009, the Arkansas Supreme Court intervened in such a dispute and reversed a trial court's ruling that a power of attorney transferring real property was valid.  In Jones v. Owen, 2009 Ark. 505, an appeal from Sebastian County Circuit Court, the Court considered a case involving disputed land, a father's will, and that father's power of attorney.  You can guess what happened, of course . . . the will said that the land went to X while the power of attorney ultimately resulted in the land being  conveyed to Y.  Litigation ensued and the trial court ruled that the power of attorney was valid.

In overturning that decision, the Arkansas Supreme Court concluded that the power of attorney was not valid and did not authorize the property to be transferred.  Specifically, in this instance the power of attorney was apparently acknowledged by a notary public prior to the decedent ever signing it.  That is, the notary public had signed the acknowledgment and left the date blank, which was later filled in by the attorney handling the transaction.  The Court ruled that in some circumstances a signature could be notarized without the notary public physically being there to witness the signature (e.g., after signing a grantor can appear before a notary and acknowledge his signature, a grantor can acknowledge his signature via a telephone call with the notary, etc.).  However, if the grantor never appears to acknowledge his signature, but the notary falsely certifies that the grantor did appear, then the acknowledgement will be deemed void. 

Moral of the story:  Notaries have a tremendous amount of power, as they add a significant measure of validity to the execution of documents which record major financial transactions and carry out a person's final wishes regarding their property.  Those powers should not be exercised carelessly, much less fraudulently.  Jones v. Owen appears to be a clear message from the Court that it will require notaries to strictly comply with their  legal duties, and that the Court will not hesitate to set aside transactions when warranted under the facts and circumstances.